OtherGood morning and welcome to a special edition of Squackbox. We've got your ticket to Omaha and the Berkshire Hathaway annual shareholder meeting. Our special guest for the next three hours, Chairman and CEO Warren Buffett will cover Berkshire's biggest holdings, Buffett's latest bets, and his read on the economy. It's Monday, May 7th, 2018, and Squatbox begins right now.
QuestionerGood morning, guys. It's great to see both of you, and I am in Omaha, Nebraska this morning. That's the site of the Berkshire Hathaway annual meeting. Our special guest for the next three hours, if you haven't figured it out already, is Berkshire's chairman and CEO, Warren Buffett. And Warren, thank you so much for being here this morning.
WarrenThanks for having me.
QuestionerYou are coming off the 53rd annual shareholders meeting, and it's something that we've been coming to you for years, but 53 years in on this. I just want to ask you what you thought about this weekend, how you feel about all of it, what stood out to you? through this weekend?
WarrenWell, I think everybody had as much fun as ever. I mean, we had a crowd that certainly equaled our record. And, again, I'm running into thousands of shareholders, and they're all having a good time here. And our directors have a good time. So it's just sort of a Mardi Gras.
QuestionerWas there anything different about this meeting, or is it the sameness that makes it so special?
WarrenIt's the sameness, pretty much. I mean, working with Charlie Munger, you're not going to, We're not going to change the format very much. Although Brian pointed out earlier that there were a lot of kind of controversial subjects, a lot of things that caught people's attention and picked up a lot of news this time. And it's because you and Charlie would say what you think, especially Charlie.
QuestionerYeah, Charlie says exactly what he thinks. And he thinks in colorful language, too, have you noticed that.
WarrenI have noticed that. Has that changed over the years, or is that just more than safe? That's Charlie.
QuestionerYeah, that's Charlie and since you met him?
WarrenSince 1959. I met him.
QuestionerOkay. Warren, let's talk about some of the things that really resonated with people and maybe start where you began the annual meeting this year, and that was talking to your investors and telling them a little bit about investing some tips and lessons along the way. You kind of used it as a teaching experience at the top.
WarrenYeah. Normally I don't do that.
[2:17]
WarrenI mean, in fact, I can't remember when I did it. We just go right into questions and answers. But I really thought that maybe you were giving a little bit the wrong lesson. because all the questions would naturally tend toward current events. And so this time I went back, actually, the 1944, when I bought my first stock as an illustration of all the things that have happened since 1942. We've had 14 presidents, seven Republicans, seven Democrats. We've had world wars. We had 9-11. We had the Cuban missile crisis. We have all kinds of things. The best single thing you could have done on March 11th, 1942, when I bought my first stock, was just buy an index fund and never look at a headline, never think about stocks anymore, just like you would do if you bought a farm. You just buy the farm, let the tenant farmer run it for you. And I pointed out that if you'd put $10,000 in an index fund that reinvested dividends, and I paused for a moment to let the audience try and guess how much it amount to, and it would come to $51, million dollars now. And the only thing you had to really believe in then is that America would win the war and that America would progress as it has ever since 1776. And that American business, if America moved forward, American business wouldn't move forward. You didn't have to worry about what stock to buy. You didn't have to worry what day to get in and out. You didn't, you didn't know the Federal Reserve would exist, whatever it might be. And America works. We went back to that day in 1942 because it was the day you purchased your first stock, which point out, you were 11 years old then. Right, right. So... Yeah, and the day I bought, I mean, the headlines... You get right the other side. Yeah, the headlines were terrible every day. You know, the... Within two months of this... This is the New York Times from 1942 that day. Yeah, the 1944 New York Times. Sold for three cents. And... And I also got the headlines from some days before it, and everything was going badly. The Philippines were going to fall within two months. Things were grim in Europe. Our ships were being sunk, and the war was bad then. And that day that I bought March 11th, the Dow Jones cracked 100 on the downside. There was a 2% decline, which would be 500 points today. And the night before on March 10th, I... I said to my dad, I want to go all in. I had $125, and I put every bit of it in three shares of city service preferred,
[5:05]
Warrenand which is still my personality, is to shove it all in. As we've seen with Apple. Yeah, somewhat. And as I pointed out to the crowd, I bought that stock at 38 and a quarter. It was down from 84 the year before, and it was down from 55 in January. And I thought, I'm really buying a cheap. So it went down to 27 after I bought it. And then I said, And it went up to 200 later on. But I sold it 40. You know, these are lessons that you point out because you tell investors that they shouldn't really be trying to market time. They shouldn't be looking at things. You should invest, stop paying attention, and look away. But I'm somebody who does pay attention to market valuations, buys more if you think a stock is cheap and less if you think it's expensive.
