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OtherWelcome to a special edition of Squawk Box. Ask Warren, legendary investor Warren Buffett, answering your questions during the entire show, the Oracle on the economy, the markets, and much, much more. So, tweet, email, get to Facebook, and get those questions in. Squackbox begins right now.
Joe KernenGood morning and welcome to Squawk Box here on CNBC. I'm Joe Kernan, along with Becky Quick, kind of. He's in Omaha this morning, and hopefully we've all been boning up on our foreign policy expertise, Beck.
Becky QuickYeah, I have definitely been reading up on a lot of that stuff over the weekend. We have a lot of people we're going to be talking to about that today, but the situation in Ukraine is obviously front and center. This morning, Joe, I'm in Omaha with Warren Buffett. For the next three hours, our viewers will get their chance to ask the legendary investor questions about anything and everything. Good morning, Warren.
WarrenGood morning. Great to see you. Thank you for being here with us today.
Becky QuickNice to have you here. Sunny, Omaha.
WarrenAnd sunny, freezing Omaha. We thought it was cold in New Jersey, Joe. It's about three degrees here.
Becky QuickAlso joining us later in the program this morning, Berkshire Hathaway Investment Managers, Ted Westler and Todd Combs, and Tracy Brick Cool, who is Warren Buffett's financial assistant. These are the three T's that Warren has spoken about so frequently. Obviously, a lot of questions for these three about what they've been doing. This is a rare appearance. They've never all sat down together. So we're very excited to have them joining us a little later this morning. The major story dominating the markets this morning. This morning is coming out of Ukraine, which we alluded to. Russian forces have seized the southern area of Crimea after Vladimir Putin secured permission from his parliament to use military force, in his words, to protect Russian citizens. Western governments are promising now to isolate and punish Russia's economy, demanding that Putin withdraw his forces. Secretary of State John Kerry will be traveling to Kiev. Do we call Kiev still? Becky? Are we going with Kiev? I don't know. People that, uh, it's chicken. Yeah, that's all I know, but we've heard some former ambassadors calling it Keeve. This weekend's developments are playing out in the markets, big time this morning. We'll see, you know, whether this holds up 132 points. Let's look at Europe.
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Joe KernenAll the major averages are under pressure today. The Russian markets also took a hit, the dollar this morning. Probably doing a little bit better. The ruble hit an all-time low against some currencies. The price of gold. Get a quick look at where that's trading today. It's up 22 points or so. Let's get back to Becky now with Warren. World War III, I mean, you know, Becky? I mean, really. We go home on Friday. I was a hockey game last night. Now I'm hearing this. It's staggering to me. And the market's 140 points. That seems almost manageable, given, you know, when we're throwing these terms around like that. But I guess the Cold War, at least we have to think is at least a cold skirmish at this point.
Becky QuickYeah, and again, Joe, you pointed out, the ruble is at an all-time low versus the dollar. It fell drastically today, not only versus the dollar, but also against the euro. So investors are sitting up and taking notice. The mice index in Russia was under quite a bit of pressure as well. So it may not be playing out by more than just 150 points right now in the U.S., but there are some major moves happening in markets around the globe as investors try to figure this out. Again, perhaps no better investor to sit down and speak with today than Warren Buffett. are here in Omaha because Berkshire Hathaway's annual letter, Warren Buffett's annual letter to the shareholders went out on Saturday morning, and Warren, we've spent some time digesting a large annual letter. I get paid by the word. Yeah, so a very hefty annual letter that gives people a lot to think about. As you do every year, you laid out a lot about your thoughts about investing in general and taking a look at the markets. And I would ask you for your macro view on the markets, but in your letter you pointed out that you don't give much credence to people offering macro views.
WarrenNo, no, I've been buying businesses and stocks for a lot of years, stocks for 71 years and businesses for almost as long. And I've never really made a decision based on macro factors. If I find a business I like, I buy it. I mean, the first stock I bought was in the spring of 1942. And I will tell you the macro factors were not looking good. You know, we were, we were, we were, right after pro. Harbor and we were getting clobbered in the South Pacific and the war did not look good now. I think almost every American thought we were going to win the war.
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QuestionerBut when I bought my first stock, I went in 100 percent, I spent all my $120. I was not doing it based on headlines. I was doing it based on what I was getting for my money. But when you did that, when you bought into it and you say you don't look at macros, I can think of times in the past when you have looked at macro effects, when you looked back with stocks at a low, you told Americans to buy stocks with both hands.
WarrenWell, occasionally, stocks are just demonstrably cheap, I mean, really demonstrably cheap. And I wrote an article in 1974, or I did an interview with Forbes in 2008, I wrote an article for the Times. I mean, they're occasionally when they're just ridiculously cheap, but most of the time they're good value. But there have been a few times when I thought they were. so cheap that I should say something. You know, people have pointed out, obviously stocks have come a long way since then. People have been analyzing your annual report and realizing that you didn't really say anything like you've said in years past, where you said at one time a few years ago that stocks obviously were a much better value than gold. This time, the excerpt that you put into fortune a few days ago that people really focusing on had two examples that were both around real estate, one, the farm that you bought here in Nebraska, another, some real estate that you invested in. just across the street from NYU, from New York University. And that has people speculating, do you think that real estate in other areas are better places for money than stocks right now?
WarrenNo, that's, but they're speculating wrong. I use those illustrations because I don't know that much about real estate or farms, and yet it was still possible to successfully invest in them. And I feel the same way about people on stocks. If they, you can have a great long, lifelong experience in stocks and really not be be a specialist in accounting or no all the ins and outs of capital structures and all of that sort of thing and and I used I was just I was probably more ignorant of the realities of farming the realities of that building in New York than most people are stocks and yet it was perfectly possible to come to an intelligent decision that you could not lose money in those investments and that you were probably going to make quite a bit of money you know I wonder that because there have been a lot of people recently who have raised questions
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Questionerabout the stock market who have worried that it is a fool's game to try and get involved, that it's the average investor can't get a fair shake. I've heard people like Bill O'Reilly, O'Reilly, Riley, say this very recently, that he doesn't trust the stock market and thinks it's rigged. What do you tell people?
WarrenWell, it isn't rigged at all. I mean, there have been occasions when given the stocks perhaps have been rigged, but it's pretty hard to rigging 20 plus trillion dollars. I mean, and the people should forget about calling it the stock market even. I mean, it's American business and if for some reason you think American business over the next 50 years is likely to be way less productive than it has been in the past, then you can come to a negative conclusion on it. But I came to a conclusion on that farm that it was likely to produce a little bit more over the years and that the crops would bring a little bit more over time and I bought it on a 10% yield basis to start with. So when you're buying a productive asset, you don't want to categorize it by some name and then reading the paper that this or that's going to go up or down. You want to look at the business. If you bought the house next to you to rent to somebody, you'd look at the rent you were going to get, the taxes you were going to pay, and what you thought the neighborhood would do over a long period of time. And then you'd measure that against the purchase price. The purchase price is all important. And the stock market just offers you so many opportunities, thousands and thousands of different businesses. You don't have to be an expert on every one of them. You don't have to be an expert on 10% of them even. You just have to have some conviction that either. either a given company or a group of companies, and I would suggest for most people it should be a group of companies, you have to have a conviction that those companies are likely to earn more money five or 10 or 20 years from now than they're earning now. And that is not a difficult decision to come to.
QuestionerYou also revealed something in the annual letter this year where you said you laid out the terms of your will, what you've set aside for your wife, which I didn't know any of this.
WarrenWell, I didn't lay out my whole will. Well, there's hope for some of you who haven't been mentioned yet. But I did explain because I laid out what I thought the average person who is not an expert
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Warrenon stock should do, and my widow will not be an expert on stocks. And I want to be sure she gets a decent result. She doesn't need to get a sensational result. And since all my Berkshire shares are going to philanthropy, the question becomes what does she do with the cash that's left to her? And part of it goes out right, part of it goes to a trustee, but I've told the trustee to put 90% of it in an S&P 500 index fund and 10% in short-term governments. And the reason for the 10% in short-term governments is that if there's a terrible period in the market and she's withdrawing 3% or 4% a year, you take it out of that instead of selling stocks at the wrong time. She'll do fine with that. And anybody will do fine with that. It's low cost, it's in a bunch of wonderful businesses, and that takes care of it.
QuestionerYou specifically said a Vanguard index, which brought my attention.
WarrenYeah, well, it's a very, very low cost index fund. And there are others, but there are others that aren't so low cost. And keeping costs to a minimum is enormously important in investing, whether it's farms or buildings in New York, but particularly in stocks. I mean, if you're in effect paying out one or two percent annually of your portfolio, that's a big, big tax that you don't have to pay. And people who are at home who are listening to this, they just need to look at the expense ratio. And you could probably get one for 20 to 25 basis points versus 100 to 200 basis points.
QuestionerThat's right. And I think Vanguard's actually a little under 20 basis points.
WarrenAnd if all of the people that had owned Berkshire 40 years ago had never traded, every day they tried to open the stock and it just wasn't there to trade it, their returns in aggregate would have been exactly our returns. our returns. Now, if they traded around like crazy, if they pay people to tell them to own it and everything, their returns become our returns less expenses. So it, uh, you should look for a very, very low expense way of participating in securities. And incidentally, at Berkshire, uh, our expenses are very, very, very low in relation to, you know, the hundred plus billion of, of, uh, investments that we have.
QuestionerWe do have the opportunity for viewers to write in and ask you their questions. One viewer did write in. I'm sorry, I'm looking for the number right now, wrote in the question asking about why did you lay out that you had said you set this money aside for your wife to be put into a Vanguard index instead of put back into Berkshire shares?
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WarrenYeah, well, Berkshire would be okay, but like I say, I'm giving away all the Berkshire shares and Vanguard is fine, and Berkshire would be fine. But I wouldn't want to be touting Berkshire to people generally. I have no problem touting the S&P 500 in the low cost.
QuestionerLet's talk a little bit about what you see in the economy right now, because through your businesses, you have an incredibly good idea about what's happening. You have not only the big five that are doing things, you have massive investments, you have retail operations. Just in general, where do you think the American economy is headed right now?