QuestionerAnd I'm just wondering where you think the markets stand right now. When we talked to you back in February, at the end of February, you said, You said you thought things were not overly priced, but you didn't find any businesses that you yourself felt like you could purchase. Where do you think things stand right now?
WarrenYeah, and we haven't bought any businesses in their entirety since I saw you last. We bought a lot of Apple, as we pointed out the other day. If I had a choice between buying the S&P index or buying the 10-year U.S. Treasury or the 30 U.S. Treasury, it wouldn't take me an average. second to go into stocks. Now it may be because bonds are going to fall a lot, but the investor has a choice between three or four things. They've got stocks, they've got short-term governments, they've got long-term bonds or long-term governments. Or they could buy, they could buy a farm, a small farm more.
QuestionerWhat about corporate bonds too?
WarrenYeah, they can buy corporate bonds, but they probably don't know enough to evaluate credits. credits. I mean, they will get enticed into junk bonds exactly the wrong time. That's when the issuances will come and the covenants will be non-existent. So you're talking about average investors who don't do this for their day-jubs. Not professional investors, but average investors, but 99% of people are non-professional investors. And that would, if they had to do that to come out decently, you're going to understand. I'm sort of gambling on that. But the point is, you don't have to do that. need to do it. You don't have to buy exactly the right stock or buy it exactly the right time. The one thing you have to avoid is buying the single wrong stock or at the single long time.
[7:36]
WarrenAnd most people get excited about a stock or about the market after it's gone up. I mean, their neighbors made a lot of money and they know they're smarter than their neighbor. It's very irritating to have a neighbor buy a new car and your spouse says, is that guy smarter than you are or what? So they have this, they're enticed into the market the wrong time. And all they need to do is buy a cross-section of America. And it's best to buy it over time. If the first 10 years of your working life, you just save and invest for that period of time. You don't have to be the right time.
QuestionerYou made the point even more drastically over the weekend in terms of looking at treasuries, U.S. Treasuries, basically said there's never been a good time to buy it, even going all the way back to the war bonds back in the 40s.
WarrenYeah, that is true now. You bought them for patriotic reasons. But, but, uh, there's The government then was offering you 2.9%. You bought a U.S., you call them a war bond then. They called them defense bonds and then savings bonds later on. But we were happy to buy war bonds then and we paid $18 and $75 and we got $25 in 10 years. For three get you four, that was, in fact, they had a, they took Take Me Out to the ball game and turned it into song about buying war bonds, you know. And for each three you get four at the old bond game and the, uh, that's, that's, that there's a little you saw again, we'd sing in school. And, but, and the government happily pointed out to you that you were getting 2.9% compounded for that. And of course, now you have a situation. The Federal Reserve says they want inflation of 2%. So they say they're going to try and devalue that bond by 2% a year in the dollar terms. And it's almost always, equities have been a better buy. And certainly if you're, if you're going to put away money over time, when you're, you're going to put away money over time, younger, if you buy stocks over a conservative period of time, you're not going to get the lows, but you're not going to just buy it the highs. And if you are cross-section, well, like I say, it would have turned $10,000 into $51 million and you'd never have had to look at a financial page again or listen to a broker.
QuestionerGoing back to this idea, though, that the markets you think are a good place for average investors right now. The S&P 500 is a good place. If you're a professional investor, if you're
[9:55]
WarrenWell, I look at price and I find it hard to buy things. And incidentally, professional investors aren't going to do better than the amateur in almost all cases. But I don't find things easily. I mean, we were on in March of 2009 when the Dow was in the 660s or 670s. And we talked about it then. I mean, there's. It was the bargain counter. And I continued for a long time. Stocks have been very, very cheap. But you have to measure, you have to measure them against alternatives. If government bonds got to 15 percent like they were in 1982, that's a different equation against stocks than exist now.
QuestionerYou've had periods in the past, though, where you have said stocks look expensive to you or that we look like we're in bubble-type territory. This is not one of those times, I take it?
Warrenthat this is not one of those times. Now, if government bonds go to 7 or 8 percent, which means if you own a long bond now, you get killed, the stock you bought now will not necessarily look attractive. It probably won't be attractive. I mean, it, interest rates are like gravity. If interest rates are 1%, and they're going to be that for 100 years, obviously, anything that yields you 2 or 3 percent is going to do way better. I don't think they're going to be 1 percent for 100 years.