WarrenIt's from what I see, and I do see figures on at least 80 companies or so, and I like to get them, and I get them fast. Exactly what's been going on ever since the fall of 2009 continues. I mean, we've had this moderate, but consistent growth now for four and a half years. And every now and then we get excited about it speeding up, and every now and then we start worrying about a double dip and all that. And you've heard all this different commentary over the four and a half years. It's been remarkably consistent. And the GDP figures may bounce around a little in terms of what we see. I would say that it's been almost a straight line, but not at a... the kind of slope that people would like, but not flat either, and that's exactly what I see to this point.
QuestionerSo were we overly optimistic in the fourth quarter and now we're overly pessimistic in the first quarter? Probably. We'll know for sure later on, but that's, it's been that waves of mind. We haven't gotten wildly optimistic and we haven't gotten wildly pessimistic. But over that period, you've seen these small waves of optimism and pessimism and and really the, you know, it's just been pretty darn steady improving.
QuestionerHow much has weather played a role in impact? I mean, the numbers we've gotten over the last two months have been pretty lousy. But the market's been riding it off saying, don't worry about it. It's been bad weather around the country.
WarrenIt's certainly a factor. I mean, our railroad does not work as well when there's lots of snow and extreme cold. Net jets doesn't work as well, and extreme cold. And those things compound on themselves. I mean, if it's terrible weather in one part of the country, you know, getting the plane, to take care of the people there. It all just pyramids. So there's no question. It's been some factor.
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QuestionerEvery time we bring up weather as an excuse, though, somebody will point out, yes, but if you look at housing numbers in the housing market in California, that's been slower, and it hasn't been because of weather there. What do you tell people about that?
WarrenWell, I can't tell you for sure. But we have a couple of large real estate brokeries firms in California. In fact, the largest one in the lower three counties, we just bought, we're buying another one in San Jose. It's okay. I mean, and the prices, the prices have really been quite strong. But you always in the winter have less activity in real estate. But we bought several real estate brokerage firms last year. We've already bought one this year, and we'll keep buying them. I like the business.
QuestionerOkay. We're going to continue this conversation with Warren Buffett. We have him for the next three hours. Joe, I'll send it back to you in the studio, though, because I know we have a break we have to get to, too.
Joe KernenI guess we do, yeah. I have often thought about. about Warren's will. How do you spell your name again, Joe? I mean, saying that I think of you as a father figure, or actually calling you dad is probably too much. But, you know, in the past you've given me, you gave me a couple of bottles of ketchup. You gave me a brick, a brick. You gave me a little card, a netjet card that was absolutely useless. useless that they had no money on it. And I'm just thinking, are you, you're sort of just waiting for the big surprise, aren't you? Is that, am I going to find my name? Am I going to find my name in there, God forbid, when, when, uh...
WarrenAbsolutely. Absolutely. Absolutely. Now, I've been testing you, Joe, and what you'll see in my will is it'll say, to Joe, who wanted to be mentioned in my will, hi, Joe.
Joe KernenYou know, Dad, that would be enough for me. I'd just like to say that. That would, I'm not looking for anything else. looking for anything else and that would be good. Let's make that on the record.
QuestionerOkay. Welcome back everybody right now. It is time for the Executive Edge. This is a special edition of the Executive Edge. This is the Ask Warren edition. We are joined this morning by legendary investor Warren Buffett, and he is answering some of your questions. Warren, we've got a lot of questions that came in from people. I'd like to focus on some that take a look right now at Berkshire and some of the things you pointed out in the letter.
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QuestionerOne came in from Ron Rogers in Ridgewood, New Jersey, and he says that in the fall of 2013, news came out that you were ever so close to a major multi-billion-dollar acquisition of what would have been another elephant. I assume you would not disclose the name of the acquisition target, but would you tell us what industry group it's in?
WarrenYeah, I'd better not even say what industry was in, because there aren't that many companies in the industry. And by the size of it, you could probably narrow it down to two or three companies. It didn't happen. But there's, we're always seeing the leaves rustling, if nothing else. I mean, there's got to be something behind those leaves. We will, we have nothing real hot at the moment, but we have things we're working on.
QuestionerYeah, you said also in the annual shareholder, in the annual letter to shareholders, that when it comes to taking a look at what happened with Heinz, that this is a template for things that Berkshire might do in the future. Have you spoken with 3G about doing another type of acquisition like a Heinz?
WarrenWell, we've talked about generally. We don't have a name, but both Georgie Pottle Lemon, who's my partner in that, that and I would love to do another one. And they have an appetite for making acquisitions and they have an appetite for making big acquisitions. And so do you.
QuestionerYeah, we're a good pair that way.
WarrenAnd they also do the work and we do the financing and that's an arrangement that I can get used to. So everything has happened with Heinz in terms of negotiating the contract, coming up with the money, whatever it may be. the money, whatever it may be. Every experience has been 100% satisfactory, so I really look forward to doing something further with them, and I think we will.
QuestionerYou talked a little bit about the Heinz acquisition in the letter, but how are things going so far?
WarrenWell, things are going very well. Bernardo took over in June. He's done everything logically. They've gone to zero-based budgeting. As I put in the report, I would expect the earnings of Heinz to be significantly. better this year than any year in history.
QuestionerYou pointed out that you're not somebody, the difference between this and a private equity deal is that Berkshire plans on holding this for a long, long time.
WarrenForever.
QuestionerForever. Would you be surprised, though, to see a Heinz IPO sometime in the next five to seven years?
WarrenThat could happen because the 3G people, they did that with Burger King,
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Warrenand they have a number of investors, I don't know how many, the primary investors I know, but they I just don't know the number, but some of those people undoubtedly will want to get out. And if the figures get good, as I would assume they would, they might have a chance to get out at a significant profit. And when they do, we have no obligation to, I mean, they have no obligation to sell their shares to us. And so it would be totally voluntary on their part, but if they were going to sell their shares, then And I found the price acceptable, I'd certainly offer to buy the share from them. Because right now you're equal partners. Yeah, we're equal partners. And we'd be equal partners, even if the number of shares were somewhat different. Psychologically, we are equal partners, even if the share count isn't equal. But I would like over time to increase it, sure. It's our kind of business. It's forever. It's it will be a profitable business. It'll be a worldwide business, and it is a worldwide business. And it just fits into Berkshire. And our problem is putting money to work. So we're not looking to take money out of things. We're looking to put more money to work. Although did it create a problem to have the guys who are still on the board at Burger King selling ketchup to places like McDonald's? Well, McDonald's thought so. I put it that way. I'm not sure the customer of McDonald's felt that way. But certain of the franchisees felt that way, but certain of the franchisees, as I understand it, sort of objected the fact that the guy across the street who was selling hamburgers against him also was the CEO had come from Burger King. He had been the CEO of Burger King. And I believe he's still vice chairman. And certain the franchisees of McDonald's were not happy about that. That's a big account though, correct? It's a big account, but Berkshire's going to have a lot of cross lines as we get larger. There will be times when the actions of one subsidiary here, say, the competitors of another subsidiary or something. That's just going to happen.
OtherAll right. We're going to continue this conversation. Let's get back to Becky and Warren Buffett in Omaha.
QuestionerBecky, you got the Oracle there. I guess the Ukraine is front and center.
Becky QuickThat's right. Now, Warren talked a little bit earlier about how difficult it is to try and look at some of these broader things and figure out what it's going to mean.
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WarrenNo, if stocks are cheaper, I'll be more like to be buying them. We were buying, I think, one stock on Friday, and I presume it was selling lower today, and that's terrific.
QuestionerWas it Wells Fargo? Been trying. I thought I'd give it a try.
Becky QuickIn fact, a lot of the questions that have come in from viewers and from Berkshire shareholders too have been related to your investments. And you did detail quite a bit of your big holdings and what you thought about some of these. But let me give you some of the questions have come in. Frank Irami writes in, you've held Coca-Cola, Wells Fargo, and American Express for 20 plus years. If you didn't sell those stakes down during the great bubble of the late 90s or during the last financial crisis, is it fair to say that you will never sell these stocks? And can you envision a scenario that would actually make you sell any of these positions?
WarrenIt's fair to say that it's very unlikely that we would sell them in any given year or probably any given five-year period. But if we need money to buy operating businesses, we could sell any one of those stocks or maybe a group of them. Our preference at Berkshire is to keep buying, operating, big operating businesses. And we like owning equities. We'll make money in the equities as an alternative. But in terms of building Berkshire for the long term, we just like adding earning power, big chunks of earning power from operating businesses, which we are going to keep forever. So none of the stocks are forever, but they're for generally, for very long terms.
Becky QuickThere have been a lot of questions that have come in regarding IBM. Let me go to one from Hong Kong, a gentleman named Rajesh Pajwani, who writes that IBM has underperformed the S&P 500 by a big margin since you acquired a stake in it. While you've clearly mentioned in an earlier interview that you'd prefer that share price does not do so well so the company can buy back more of its shares at a lower price, has the company's financial performance, especially revenue trend, disappointed you? And do you feel that you made a rare mistake by stepping outside of your circle of competition?
WarrenWell, the revenue trends have been less than anticipated, although not dramatically less than anticipated. The financial performance has been pretty good, but it's been helped by low tax rates and things
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Warrenof that sort. There is a transition going on in the business, particularly in terms of the cloud. So I would say it's fair to say that I know less about the future of IBM than I'm might know about the future of Wells Fargo or Coca-Cola or the businesses we own. I think I do know enough about it that I feel good about owning the stock. But my level of understanding of a company like IBM is not as high as my level of understanding of a Wells Fargo or a Coke. In terms of the price action, that doesn't make any difference to me. If IBM bought in a lot of stock last year and if the stock had been even lower, they would have bought, they would have gotten more shares. So the fewer the shares outstanding, the better I like it, and they continue to buy in shares. they buy them in a good clip and I like that, but I would like to see the revenues pick up.
QuestionerWhat do you think of the job Jenny Remedy is doing?
WarrenWell, I think she got handed the company at the time of real transition in the business. And her record, I feel fine with her at this point, but her record will be judged, you know, five years from now. there's a lot going on in that business and I think they're doing well, but the final score will be five years or ten years from now.
QuestionerAre you buying more shares?
WarrenWe bought a few more shares last year, not very many, and I think we bought a few shares this year.
QuestionerOkay. Let me also ask you a question that came in. This is number 32 folks. It's Dan Youngberg, who writes in, are you still as positive on rails? Which besides yours is good, meaning which besides Burlington Northern is good. And what about the rail car companies?
WarrenYeah. Well, there's four big railroads in the United States, and Kansas City, Southern is another significant railroad, and two in the east, two in the west. And the rail business over time will be a very decent business. It's an enormous asset to the country, and there won't be more, there may be more, there can be some high-speed passenger and all that sort of thing railroad. But in terms of basic freight railroads, you've got the configuration in this country that's going to exist for a long time. And rail does move goods, heavy goods, very cheaply if moved over long distances. And it's also environmentally friendly compared to highway traffic. So the future of railroads is very good. And I would say that that's true of all the four. railroads him.
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QuestionerA question came in from someone named Curtis Carter. He says, do you have any plans to use Burlington, northern, Santa Fe, right-of-way for mid-America energy to move electricity east to west, and are you considering electrifying the railroad?
WarrenWell, the answer to both is no. Okay. That's a question that I've heard from others before. That's why I kind of wondered about it. If anybody can figure out a way, we can make a lot of money off the ride-of-way that we haven't thought of, I'd love to hear of it. But that isn't the way. In terms of how the railroad is doing, though, you did take some time to really lay it out. The railroad has, the Burlington Northern, has really benefited from the shale boom that we've seen in parts of the country. It's benefited, and, but all of the rails have done well recently, and in fact, the Union Pacific, which is our direct competitor, has been, has done very well. So it's, it's a business that has real economic advantages if you, if you look at fuel costs, if you look at driver's wages and on the high. highway. As long as more goods move from place to place in this country, rails are going to get their share, and it should be good, it should be very profitable business. What about the Keystone pipeline? That question was raised several times by shareholders and by others who say, wait a second, do you really want the Keystone pipeline to come because it's a direct competitor to what would happen with Burlington Northern? It's not that big a competitor. It's moving, it would be moving crew down from Canada. And that, I think probably the Keystone Pipeline is a good idea for the country. Do you expect that the President might actually pass it sometimes? I had no idea. I had seen a study recently that came out from the State Department that suggested that if the Keystone pipeline would put in, it would end up saving lives versus moving that oil via the railroads. It said something like six lives a year. Well, both sides are going to come up with that sort of thing. But that was from the State Department. It wasn't from the Keystone Pipeline side. And they may well be right. But there are leaks on pipelines and, you know, occasional explosion like it. That's very, very, very, very, very rare. But if you measure moving millions of barrels for 100 years, one versus the other, I'm not sure how it would come out. It depends on what's going on.
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WarrenThey're going to change rail cars, obviously. It is the, particularly the oil from the Bakken and from the Eagle for it as well, has turned out to be more volatile than people not. anticipated, and that's going to require, for one thing, we've lowered the speeds, you know, in many years. But it's going to require a new kind of tank car, too. Yeah, Burlington just said that it was buying 5,000 new tank cars that are higher than the state. They're not on the shelf, they're no, no, to order. So it takes time. We're with a different company, Marman, we're in the tank car manufacturing business. And there will be changes made, and there should be changes made. And it's fair to say that we have found in the last. last year or so that it's more dangerous to move certain types of crude, certainly, than was thought previously. And, you know, there's no question about it. You know, a lot of the rail tank car companies rose on the announcement that Burlington Northern was going to be in the market for buying more of these things. Would they be buying them from Marmon, or are they going to outsource this and buy it from wherever? The problem in buying them is that there's a big backlog at not only Barman's tank car subsidiary, but Trinity and others that make cars. So our backlog runs into the middle of 2015. Those aren't all for crude oil tank cars. Most tank cars don't carry crude oil. When you see a train with a lot of tank cars on it, most of that is not crude oil. But some of it is and more of it has been in recent years. So you can't just flip a switch and get 5,000 cars. There will be retrofitting that takes place, I'm sure. And that's, my guess is some of that will get moved to the front of the line because it's more important to get it done immediately. But the tank car problem is a problem. And it should be addressed. It's being addressed. But you can't change the whole tank car fleet overnight.
OtherAll right, we're going to continue this conversation with Warren. Joe. We'll send it back to you right now. Creighton fan hoops. Do you know?
Joe KernenThey're in Omaha. I don't know. I don't know. You bet. There's a game against Providence next Friday. It's Saturday. It's our final game. I'm going to be there to watch McTermin score about 60 points. Oh, yeah. Yeah, because I guess you missed what happened over the weekend against my Xavier. Oh, no, no, let's not hear about that. No, no, Joe. Number nine. That's number nine. Not any longer, my friend. It's tough to go into Sintas Center.
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Questionerfun to watch. Anyway, I figured you were a hoops. Yeah, two good Jesuit schools, right, against each other? I like that.
WarrenYou bet. You bet. We had a Cinderella team back at 1942 when I was a kid, and I've been waiting for a return.
QuestionerWe're going to continue our questions for Warren Buffett this morning. Again, we've been taking questions from viewers. We've been getting more this morning that have been coming in. But one of the things that happened over the last several months, Warren, is there was a story out that suggested that the committee that looks at systemically important financial institutions said that it was considering Berkshire. Now, again, this was a story that was just kind of lightly sourced that went through. I wonder, first of all, if you've heard from them. And second of all, there's a question that came in from William Anderson and Salem, Oregon, who said that given Berkshire's policy to maintain a large surplus of capital, would Berkshire being declared too big to fail concern you? And would the increased regulation that could come with that designation be worth it to Berkshire to speed up the unwinding of the derivatives to below the threshold so that it would not be given that designation.
WarrenYeah, our, we've heard absolutely nothing from the people in charge of what's called SIFI and our lawyers have, I've checked that. And I would not think we would be under our derivatives as a, well, A, they're winding down to begin with, but a nominal value, they're, they're, they're, they're Well, let's see, and Deutsche Bank has 60 trillion. So there are less than one-tenth of one percent of a Deutsche Bank, for example. And we have loads of liquidity, we have all these different streams of earning power. I think it's very unlikely. Those droodos wind down, I think, on average, around 2020, is that? Well, the equity puts do. The credit ones all did wind down, and we have very minor collateral requirements. We have no condition. We never have any significant short-term debt. We always have bundles of cash. We always have cash coming in every month. It would seem very unlikely that we get categorized. We're large, but ExxonMobil is large. Apple is large. I mean, there's other large companies. It's not based on size. It's based on whether you're likely to get into trouble.
QuestionerLet's continue this focus on Washington. The president is coming out with his budget tomorrow,
[34:04]
QuestionerPresident Obama. And the early read that we've gotten on this is that it is going to be one that is maybe a little less inviting to Republicans, that he feels like he's already made his outreaches in the past and that they haven't been effective. What do you think that does to the environment in Washington?
WarrenWell, it's hard to imagine the environment getting much worse. So it is, you know, it's more or less a stalemate in Washington because there's a little loosening up perhaps, but you have a significant portion of the Republican Party that can hold the entire Republican Party hostage, and if the Republican Party can hold the legislative process hostage. So unless there's a real change in attitudes, it's hard to see much happening. We did have a lot of questions that came in on the political front. One of the ones that came in under the Ask Warren Twitter hashtag was, Warren, Warren, I know that you are concerned about the wealth gap. Are you supportive of raising the minimum wage and tying it to inflation?
WarrenI thought about the minimum wage for 60 years. I used to work at the minimum wage. I got my attention first when I was getting 75 cents an hour of pennies. But it really cuts both ways. I mean, you'd like to have people being paid more, but you also want to have as many people employed as possible. So that one cuts both ways. And I can argue either side of that. I think the one thing that does make sense is to increase the earned income tax credit. I mean, that does increase the income of people who who are working. And there's no question that the market system, which is the greatest system ever seen, for producing lots of goods and services, also leaves more and more people behind as it gets more and more specialized. And we've seen that. And that's something that a very rich country should address. But I think the earned income tax credit is a better way. Meaning that you'd rather, I mean, when I've asked people like Peter Orzag, that question, he'd like to see both of those things, the earned income tax credit and a higher minimum wage. I wouldn't fight them on the minimum wage, but I think you can accomplish way more through the earned income tax credit without negative effects than the minimum wage. I mean, if you could have a minimum wage at $15 and it didn't hurt anything else, I would love it. But clearly that isn't the case. So there's trade-offs on the minimum wage, and it's very
[36:29]
Warrenhard to quantify those trade-offs. People come out with these exact studies. They don't know.
QuestionerNo, but the CBO recently came out with a study that's a study that's suggested half a million jobs would be lost, $500,000 if the government were to go to $10.10 an hour by the year 2016. They said that it could be either zero or it could be a million jobs that were lost. Where do you think the likely falls?
WarrenI agree with them. They don't know. I don't know. You know directionally that it goes, that's the situation. Otherwise, you know, we'd have a $15 minimum wage if it wasn't going to affect employment. I'd be 100% for it. But it would. So I don't know, and it's very hard to quantify the tradeoffs. And usually you just get proponents of either side just pulling out the figures that substantiate their position. The earned income tax credit, I think, is much clearer. I mean, that puts more money in the pockets of people who are working for low wages. And that's what I'd like to see. And it doesn't distort the market system in any great way. But, you know, that's the way I would go. Berkshire employees, what, 330,000 employees? How many of them make minimum wage? Very, very few. I mean, I can't give you the answer, but it'd be very, very few.
QuestionerOkay, let's ask a related question that comes in from Ian, E&M. On Twitter, he says, if you were advising Obama on economic policy, what's the greatest thing his administration could do right now to accelerate job growth?
WarrenWell, I think that... But obviously, further fiscal stimulus would increase job growth. But you pay a price for that. And I think the market system will grow jobs over time, as it has been, the last four years. It's just that we had such a shock to the system five years ago. And we really were in the emergency room, and the recovery has been slow. been slow, and I think most people expected that, but they're still disappointed with it as it happens.
QuestionerYou know, we had Sam Zell on Squawk Box on Friday, and he came up with a really interesting analogy. He almost put some of the blame on the Federal Reserve at this point, saying that when you have zero interest rates, it's like not having a shot clock in a basketball game. That there's no severe incentive to get that money into investments at this point that people think they have a lot of time.
WarrenWell, I wouldn't disagree with that. I mean, if I've got money at zero interest rates, I want to
[39:01]
Greg Abelinterest rates. I want to get it out. And I'm looking for projects all the time. And we, just in planting equipment, we invested over $11 billion last year. That was a record for us. But I, any project that comes to me that has a reasonable payout, whether it's wind farms and Iowa or whatever it may be, you know, I love building more freight cars, whatever it may be. And zero interest rates really pushes me. I mean, if interest rates for 15%, you know, I would be sitting there with a 15% alternative. there's an alternative and it would be much tougher for capital projects to catch my eye. So I would argue just the reverse.