QuestionerJust to get into the nuances again, though. You're talking broadly about issues in terms of how you see the stock market as a great place for average investors, maybe a place where you're not finding all that many bargains. And when you look to buy a company all in, I mean, I've spoken with some people here this weekend who know an awful lot about M&A, who know a lot about private businesses, what they're valued at at at different things, who say that when they're looking at. When we're looking at prices, things look really rich. You're talking about prices that are 15 to 20 percent above what's a fair price as they see it?
QuestionerIs that match up with what you see right now?
WarrenI would agree with that. That's why we haven't bought any businesses for quite a while. In addition to the normal factors in the public market, when people buy businesses these days frequently, they're being bought by people that are borrowing 60 or 70 percent of the money, maybe even more.
QuestionerYou're talking about private equity?
WarrenMostly private equity, but not exclusively private equity. And if some, we're not
[12:32]
Warrenwilling to calculate our returns based on borrowing money at 70 percent of the purchase price. That may be the best thing to do. But we calculate things generally on an all equity basis, and we are not competitive. And then you've got a general euphoria that to some degree the private equity funds have to put the money out. And it's kind of interesting what they do because they take the money which they get usually from institutional investors and then they buy a company in the market from some of those same institutional investors except pay a premium and they say we can run it better if it's private than they hold it for a while and then they sell it back to the market and these private institutional investors having with them having paid substantial fees during the meantime and say it's better to be public. It's an interesting exercise.
QuestionerLet's talk about some of the things that came up this weekend that really caught people's attention and some of the more controversial statements that came out. At one point this weekend, you said that Bitcoin, and this was basically, you were asked, Charlie said Bitcoin's like rat poison. You were asked about that comment and you said, well, it's probably more like rat poison squared. Charlie went on in the meeting to then basically call Bitcoin turds. He is an expressive sort of thing. Maybe when he gets a little older, he'll mature. I just want to ask you about that because it sparks so much controversy, and particularly on Twitter and some of the places where you might expect people who are trading in cryptocurrency to be pretty loud about what they heard. What is it about Bitcoin that gets you guys so fired up?
WarrenWell, when you buy a farm, you look at the crop every year and what prices are and you decide whether it was satisfactory. investment. I mean, you look to the asset itself and what it produces for you. When we buy a business, we look at what the business earns and decide how we feel about it in terms of what we paid. But we are buying something that at the end of the period, we not only have what we bought in the first place, but we have something that the asset produced. And when you buy non-productive assets, all you're counting on is whether the next person is going to pay you more because they're even more excited about another. next person coming along, but the asset itself is creating nothing. One of the interesting things, for example, is gold.
[15:02]
WarrenIf you go back to the time of Christ and you look at how many hours where you had to give up in order to buy an ounce of gold and you take it forward to now, you'll find the compound right, maybe a tenth or two-tenths of one percent. And then you have to insure it during that time and make sure somebody doesn't steal it from you and everything. But it doesn't produce anything. And productive and assets you may have you can pay too much for a productive asset but I bought a farm in the 1980s and and every year look at how much it produced the way of soybeans and corn and at the end of that period I've still got the farm and I've gotten some significant income off of a apartment house operating business but if you and I buy various cryptocurrencies they're not going to mobilize they're not going to be a bunch of sitting there in front of us that they're just going to sit there and I got a hope next time you get more excited after I bought it from you and then I'll get more excited and buy it from you and actually we could we could sit in the house by ourselves and we could keep running up the price but at the end of the time there's one Bitcoin sitting there and now we've got to find somebody else and and they come to an end I mean those I mean that's a greater fool theory that's what you're saying well yeah it's it's it's buying something because you expect the pool of people who want to buy it because they want to sell it somebody else will grow and and it's wonderful because it does create a rising price does create more buyers and people think I've got to get in on this and and it's better if they don't understand it that's the other thing about not if you don't understand it you get much more excited than if you understand it I mean if you buy a bonus says she's going to pay you a 4% a year you're not going to get any pleasant surprises she's going to pay a 4% a year but if you you if you can have anything you want to imagine if you just look at something say that's magic you can do it with shark teeth or seashells or or anything and you know they did it with tulips and and in the 17th century in Amsterdam and and and they'll do it again I mean people they like to speculate they like to gamble and if you can get something you have something half plausible going on if you had bought gold in in 1942 and you say we might lose the war we might might have to run off to some other country and you know so let's put our
[17:28]
Warrenassets in gold you would have less than a penny for every dollar you got from owning stocks less than a penny now somebody calls out a store of value I mean I think they're delusionary okay
QuestionerAndrew has a question too Andrew hey Warren related to this issue of Bitcoin you saw that Goldman Sachs just last week announced they were going to create a effectively a trading operation around cryptocurrencies and Bitcoin in particular, you've been an investor in Golden. What do you think of their decision to do that?