QuestionerLet me ask you one more on the political front. Stan Doosie writes in, he says, how do you compare the President of the United States performance with Brian Moynihan's performance over the last five years? Obviously, you own a big stake in Bank of America that Brian Moynihan has. The U.S. of America and the Bank of America.
WarrenYeah. Well, they both had very, very tough jobs, and they both settled down to do them. And you do things one thing at a time. Brian Moynihan took something that was a big, big mess, which he inherited. And the size was almost overwhelming. And he just methodically has worked on one problem after another. But he did not have to get the United States Congress to agree with him.
QuestionerWe're going to continue this conversation. Again, Warren Buffett is with us for the remainder of the show. The Forbes 2014 World's Billionaire's List is out. And if you want to take a look at it this morning, we happen to have one of the gentleman who is on that top of the list who's there. Bill Gates comes in at number one with 76 billion. Carlos Sleem has 72 billion. Amantio Ortega comes in at 64 billion and Warren Buffett, number four at $58.2 billion. Warren, we were talking about it. How much have you given away over the last several years?
WarrenWell, I gave away about 160,000 A shares.
QuestionerWhich would be?
WarrenYeah, $16 billion.
QuestionerYou're better amount than time. 27 billion or so.
Warren27 billion.
QuestionerSo even after that, you still have 58. $28.2 billion on the list. You're number four. Here's the list. We have it right here. Don't take it too serious. I want to ask some questions that have continued come in from viewers. Part of what you talk about every year in the annual report or the annual letter is you lay out how each of the insurance companies have done. You lay out how each of the businesses have done.
[41:19]
QuestionerSomeone named Lattice Work with MNG writes in and says, how has the latest rise of extreme weather events change the calculus faced by Ajit Jane in reinsurance?
WarrenAnd I know you talk to Ajit just about every day. Yeah, it's interesting. I think the public has the impression that, because there have been so much talk about climate, that events of the last 10 years from an insured standpoint in climate have been unusual. The answer is they haven't. I mean, we read about these events. But you were reading about events 30 or 40 or 50 years ago. And we've been remarkably free of hurricanes in the United States. States in the last five years. So if you were writing hurricane insurance, but it's been all profit. There have been more, some more tornadoes than normal. But it's not had any effect in terms, so far, the effects of climate change, if any, have not affected our, they have not affected the insurance market. They haven't. So that's not something at all that you guys have changed your calculus.
Ajit JainI made no difference. I'm, I calculate the point. probabilities in terms of catastrophes know differently than a few years ago. That may change in 10 years. Yeah, 10,000, I think it's been 3,000 days since something like a Category 2 hit landfire. That's the longest in history for a hurricane. And you mentioned tornadoes. Last year it was actually well below. I don't know about if he had up all the recent years, but I watched you after Al Gore's big year. It was a horrible year, but the one that he said we're going to have, it's going to be repeated year after year after year after one where he had. We went through the whole Greek alphabet and started again with hurricane. I watched you. You knew. You knew, you knew, you knew, you knew, you knew. And you knew that that was going to be an opportunity to raise premiums and then not really have many events over the, and it played out exactly like you thought. I don't know how you'd do it. I love apocalyptic predictions on it, because you're right, it probably does affect race. And the truth is that writing U.S. Hurricane has been very profitable in the last five or six years. Now the rates have come down very significantly, so we aren't writing much, if anything, in the U.S. Our biggest single cat risk would be earthquakes in New Zealand.
QuestionerYeah, but what do you think of the perception right now? I mean, it's, I think it's from the mainstream media, but we are under the impression that adverse weather events
[43:52]
Warrenare happening every couple of days, and it's never been like this before in history. For some reason that's what people tell me. And it's, you know, it's nice to be able to include them all into one thing, you know, when you can include droughts, floods, too much snow, too little snow. When you can include it all into one big thing, it makes it look, you know, like you're pretty smart. It hasn't been true so far, Joe.
Joe KernenYeah. All right. Well, thank you. I mean, you know. We always think it's cold. We always think it's cold, but it was cold on about 50 years ago. The only thing that's weird is the Great Lakes have, I think they're almost totally frozen over. I don't know if we've ever seen that. I think we've got one more to go or something. So that's a little weird.
WarrenYeah. Yeah. All right. Well, we don't assure against that.
Joe KernenYou know, Jim Kramer's, Jim Kramer's been watching this morning as well, Warren. And he writes in a question, too. He says that in your shareholders letter, you always speak so positively about fabulous ways to transport goods. Do you think that Keystone should be approved? I know we talked a little bit about this earlier, but I didn't really put you on the line. Do you think Keystone should be approved?
WarrenI'd vote yes.
Joe KernenYou would vote yes for the Keystone.
Questionerthese wonders about creation of jobs, too. So energy and job creation is really, Pipelines and Energy Renaissance is what Jim's pointing out.
WarrenWell, yeah, but I don't believe in the Keystone Pipeline because of the jobs you make building it. I mean, you can build anything and create jobs. But I believe it, I just believe it's a useful pipeline.
Joe KernenYou do. Okay, great. We're going to continue this conversation. Again, Joe, we've got Warren Buffett here. He's with us for the rest of the program. I can't think of a better day to have Warren Buffett sitting right next to us. Warren Buffett, the chairman and CEO of Berkshire Hathaway to talk about what's happening. Warren, I know you are a long-term investor, but when people wake up and look at the futures and see down 150 because of what's happening in Ukraine and questions about the economy, I suppose, at this point, and whether what happens there spreads here, what do you tell them?
WarrenWell, I tell them. When I got up this morning, I actually looked at a stock on the computer in the trades in London that we're buying and it's down and I felt good.
Joe KernenWhat was the stock?
[45:57]
WarrenIt was an English stock. So you look at this. I mean, would you have done that anyway, whether or not the futures were down, would you still be buying? Well, I had a price limit on it, and we were buying it on Friday, but it's cheaper this morning, and that's good news. So you buy more as a result.
QuestionerAbsolutely. When people start to think, well, this could be the beginning of something really bad, it could be even a World War III situation, it could be a return to the Cold War, does any of that ever go through your mind?
WarrenWell, if you tell me all of that's going to happen, I will still be buying the stock. You're going to invest your money in something over time. The one thing you could be quite sure of is if we went into some very major war, the value of money would go down. I mean, that's happened in virtually every war that I'm aware of. So the last thing you'd want to do is hold money during a war. And you might want to own a farm, you might want to own an apartment house, you might want to own securities. But I mean, during World War II, you know, the stock market advanced. And the stock market is going to advance over time. American businesses are going to be worth more money. Now, dollars are going to be worth less so that money won't buy you quite as much. But you're going to be a lot better off owning productive assets over the next 50 years than you will be owning pieces of paper or I'm going to throw in bitcoins. You know, I've been meaning to ask it. opinion on bitcoin. What do you think of it?
QuestionerIt's not a currency. It does not meet the test of a currency. I wouldn't be surprised if it's not around in 10 or 20 years. Why does it not meet the definition of a currency in your business?
WarrenPeople say, well, I'll sell you goods in Bitcoins, but they change the price of those every time the price of the dollar changes in relation with the Bitcoin. They're pricing off the dollar. They could say, well, I'll sell it to you in barrels of oil. But if they change, every time the price of the dollar, oil changes, they change the number of barrels you have to have. Your oil is not the currency.
QuestionerYeah, but the yuan does that too. And people still look at that as a potential currency. Which one? The yuan, the Chinese yuan.
WarrenYeah. Well, it is a currency. But it is not a, it is not a, it is not a, it is not a durable means of exchange. It's not a store of value. It's, and you said yourself, you wouldn't be surprised if it's not around in 10 years?
QuestionerI would not be surprised. I don't know that. But it, but it's interesting to me.
[48:25]
QuestionerBut it's been a speculative, a very speculative, you know, kind of Buck Rogers type thing. And people buy and sell them because they hope they go up or down, just like they did with tulip bulbs a long time ago. Well, the situation in the Ukraine, you have said you're not that worried about. But in the letter to shareholders, you did lay out something that's been on the horizon that you are concerned about. And that's what's happening with pension funds, the promises that have been made. Question came in from S. Disher saying, what impact will unfunded government pension? and benefits have on economic health in 10 to 20 years?
WarrenWell, the government pensions aren't the problem that private pensions are. The government has the power to tax. It has the power to print money. We are not in a dangerous U.S. fiscal situation. We have to quit having our debt grow as a percentage of GDP. It made sense to have it happened during when when things were terrible five years ago. But we can have a deficit which creates more debt, but not at a rate that grows faster than GDP grows. So if GDP is going to grow at 2% in real terms, but the Fed has a policy that was sort of shooting for 2% inflation on top of that. That would mean like 4% in terms of nominal GDP, and you literally could have debt grow at 4%. And it would maintain the same relationship to nominal GDP as it does now. We are not a, you know, the trend is wrong. There is a danger if that goes on, although a lot of countries have gone far beyond where we've gone. But I don't like seeing it go up as a percentage of GDP. But this country is in wonderful shape.
QuestionerIf you say that government pensions aren't the problem because the government has the tower to the power to tax, what do you say to somebody who has a private pension? Should they be worried about it? Should they think that they're still going to get it when they're
WarrenWell, they've got a private pension from a corporation. It's protected by the Pension Benefit Guarantee Corp. And that has come into play in many pension plans. But the state and municipal pension plans are, well, the one right here in Omaha, is in terrible shape and almost a lot of resources and it's a healthy community and all that. I mean, we can work our way out of it. But people both who have made the promises and the electorate general, generally have not understood what they were doing when they were making pension promises.
[50:58]
WarrenAnd there's a long tail to the problem so it doesn't catch up for a while, but it's inexorable over time. And we are starting to reap the problems that were sowed decades ago in pension plans. And you're going to be reading a lot more about them. And of course, in Detroit, they're going to have to scale back the promises.
QuestionerWhat do you think about the decision in Detroit, where at this point it looks like everyone's going to take a haircut, but the bond holders are going to take a much bigger haircut.
QuestionerIn fact, that prompted a question from Gary Gambino, who writes in, are muni bonds safe, given your concern about the public pensions?
WarrenWell, some muni bonds are safe and some aren't, just like some corporate bonds are safe and some aren't. It depends on the debt-paying capacity of the entity that owes your money. And if you take the Omaha Public Power District, which runs the electric operation here, those bonds are safe. You know, they've got enough debt-paying capacity, they can take care of things. But if you take a city like Stockton, California, or something, they just, they borrowed too much money. But in the situation in Detroit, it looks at this point like the municipal bondholders are going to take a much bigger haircut than those in the pensions. They're not going to be treated equally.
QuestionerWell, yeah, the pensions are going to take relative to the pain inflicted. My guess is the pensions are going to problems are going to take. The pension holders are going to take.
Warrengoing to feel it more absolutely I mean if somebody's getting $1,500 a month and it's cut to $750 a month that is huge the bondholders are going to take a big cut the debt just got way way way out of proportion to the to the taxable base and the problem with the city or estate is that if the math gets kind of overwhelmingly bad you set a cycle in motion where people leave and go someplace else that doesn't have the trouble on that
OtherThere are plenty of problems I had in municipal finance.
QuestionerAll right. We're going to continue this conversation. In just about 15 minutes, we'll be introducing our viewers to the three T's at Berkshire Hathaway. Investment managers Ted Westler, Todd Combs, and financial assistant to Warren Buffett, Tracy Brick Cool. These are the three teas that Warren has talked about extensively, and there's an awful lot of public interest in these three figures. This is the first time that three of them will be sitting down together and talking on camera.
[53:21]
Becky QuickSo we do have a lot coming up. We're back with Warren Buffett in Omaha. And Warren, let's talk a little bit about why you chose the three T's, how you came up with these three individuals.
WarrenWell, when I'm not around, my job will be broken into two pieces. One is running the business, the CEO, but then the investment end will be run by others. And it became important to bring on the right kind of investment people. And so Charlie and I talked about that. we, well, the first time we took a trip, I think I had hundreds and hundreds and hundreds of applications that I was reading on that trip to China. And we found two terrific managers, and they're not only terrific in terms of their investment ability, which has been proven over time, been proven to me, but they're really the right kind of individuals. I mean, they want to be with Berkshire, they'll be with Berkshire forever. And they're the kind of fellows that you don't want to have marry your daughter. I mean, basically, we, Charlie and I care about that. And, and Tracy, I've tried with assistance once or twice in the past, but she came along and she's just done a perfect job. I mean, there are all kinds of things at Berkshire that I should do that I don't want to do, so I hand those off to her. And the three of them have, they've been worth a very, very substantial amount to Berkshire. It's demonstrable in terms of the financial performance of the two that manage investments, but it's also been very clear in terms of Tracy's performance with the subsidiaries that have been turned over to her. Todd and Ted are each managing about $7 billion. Seven billion now. $7 billion apiece. They started out on a lower base, was it $2 or $3 billion, and you've built up more and more over time? Yeah, it was even less than $3 billion originally, yeah.
Becky QuickSo what is it that you see in each of them that made you think that they think like you do, when it comes to investments.
WarrenWell, I talked to them somebody. I looked at what they'd done. It isn't just an investment record that impresses me. It's how that investment record was achieved. And there are people that are just in tune with the given kinds of markets, and then when the market changes, they never, they really can't adapt. But Todd and Ted look at investments very much like I do. I mean, they look at stocks, not as stocks. They look at those pieces of businesses, and they evaluate business.
[55:46]
WarrenThey're really business analysts when you get right down to it. And then they translate that into investment decisions. And they both have a fundamental soundness to them, but they're also, it's a combination of soundness and brilliance, and you want both. And they think about things that haven't happened yet in terms of problems, not in terms of dreaming about great projects that are pie in the sky, but they're always thinking about the downside. And they've made Berkshire billions of dollars already. that we wouldn't have otherwise made, and they'll make us many billions more. Tracy has gone into a variety of situations, usually the smaller companies, that were one reason or another, we needed something done, sometimes a management change. And she's done a lot better job than I could do. And she's done such a good job that when one woman took over John's Manville a year or two ago, she asked that Tracy be made the chairman of the board of that. The chairman of the board and our of our subsidiaries really is just an overseer from Berkshire standpoint. They represent the shareholder in a sense. And so she's taken on four of those and she'll take on more as time goes along. And she also will be a great repository of knowledge about all these companies for my successor.
QuestionerLet's talk about some of the succession notes that you made in the annual report, in the annual letter. You always do talk about this, not only with the shareholders, but with the board. And you say that the board, something struck me this time around where you said that the board knows who your choices would be if there was an immediate need for a successor when it comes to the CEO position. But you said that those people were either working at Berkshire right now or were available to Berkshire. And that made me question. You're looking outside the company potentially for successors?
WarrenNo, no, the successor will be from within the company. All the candidates are now, all of the candidates have been over the years. And the successor will come from inside Berkshire. We've got, you know, we have so many businesses. We get a shot at evaluating a lot of talent. And there is a lot of talent there. And some of them would have the talent to run the place overall. Others wouldn't. They're more specialists in their own business. But particularly then when combined with Todd and Ted, who bring an investment perspective, which is useful in acquisitions,
[58:10]
Questioneranalyzing acquisitions. I think we're as well equipped for the next century as anybody. You mentioned both Todd and Ted. So I assume you look at the potential CIO part of your job, the investment part of your job, is something that more than one person could take on as your successor? Those two could handle it very well. That doesn't preclude a third person, but I'm not looking for one. And also, when it comes to who the successor as CEO might be, I've asked you in the past, would it be a woman? And you said none of the candidates at that point were. Not at present. Not at present. No, I mean, that doesn't rule it out. I hope I last long enough, so we get some women on the list. But there are, no, the top. candidates now are men. And those candidates, has that been a list that's changed over the last year? Doesn't change very much. No, it's very slow to change. They shouldn't be on the list if it's quite changeable. Right. Okay. Let's talk about some other issues that people have written in about as well. In fact, concerning Todd and Ted, we got a letter that came in from Boracostick, who writes, in the letter you mentioned, Todd and Ted created significant values in matters unrelated. to portfolio activities. Can you give some examples?
WarrenWell, in making an acquisition related to media general, where we acquired a bunch of newspapers and also made an investment in the company, Ted did all that. In terms of working in the rest cap bankruptcy, Ted did that. He wasn't getting paid for these at all. I mean, this is extraneous work. We just recently completed the deal just in the last week or so where we exchanged our Phillips 66 stock. for a combination of cash plus a specially chemical operation. That was Todd. I mean, I may have partially conceived of the idea, but I just turned it over to them. And those sort of things might not have gotten done if I had to do them myself. There's some threshold to say to heck with it. And having them has been invaluable on that. I mean, we're talking things that are worth hundreds and millions of dollars, in addition to the billions of dollars they made us on the portfolio. You've talked a lot about their compensation. Both of them were managing their own hedge funds before, and the compensation structure at Berkshire is very different than the two and 20 you would get if you were a hedge fund manager. That's right. If they'd, if they had, last year, they started with about $5 billion each.
[1:00:41]
WarrenIf they'd put it under the mattress, under the standard hedge fund arrangement, they each would have made about $100 million. million dollars. I mean, that shows you how nutty the arrangement is, but they would have literally made a hundred million dollars by sticking under the mattress. If they'd put it in an index fund, they had gotten the two and 20, they each would have made over $300 million. All they had to do was by the Vanguard index fund, and they each would have made over $300 million. They also would have gotten more favorable tax treatment on it than they got by getting a salary from Wilma, from Berkshire. So imagine, I mean, you can retire forever on $300 million. So one year, you go and you put the money in an index fund. So it just shows that the huge amounts you get by asset gathering rather than asset managing. I mean, even though a great many hedge funds in recent years have not delivered high performance, they've delivered high fees. But our arrangement is that they get a salary, and then they get, which most hedge fund guys would look like nothing, and then they get paid on the excess, they get 10% of the excess. over the S&P performance, but it's not over a three-year staggered period. So they can't have just one up here and then another down year or something of a sort. So that's the same arrangement I had with Lou Simpson and Geico for 30 years. So only if they do better than I can do by sticking the money in an S&P fund, do they get paid a dime of performance. And it seems to me that's quite logical, but it's not something that the hedge fund community is out there pushing harder for.
QuestionerThey both beat your performance last year, didn't they?
WarrenI'm sorry. You brought that. up. They not only beat my performance, they smashed my performance.
OtherAll right. Up next, we're going to talk about the markets reacting to the situation in Ukraine, plus some stocks you need to watch at the open. And at the top of the hour, a behind-the-scenes look at what makes Berkshire Hathaway tick. We will have Tracy Britt Cool, Warren Buffett's financial assistant, plus Berkshire Investment Managers, Todd Combs, and Ted Weschler, all right here with us right on set. Squabox will be right back. We have Warren Buffett here, answering all of your. questions. He's been doing that throughout the morning. Right now, we also have a rare interview with Berkshire Hathaway Investment Managers, Todd Combs, and Ted Weschler, plus Tracy
[1:02:58]
OtherBrick Cool, who is Warren Buffett's financial assistant. All three of them are here, and this is a rare treat because I don't think you three have ever sat down together for an interview, have you?
QuestionerNo. No. That's first one.
OtherWe talked in the last block about why Warren chose each of you. And he explained a little bit about what he finds so interesting in each of you. What I'd love to hear from you three is why you chose Berkshire Hathaway and maybe how you found your way to Berkshire, because each of you had a very different path. Todd, let's talk a little bit about when you first talked to Buffett. When did that happen to Warren?
QuestionerWell, I reached out to Charlie, and we had a series of conversations over the course of several months before one day I was out of visiting him in L.A. and he said that just out of the blue after a three or four hour breakfast, that in classic Charlie style, that Warren would really like to meet me. Not that I'd really like to meet Warren, but, and then he went on for about five or ten minutes about how much Warren would like to meet me and so forth. And so I came out to Omaha and Warren and I spent the day together talking about everything from baseball to business and insurance. And it's very interesting.
OtherYou've moved your whole family to Omaha. I mean, this is, when did you move?
QuestionerThat's right. After I The kids finished out the year in school back in Connecticut, and we moved the entire family out right after I joined. And so we've been out here, I guess, coming up on about three years now.
OtherOkay. And it's been wonderful.
QuestionerAnd it's been wonderful and you guys love Omaha. Absolutely. My wife and the kids all love it. It's been an absolutely wonderful experience. Omaha is a great town, and the people really make it there. It's just been an excellent experience.