WarrenWell, they probably think that lots of people are going to get very excited about, well, and maybe already are, but they think there's money to be made trading them. I don't think they're expressing an opinion on the Olimat value. I would be very surprised that the top partners of Goldman are selling their Goldman stock and putting it into Bitcoin. But I want to cover this subject now because my friend Charlie will come on at 8 o'clock. There's no telling what he will say. That's my entire point. I do want to ask Charlie about it because I think when he talked about the turds, he was referring to this. He said if you're trading this, it's like watching other people trading turds and deciding you want to get a piece of that. Well, you're not going to get me to comment on that. Hopefully Charlie's not awake and not watching right now. Well, the truth is people do trade on. Very crazy things over time. You know, imagine people selling their homes to buy a tulip in Amsterdam. If people think they're going to buy a tulip in Amsterdam. If people think they're going to to make money the next day. And worse yet, if they think somebody else that they know is going to make money and they aren't going to make money, it just draws people in. You know, I could whisper something on this program. And kind of the more sillier it was, the more it might react, because there's no quantitative limits. If you buy a stock, you say, well, I'll buy it at 15 times earnings, but I won't buy it at 20 times earnings. But when you get into something that doesn't produce anything, you know, there's no, there's no checkpoints. There's nothing to reference it to. It's just it's gone up, so it'll keep going. Now, I will say when I was tweeting the things that you and Charlie were saying about this weekend, all I was doing was repeating what you were saying, and people were coming back with some pretty angry comments,
[19:43]
Warrenincluding things like, I bought a house buying cryptocurrency, you're outdated on this, they said a lot meaner things, that you don't understand it, so you should shut up about it. You're not. Well, the interesting thing is if you're investing, you know, we're you, whether people say, if I'm investing in Apple, I love the idea of people saying Apple is terrible because I want the stock to get out because they're repurchasing shares and my interest will go up faster. You don't get defensive if you're buying something that produces that. You don't buy a farm and get real defensive if somebody comes home and say you shouldn't buy a farm or something. You say, look, what's the crops grow? And I can see what I'm selling my crop for at the end. They're not making 4% or 8% on my investment. You get defensive. You get defensive when you look at this thing and it doesn't do anything. You're just hoping somebody comes along to pay you more tomorrow or the next day. And you're dependent on more people, the mob growing, you know, basically. So those people do get angry. But the person that bought a house with her, I would say they did the very right thing. They sold it. They sold it and bought something else with it.
OtherHey, Joe, you have a comment too?
CharlieIt just, I was singing it, but look how long it took you to buy Apple, though, Warren. I mean, you finally did buy it. You need to be, you know, it needed, it just took a long time. I don't know what happens with Bitcoin, but you see, these are, I don't understand it either. But it's got quite a following among, among all these people that, you know, think it's going to 25,000 or 100,000. I mean, it did take you, you've never embraced technology as much as a lot of other things that you understood a lot better. And you're finally in Apple, but what did you finally buy Apple? It was probably a $700 billion. company when you finally bought it. It could have, you know, it would have been nice to buy it at $100 billion or $50.
WarrenYeah. And I say about buying apples, I don't care whether anybody ever mentions Apple again. I mean, you know, whereas with Bitcoin, you know, people to buy it want to tout it because they want more people destroying the crowd. So they want to come on and say, you buy Bitcoin because the only, they're going to lose money unless the crowd gathers, if the crowd starts dispersing. So they've got every reason in the world to tout it. When I buy Apple,
[21:57]
WarrenI know that Apple is going to repurchase a lot of shares. So right now, Apple had whatever it did at the quarter, $4,927 million or $923 million, whatever it was. And we own about 5%. But I know I don't have to do a thing. And probably in a couple of years, we'll own 6% without laying out another dollar. Well, I love the idea of having 5% go to 6%. And the cheaper the stock is, the more they will get for their money when they're buying it in. So there's just no reason at all for me to encourage other people to buy Apple.