OtherTodd, I love your story, too, for how you came here, because over the course of two years, you paid $5.3 million. $3 million for two lunches with Warren. How'd that happen?
QuestionerDonated 5.2. I like your version.
OtherAnd Becky, I've been reading Warren's letters probably since 1979 when I started college. And it was kind of a bucket list thing for me that I always wanted to meet the guy. And I think, as you know, Glide Foundation, terrific charity in San Francisco, does an annual auction. And I wanted to know more about Glide. So I actually spent half a day out of a glide understanding of the charity.
[1:05:13]
QuestionerAnd I thought, hey, this is a terrific charity. They really helped that otherwise helpless. And I bid on the auction and ended up winning. Did you keep hitting the button at the last minute to try and make sure you were the hot bid?
OtherNot quite. Not quite. But I ended up getting it. And came out to, my only condition on it that I asked for was I wanted to do it anonymously. And I didn't want. We were set up at Smith and Wolenski's and we opted to do it. opted to do it in Omaha. I actually requested that. And I came out and visited with Warren. And it was just fun. I mean, we really hit it off. And I was expecting kind of a stiff hour or so meeting and ended up being this, you know, long visit at the office and a terrific dinner where we had a lot of just, you know, common interests and, you know, thought about things very, very similarly. And, you know, that was that. And, you know, I was pretty happy to have it checked off. And the following year, I said, you know, I really don't want to see the price of this go down. So mentally, I said, if it's going to go for the same price or less, I want to make the donation again and help out Glyde. And that happened. And it came out the second time. And again, we really just had a terrific visit. And toward the end of the evening, and I had my little yellow legal pad of questions I was asking Warren and I wanted to make sure I hit all of them. And I said, you know, you can ask me anything you want too. And out of the blue, he said, well, I think you might be good. good fit at Berkshire. Would you have any interest? And it was the last thing in my mind. I really just completely threw me off.
QuestionerDid it floor you to hear it?
OtherTotally. Totally. Yeah. I mean, really, it totally threw me off. And but I didn't want to be dismissive. I mean, this guy's like a hero. You can't just like say no way. And so I started thinking about it. And you know, it was right at that point, I had run my own fund for 12 years. The regulations on hedge funds were changing. I was going to, at a staff of two people and me that ran my fund. I was going to have to bringing the compliance person in and life was going to get complicated. Wow, this is actually a way to simplify things and do what I love to do, which is be an analyst.
QuestionerTracy, your path to Berkshire is one that a lot of people, I know when the students come out to meet with Warren, they always ask him, how did Tracy do that? And should I change my name to start with T?
[1:07:31]
QuestionerI didn't think that question last week between you three. How did you find your way to Berkshire?
QuestionerWell, meeting Warren was also on my bucket list, but I didn't have $5.3 million. So I had to take another path. And I came out with one of the student groups, an organization that I was involved with called Smart Women Securities. Warren loves to support women in investing in women in business. And it was a great opportunity to meet Warren. And I really enjoyed that experience. Like I said, it was once in a lifetime. And a couple years later, I decided to write a letter to Warren and just say, can I come out and spend a day, a week, a month? I'll do anything if you let me spend some time with you. fully assuming he would say no, and I would say I tried, and we'd go bad our way. But fortunately, he said yes. So I came out that summer, worked on a small project for him, thought, wow, again, this is a once-in-a-lifetime experience.
QuestionerWhat was the project?
QuestionerI was looking at the Lehman bankruptcy. And so it was a very daunting task in one where I don't think I ended up having too much value to add, but it was really interesting. And it allowed Warren and I to have an opportunity to have a variety of discussions about business, management. investment, investing. And those were all great for me. And I think my guess is a good opportunity for him as well to learn more about me.
QuestionerYou know, Warren, you have to get letters all the time from people who want to come to work here. You must meet people all the time. But what about these three in particular really jumped out at you?
WarrenThings jump out at you. I mean, the same way as when we bought this car. You know, that was a one-and-a-page, one-and-a-quarter page letter from Israel, and we made a $5 billion purchase on it. And it's, to some extent, not perfectly, but people do give themselves away. And I've had literally thousands of letters from people who wanted to do hedge fund type, or wanted to manage money for us. And they all send along their record and everything. But it's more than having had a good five years or something of the sort. You know, I've seen a lot of investment managers come and go. So it's a judgment about their intellect, but it's also just as much of judgment about their character. And we've got the right three here. And they don't come along every day. They don't. In fact, there's been a lot of interest in all three of you. We've gotten a lot of questions that have come in from
[1:09:46]
Questionerour viewers, and we've been posing some of those questions to Warren this morning. But if you three don't mind, I'd like to ask you three some of the questions that have been coming in, too. Part of what's really come up is just, Todd and Ted, I'll ask you this first, how you invest and how you see the world. Ted Earhart writes in, guys, this is number 82. Ted Earhart writes in, When you identify a company, for example, that seems worth a deeper look, what does your investment process generally look like? What do you like to read and how much time is typically spent before you're ready to actually make an investment? And I'll start with you two on this. Go ahead, Ted.
OtherOkay. Well, I'd say that it's investing is all about turning over a lot of stones. And the way that I spend my day is just reading. Annual reports, transcripts, Delta reports, regulatory filings, channel checks, anything I can get my hands on, really, trade magazines, et cetera. And so 99% of what you look at you can dismiss within five minutes. What's the magic thing that tells you there's no way that this is something? Well, there's kind of, you know, Charlie talks about mental models and so forth. There's a lot of things, you think about like a gating analysis or a flow chart, there's a lot of things that come along. Obviously, valuation being one, being able to understand the business, technology, is an area that sector that I traditionally haven't done much in because I think it's very hard to know what a lot of those businesses will look like five years from now. So there's a lot of things as you go through this gating process that just completely eliminate it. And if you know that you can't get comfortable with it, you don't need to spend any more time on it. So it's the 1% of ideas that are really exciting that you, it's kind of like a needle in a haystack. You know, you just know when you've done this long enough when there's something there. And that's really exciting because if you love investing, that's what you can spend the next 500,000 hours on, really digging into.
Questioner500,000 hours. How much do you read every day? Because didn't Warren tell you at one point that that's the most important thing you should be doing?
OtherYeah, when he came to Columbia and spoke to the business school in Professor Bruce Greenwald's class, and it was either late 01 or early 02, the very last question that was posed to him was what his secret was.
[1:11:55]
QuestionerAnd he had this, never forget it, he had this giant pile of paper and he pulled it out. It was a complete hodgepodge and said that he reads 500 pages a week. And anyone can do it. And, you know, it's like compound knowledge. If you start today, it would just build over time. And so that's when I started. And so it's somewhere around 500, sometimes a little bit more, pages a week. And that can be all those things I mentioned before, annual reports and transcripts and regulatory filings and so forth. But that's really the process to answer the question. Yeah, there's no easy way to it. It's building up knowledge over years and years and years.
OtherThat's right. That's right.
QuestionerAnd then, you know, as Warren has said before, it is compound knowledge. You get better and better at it, it's spotting those gating factors. I can look at a bank or, you know, certain companies in certain sectors much faster than I would, you know, five, ten years ago. Warren, that reminds me of something you said when you made that Bank of America investment. When did you first read Bank of America? I mean, you'd built that up over decades or decades.
WarrenYeah, I read probably 55 years ago. I read a book called Biography of a bank. But I probably read their annual report every year for 50 years. The same things happened many times. I mean, and the beauty of it is, it is, the knowledge is cumulative. knowledge is cumulative and even what you're learning about company A will help you thinking about company B.
QuestionerTed, how about you? How does your approach differ or is it the same?
Ted SeidesVery similar. I think things that are distinguishing in what I do. I'm a little bit quirky. I typically don't meet management and I don't talk to management. Why? Historically, when I was in private equity for 15 years. And generally, if you become a CEO of a company, you're a really good salesman one way or the other, and you're going to probably spin people. I made a couple big mistakes where I got involved in situations where I liked people too much. And I generally like people. So the way to avoid that is put the filter on that rely on reading transcripts, 10Ks, 10 Qs, and getting there. And the other key thing, and it plays off everything Warren and Todd just said is, you know the situation, wait for the right price. You're just always reading about things. But most of the times the price won't be right, but be ready. Be ready.
[1:14:00]
QuestionerTracy, people have a lot of interest. Tracy, people have a lot of interest as to what you've been doing with the companies that you've kind of parachuted in on. Warren talked earlier about how when he has a company that's in a little bit of trouble with some of these ones that he hasn't spent the time with, he's asked you for some help. Tom Lough from New Jersey writes in and he says, what are your plans for Benjamin Moore going forward? I'm interested in that, but I'm also just interested in what it is you do when you parachute in it.
OtherDefinitely. At Benjamin Moore, we have a tremendous quality of a brand there, as well as a great company with great people. And it's just a situation where, a situation where we need to give a little bit more attention to our dealers. So over the last 10 years or so, we've under invested in our dealer network. And now what we're trying to do is reinvigorate them with trust and helping them understand that we're here for them for the long haul. We're not going to be through another channels. We're not going to make commitments and other directions, but really for them. And I would say when I go into a company, it's helping the management team identify the direction in which we need to move. And in situations that I've involved, Typically, there's been some sort of industry change, business shift, somewhere where we've lost her way a little bit. And we can use resources within Berkshire. Other Berkshire companies are usually the first place I look to for knowledge and experience. And asking then, can you come in and help? Can you talk to us about how you manage that in your warehouse, how you went to market with a specific brand, how you approached an issue that was of specific significance to you, and how can we leverage that knowledge within Berkshire at our other companies?
QuestionerOkay. question that has come in, this is directed to Ted and Todd. Both of your compensations are tied to each other in an 80-20 split. If you could pick any investment manager besides the ones you're sitting with to have a similar split, who would you pick? And I think Warren's sitting here too, so you can't choose him.
OtherThat's a easy answer. That's too easy of an answer. 991, they might go for it. We can't pick Charlie either. No, I'm going to take him out of the running. of the running. But you both have long careers. You both work with a lot of people over the
[1:16:04]
Questioneryears. Is there somebody else who impressed you along the way? I think that's what they're trying to get at. You want to go first?
Ted SeidesI'm going to cut out on that one. I have names that I've recommended people to. I'm just not 100% sure that they would necessarily want to be recommended. I'd tell you, Lou Simpson was at Geico for a very long time and at Berkshire. And there's a fellow named Tom Bancroft that runs a fund out in La Jolla that worked for Lou for about 13 years. And he's done wonderful. I've referred people over to him before. Larry Pigeon worked for, and Larry Pigeon died, unfortunately. But he managed money very well after he left us. Marrow Whitmer joined our board. I don't think she takes outside money, but certainly I've known her for probably 10, 12 years. And she has a wonderful long-term track record, as does Tom. What do you think, Ted?
QuestionerI've never met him, but David Teper's got as good of a 20-year track record as anybody at out there who's proven able to do well in tough markets and do well in rising markets. I always respected that.
Ted SeidesAll right. That's a great point. Another question for you, do you own any Berkshire Hathaway shares personally? And if you were still running your hedge funds, would you buy it for your funds? If you do own shares, do you think that Berkshire shares would be better off if it were broken up due to the conglomerate discount, it appears to have been stuck with the last five plus years? What do you guys think?
QuestionerI do own some Berkshire. Owned it when I joined. Probably would not have have it in the fund. Typically, when I manage my own fund, and a lot of what I do at Berkshires, I like to become the largest shareholder in a given company, and it's kind of hard to do with Berkshire. And the third part of that question?
Ted SeidesThe third part, would you break up the company? No, no, no reason to break it up. That's what I thought you might say. It's a terrific culture. You don't want to mess with that. Todd?
QuestionerYeah, same answer. I owned it as well. I owned it when I ran Castle Point. And, yeah. I don't think there's that much of a conglomerate discount, but certainly doesn't need to be broken up.
Ted SeidesTed, specifically, this question came in for you. There's been a lot of talk about DeVita recently. We know that that was a stock that you identified. And Mark Blakely from Tulsa, Oklahoma, wrote in and said, would Ted Westler explain what he likes
[1:18:17]
Questionerabout DeVita health care partners and why he finds this company such a great investment? Since Berkshire signed an agreement not to own more than 25% of DeVita, does Ted or Berkshire have any other intentions besides because? a large shareholder? Okay.
QuestionerI followed the dialysis industry for 30 years now. Right out of college, I started studying it, so I know the space reasonably well. And I think the broad filters that I apply for healthcare investing in general is, number one, does a health care company deliver better quality of care than somebody could get anywhere else? And DeVita falls into that. Number two, does it deliver a net savings to health care system? In other words, is the total bill for U.S. health care cheaper? because of the efficiency that the company provides. DeVita checks that box. And lastly, do you get a higher return on capital, predictable growth, and shareholder-friendly management? Absolutely. And all three of those together, you've got health care is whatever, 17, 18 percent of GDP. You've got an incredibly talented team running that company. I'm not sure what the stock will do over the next year or the next two years, but very comfortable that five years from now it will be a more valuable franchise.
QuestionerCan I ask you both? You're both DirecTV, is that right? Yeah. You both like DirecTV. When did you see that? When did it first pop out at you? Todd? Go ahead.
QuestionerI think I was in the name and my fund probably eight years ago, and then bought it when I came on board as well. I'd start following cable and satellite about 10 years ago. I kept an eye on it the whole time, and it was one of the first names I bought when I came to Berkshire.
QuestionerHow much back and forth is there? I mean, in terms of when I see a stock you like and you identify it, Do you talk to Warren before you buy it, or do you just go ahead, buy it and maybe tell them at some point down the road?
QuestionerGive him a heads up, just because there's a concern that he may know something institutionally that's inside, so we don't want to create a problem.
QuestionerRight, Warren, you've talked about that before, and you just have to make sure that there's not a Berkshire conflict that comes with it.
QuestionerI'm not taking the place over tomorrow. But we do have total autonomy, and Warren, in fact, insists on it, so it's not a matter of going to him and asking if we can buy it or anything. like that. As Ted said, it's literally for compliance reasons to make sure there isn't anything
[1:20:33]
Questionergoing on that we don't know about. Warren, any time that there's an SEC filing that says Berkshire is compiling in such and such company, everybody immediately runs out and says, Warren Buffett is buying this. How do we know what you're buying, what these guys are buying? How does it all...
WarrenYou don't know for sure, but the chances are, you know, if it's a multi-billion dollar position, although they have no multi-billion, they have positions that approach two billion. But if it's really large, it's probably mine. And if it's really small, it's probably theirs, it's probably not one that I'm just starting out, although it could be.
QuestionerTracy, one of the things we've talked about this morning is Heinz and how that acquisition's been going. What have you seen from what you've been doing with the company and sitting on the board?
OtherIt's going very well. I think that there, again, is a company where we have a tremendous brand and we have a great team with Bernardo and the rest of the individuals there, and they're continuing to move forward. And I think that that company will be much stronger a couple of years. from now than it is today.
QuestionerAnd Warren, just your thoughts about having these three in the office. This is a picture, by the way, that was in the annual report. You've never had a picture in the annual report before, but this is a picture. It shows how flexible we are.
WarrenOf the office staff, which when you realize there are 330,000 employees at Berkshire, this is the headquarters staff. This is the entire head office, with the exception of two people who missed the lunch. But here's the most valuable person to Berkshire. This is Deb Mossani, my assistant. But this fellow over here, Mark Millard, for example, he's in charge of $40 billion of cash and he moves it around and I give him guidelines. But it's a sensational group and we're all on one floor. Our tax return is 23,000 pages. That's twice as high as I am. And they put out the 10Ks and the 10 ques and they handle the inquiries about Berkshire, the public relations, investor relations, all sorts of things. And they do a sensational job. I couldn't be more proud of them.
QuestionerWell, Todd, Ted, Tracy, I want to thank you, for joining us today. We've really appreciated your time, and it's been great getting to hear from all three of you.
OtherThanks for having us.
QuestionerThank you so much. This conversation with Warren Buffett is going to continue.
[1:22:39]
Becky QuickIn fact, when we come back, personal income and spending data are out, and then we'll get back to our interview with more of your questions for Warren Buffett. It is Ask Warren Day, and I've been wanting to talk about the Final Four at some point, because Warren's a huge, here he's going to the Creighton game. I sent you some stuff. As hard as it is for me to believe.
Joe KernenOh, yeah, yeah, yeah. I'm still trying to look this up. Joe has a question on this.
Becky QuickAnd Joe, we should mention the news that is just out in the last half hour about the billion-dollar bracket deal that Berkshire Hathaway is insuring with quicken loans. This is something we've heard about for a while. This is all tied into March Madness. If you pick the perfect bracket, you win a billion dollars?
Joe KernenYeah, or 500 million immediate value or a $25 million a year for 40 years.
Becky Quickfor 40 years. And Joe, the news that was out today is that Yahoo is also getting in on the deal, which, Warren, that's pretty surprising looking at what had happened. It sounded like Yahoo had its own plans to go ahead with a deal like this. They didn't go ahead with that because Quicken loans went out first, and now we heard today that Yahoo's joining up.
Joe KernenNow they're joining forces, yeah. Yeah. You know what, Warren? You got a better chance at Powerball. You're a genius. What is, do you have a quick essay? quick, have you figured out the odds on this? Because I, you know, I think I could pick the team that wins. I think I might be okay picking the final four if I was really lucky, but just the very first round picking those with what happens and then picking 16, then pick an eight, then picking four, that it's impossible. And some autistic, some autistic kids supposedly did it. I can't tell whether this is an urban legend or not that this kid actually did this. This defeatism is.
WarrenIt's not like you, Joe. I mean, if you could put in 15 million entries, which we expect to get, don't you think you'd have a shot at it?
Joe KernenNo. And I don't think you'd be, I don't think you'd be putting up a billion if you thought people had a shot at it either.
WarrenWell, oh, they have a shot at it. The one thing, I've seen these calculations where people assume it's a random event, so they take two to the 63rd, you know, it is not a random event. I made calculations myself before entering into this insurance contract. and Ajit Jane also made calculations. And we were in the same ballpark.
[1:25:02]
Joe KernenAnd so we went ahead with it. You see what's happened. I mean, BC beats Sarah K. I don't, I mean, you look at it's unbelievable. I don't know who's good. I can't tell. You know, one team I think is good as Florida. That's all I can figure out. Florida seems, they seem really, I don't know, after that, everybody seems like they've got, you know, they've been killed by a, you know, what is it, Goliath and, you know, the giant.
Joe KernenWell, Joe, if you look at, I think the last hundredtons, the last, what, 20, it would be 27 years, maybe 28 years, whatever it is that they've had 64, there's been like a hundred and 12, we'll say, number one seeds, play number 16 seeds, and the number one seed has won every single one of those games. Who do you like, who would you pick in the final four, Warren? You got Creighton in there?
WarrenWell, I've got to have Creighton, yeah, you bet. Yeah. No. No. No, probably, I would say maybe Arizona, too. Yeah, Arizona, Florida, and then Virginia look good. Virginia won there, but, yeah.
Joe KernenWell, now that you've told me about Florida, yeah, they're definitely going to be in there. Right, we're picking the number ones. We're so good, aren't we? We're picking the number one, picking the number one seat. All right, we're going to take... Hey, Joe, we should point out, though, before we go to break, we should point out, we have time to talk a lot much, a lot more about the March Madness strategy, because both Warren and Dan Gilliard. from Quicken Loans are going to be joining us on set for Squawk Box on March 14th. So we'll get into more depth with them on that day, too.
WarrenWow, I can't that, that's, uh, that's, uh, that's going to be so much fun, isn't it?
Joe KernenAnd we'll have our brackets. We'll have a little more information then. Yeah. And we'll have our brackets done by then, and our TV news are brackets and all that stuff.
QuestionerWelcome back to Squackbox. This is a special edition in Omaha, Nebraska with Warren Buffett, who's been with us all morning long answering your questions. And Warren, we continue to get questions that are coming in from viewers. Jeff Verdon writes in, what's your opinion on so-called activist investors? Do you really think that they are acting in the best interest of their targeted companies and the shareholders, or are they more just interested in making a quick profit for themselves?
WarrenWell, I think generally speaking, they aren't just making a quick profit, and there's no law against making quick profits.
[1:27:15]
WarrenBut our whole attitude in our own business and what we like to see with the businesses we own stock in is we want to run for the people that are going to stay in rather than ones who are going to get out. Now, at any given time, you can make more money usually selling the company than running. I mean, most stocks, most of the time, not all the time, sell at some discount to what you could actually sell the company for that day for. So, you know, the ultimate activist activity might be just sell the company. And I think that would be a big, big mistake. I mean, I've seen cases where really good companies have sold at a third or a quarter of what they were worth during. And the answer isn't to sell the company. The answer is to keep. running the company well. The answer may well be to buy in their own stock when they're selling at that kind of a discount. So I, the money is flowing into activist funds because they've had good performance lately. And so, and that money will get put to work. So I think you're going to see a lot of activity in that field. But, you know, I could do certain things that jiggle up the price of Berkshire in the short run that would not be good for the company over five or ten years. Like what? Well, you could spend. off one stock that might be a hot type I mean one one of our divisions that might be a particularly hot division but but if it's a really good business I just assume keep it for Berkshire and and there's a lot of efficiencies from a tax standpoint and at a capital allocation standpoint from being under one umbrella so I am running the I'm running the company for the people who are going to stick around not for the ones who are leaving all right let's take what you just said and apply that to some specific instances Nelson Peltz is right now pushing on Pepsi to split up the company he says it makes more sense apart than together Yeah. I don't think if I own Pepsi. I was the only holder of it or my family was the only holder of it. I don't think I'd split it up. Because? Because? Well, I just, I think that Trito-Lay is an extremely good business. It's a better business than the soft drink business. But I think the soft drink business is a good business too, and I don't see any reason to split them up. On that point, let me point to a question that came in from Emil Hagstrom. He said, are you worried about Coca-Cola's moat declining in the near future? Just the business of Coca-Cola.
[1:29:28]
WarrenIt's under a lot more pressure than it was 10 or 15 years ago, particularly in the United States. But their sales went up last year, just as they go up almost every year, in terms of unit cases of carbonated soft drinks. And right now, 3% of all the liquids people put in their mouths throughout the whole 7 billion people are Coca-Cola products. And I think maybe that 3% will go up a little over time. And I think they've got wonderful brands. got wonderful acceptance around the world. Coca-Cola brand itself sold 100 million more cases last year, as I remember, than the year before. And it sold more that year than the year before. It's a very, very good business. But it's under more attack. There's a tax situation in Mexico. There's certainly a lot of groups that are working to, certainly not in the interest of Coke. The interesting thing is the diet, soft drink. have actually gone down more in this country than the sugar drinks, which you wouldn't think would be the case by what you read. All the water drinks, or non-carbonated drinks, have gone way up. Well, waters move way up. But still, close to a quarter of all the liquids consumed in the United States are carbonated soft drinks.
QuestionerWow.
WarrenYou know, I drink five a day and I'm feeling good.
QuestionerYeah, you got two on the set with you this morning.
WarrenYeah, well, I'll finish them too. Let's go back to activist investing. I want to apply it to another situation. Apple has also been the target of an activist investor, Carl Icon, who was pushing for them to do something to bring back shareholder value in terms of buying back stock. He's actually dropped his proxy request that he had on. The company has spent a lot of money buying back shares. What did you think of that whole situation?
WarrenWell, I think what they've done is probably pretty sound. But shareholder value, creating shareholder value doesn't mean doing something to get the stock up tomorrow. I mean, you know, shareholder value means building the most value over a five or ten year or ten year or period that you can do with the resources that's your command today. And that does not mean trying to, every day to have the stock go up. And the whole term shareholder value sort of puzzles me a little. I mean, the way we built shareholder value at Berkshire is by building the earning power over 49 years. And, you know, any given day, maybe splitting the stock. I'm not sure that that would mean anything anyway, but I had a lot of suggestions along that line.
[1:31:56]
QuestionerSo what if the stock goes up? goes up. I mean, that's good for the style. People that are leaving. It's bad for the people that are entering, you know, basically. What you really want to do is build earning power, sustainable earning power over time. And my guess is that at Apple, they're working very hard on that.
Becky QuickYou know, we had a question that came in from Simon Chow. And we know you're a huge fan of Breaking Bad. He writes in, what lessons or situations from Breaking Bad do you think are most applicable to investing?
WarrenI'm not sure. I'm not sure. All I know is I should call Saul if I'm in trouble.
Becky QuickAll right. Well, and we're going to continue. We'll continue this conversation in just a moment. Welcome back to a special attention on a squawk box. We are sitting down with Warren Buffett of Berkshire Hathaway this morning, wrapping up what has been three hours of him answering your questions. And Warren, we do have other questions that have come in. I know we're not going to get through all of them. But Matt Feigle wrote in with a specific question about a Berkshire company. He wants to know, were Warren and Charlie aware before the recent change in policy, the business wire was selling access to high-frequency trading firms?
WarrenNo, I didn't know. It's important to realize, though, that business wire sells the thousands of people, and it's all simultaneous. So no high frequency trader ever was getting information a thousandth of a second before the others, but they apparently were working with it a little faster when they got it. So anyway, when we found that out, we cut them off anyway. But they were getting simultaneous delivery, not early delivery.
Becky QuickYeah, I guess the question would be, though, if they could get simultaneous delivery as the wire service. Anybody relying on a wire service would have a slower gateway.
WarrenBy a fraction of a second.
Becky QuickBy a fraction of a second. Yeah, and maybe that's where they were making hay with it. Another question came in from our Robert Frank, one of his reporters at CNBC, and he covers the wealthy. He brings up the question. You and Gates have been number one and number two at the top of the Forbes' U.S. billionaire list for years now. What year do you think someone else will break the duopoly at the top, and who will it most likely be?
WarrenI mean, I can't tell you who's, you know, free four or five, and, you know, I'm giving away stock.
[1:33:56]
Warrenstock bill gave away a lot in the past and he'll give away more in the future. So it will be probably somebody who wasn't giving away as much than it will pass. But I really, I don't know who that'll be.
QuestionerOkay. Joe has a question.
Joe KernenYeah, just a quick one more. Just getting back one more time that, you know, if anyone would see the effects of climate change, I would think Berkshire would in terms of, especially because we've built out the population so much bigger and we've built in areas where, you know, years ago, maybe you wouldn't have seen property casualty claims. And now it seems like you would see him. With where CO2 levels are, are you surprised you haven't seen an effect? And would you be absolutely shocked if they have to pair back climate sensitivity models to CO2? I mean, are you a firm believer that you're going to see events in the future?
WarrenWhat I think, I'm no physicist, Joe, and, you know, so I, all I'm doing is reading what other people say. Climate scientists aren't physicists either. That's one thing we know for sure.
Joe KernenYeah. Yeah.
WarrenI think it is the kind of question that deserves lots of attention. In terms of our insurance business, it has no effect in terms of the prices we're charging this year versus five years ago. And I don't think it'll have any effect on what we're charging three years or five years from now. But I do think that, you know, we do have one planet. And I think we ought to pay a lot of attention to what's going on.
Joe KernenI agree. I agree. I agree. We better make sure that we're focusing on the right things, though, in terms of keeping.
Warrenthough in terms of keeping the planet livable.
Joe KernenI agree wholeheartedly. Thanks, Warren.
QuestionerAnyway, is there anyone that we don't have on our list of 25? Any outliers that you think that we should have that have revolutionized business and just the world? You've probably seen that list. You're on it. I'm sure you're going to be there as a Graham and Dodd genius.
WarrenYeah, well, Charlie Munger's my man. That's good.
QuestionerYou thought about me at all or not probably not in your will or? Not in your will or? on this list you haven't thought of me, have you? I'm just chopped liver, basically.
WarrenI'll tell you this. I agree that I'll put you either in my willer on the list, one of the two. But I'll make the decision. All right. Charlie Munger.
QuestionerAll right. Warren, before we go again, for the people who weren't tuned in at the very top of the show at 6 a.m. Eastern,
[1:36:14]
Questioneryour thoughts on what's happening with the economy right now, because probably the biggest question that a lot of people are wondering in the economy is, have we seen a significant slowdown from the fourth quarter, the third and fourth quarter of last year? of last year? What do you think based on what you're seeing in the businesses?
WarrenI don't think so, except to the extent that weather does hit certain types of industries. But my impression is that the American economy for five years has been moving at a fairly steady rate upwards, not as fast as people would like. But I think that absolutely continues now. I mean, I think we're moving ahead at a couple of percent a year. And incidentally, a couple percent a year. If you have one percent a year, if you have one percent, population growth and 2 percent gain in output it means that in a generation you have a 20 percent gain in output per capita in the country that is not bad I mean any other time in the history of the world almost that would have been nirvana so if we have 20 percent more output for your children that we have today and they have 20 percent more in the next generation that is not bad and we're on a clip that's somewhat better than that and finally just looking at the stock market today there have been a lot of people nervous about what's happened in the situation in Ukraine. You would tell them. I would tell them it doesn't change anything. If you've got a wonderful business of your own, you know, in Peoria, Illinois, why in the world would you sell it today because of what's happening to Ukraine? If you've got a farm that's producing for you, if you've got an apartment house that's fully occupied, why in the world would just sell it today because of what's happening in the Ukraine? The same applies if you have a wonderful, a piece of a wonderful business or a piece of many wonderful businesses. People do, they react too much to short-term things in the stock market, whereas they behave. quite rationally when they get into other investments.
Becky QuickWarren, I want to thank you for being so generous with your time today. Thank you. We appreciate it and we'll send it back to Joe.
Joe KernenAll right, Becky, we will see what it's, did you say March 14th, Becky? We have our March 14th is, yeah. Go ahead, sorry. No, we will, we have our, I wonder if we'll already have done our brackets by then, but we'll certainly have
[1:38:18]
Joe KernenWe won't. I believe Sunday, I believe that Sunday, March 14th is a Friday. I believe Sunday is when the brackets open up. You can see who's going to be in the. the running. So you won't have your brackets yet, but you'll be about to. All right, and we heard, I think we've, we've, our four, final four picks, we got at least Arizona, Warren, and Florida. You're going to put Creighton in there. I might put Cincinnati in there. I'm not, well, you would, and I would put great, but Joe, I will tell you, right before the 14th, I'm going to send you a special private missile, which will lay out the whole 64. You're going to do that. And, you know, we will have, I'm going to have a better idea. about whether that's 17-year-old, it sounds like an urban legend to me, whether a kid has already done this, but supposedly he has any use, as you said, it wasn't just, you know, hit or miss, he used data to try and do it. But thank you, warned Buffett very much, and Becky, safe travels. Although, you know, who doesn't want to spend at least a couple of days in Omaha in the winter if they get the chance, so maybe you won't be back. Anyway, thank you again.