QuestionerI'm, was that, I was, you know, I hadn't heard anyone say city service in a long time. Was that, it was a, it was a, it was a preferred stock?
WarrenI don't, it must have been convertible, wasn't it or something, to have huge price swings?
QuestionerNo, no, what.
WarrenNow what happened, Joe, was that city service started out as a utility company, kind of like it sounds, way back around 1910 sometime around that. Right. But then they, they bought in, They started developing natural gas, and then they found oil in connection with it. So over a period of time, it still was a big utility company. It morphed into a basic energy company, production company. But they issued, when they were a utility primarily, they issued a $6 preferred that cumulative preferred, and it quit paying dividends in 19, and it quit paying dividends in 19, 1932. A lot of people they ran out of money that. So from 1932 forward, you had this preferred, which $100 par, which was accumulating at $6, a rear ages. The year before I bought it, they actually made a $3 payment on a rear area, but that still was less than a $6 coupon. And then they eventually called it at $200 and something, which was $100 par, probably a call premium, plus all the arrearages. It was not convertible.
QuestionerI see. That's pretty amazing, though. You were 11 years old. And what a history city service had. I mean, there's a Boone Pickens and a Pac-Man defense. It was bought by Oxy. And then part of their gas stations were bought by Venezuela, remember? And they were giving free gas around. And the Red Sox, the big Citgo sign up near the baseball stadium. So it's amazing.
WarrenYeah. Right. Right. It became a major oil company. Yeah. They actually, I think, sold the preferred door-to-door. way back in the in the 20s or sometime like that, too.
QuestionerBut quit talking about buying the farm. Every time you say bought the farm, I'm like, what's it? I'm like, I'm like, not listening for a second.
[24:37]
QuestionerAnd then you go, I bought it in the fall, buy it. It's like, stop talking about that. I looked up what, that's a weird expression that came from. It's very morbid what it actually came from. But I'm not even going to it. But there's a, there's a, a derivation for where it came from when I guess if guys, they want to come back from a war and they're going to buy a farm. when they do. And unfortunately, it's their family that ends up buying it from insurance proceeds or something. It's horrible. But anyway, yeah, let's move on to Bitcoin and Apple. Different assets on this. The World War II, there was, go ahead. Go ahead. Go ahead.
WarrenIt was very interesting in one sense, because John Maynard Keynes had written in 1935 or 1936, the general theory. And Keynesian economics around my household, everybody thought it was a total fraud and all of that. The World War II forced the country into this huge Keynesian type financing. I mean, we had the deficit finance in a way that was incredible. And the debt went up to 120% of GDP, which is considerably higher than it is now from a figure far lower than that. And we sent millions of the most productive people. We took them out of the economy. We took them out of the economy. We started building things that we dumped into the sea. We did it borrowed money. And it created the runway for, you know, the greatest economic progress the world's ever seen.
QuestionerWow. Warren, let me ask you one more question on. Oh, go ahead. No, I said that almost, so is that like an endorsement of Keynesian economics, Warren?
WarrenIt certainly works in World War II. I mean, we would, we, I don't, I do not think the 40s and 50s and 60s would have developed from like they did without the huge deficit spending and all these events that, you know, we were trying, we were struggling to get out of the 30s. And then they just turned the spigot loose, which they had to do, and build a whole bunch of things they dumped in the sea. You know, they weren't building refrigerators or cars or anything like that. And there were a lot of people that predicted a, one of the things that I do remember very well was that a lot of very respected figures that we would come out and happen at pressure. would come out and have a depression post-world war, too, just like we had post-world war one. So that was a prevailing sort of...
QuestionerBut are there times to be Keynesian and then times to pull it back in and rain it back in?
[27:12]
QuestionerYeah, well, that's... But Keynes would say that too. Yeah. Yeah. Well, we need a guy with a little experience to talk about all this, not someone, your agent. We need Charlie on, who can probably really... Charlie. Yeah, right. With a little experience under their belt. Give them a... Yeah, be prepared to bleep him out, though. We need a three-second delay with Charlie. Hey, Warren, let me ask you, just city services. You've talked about this. I knew that was your first purchase. I knew you were 11. But for people watching at home, you hear an 11-year-old picks out a stock and asks their dad to buy it, particularly when their father is a stock broker, you assume their father is the one that led them to that conclusion. My guess is you did that all by yourself. How did you come up with it?
WarrenI must have heard somebody talking about. about it. But then if you looked at city service at that point, here was this company in the Depression didn't have the money to pay it. Now all of a sudden it was paying down its debts and it was going to earn a lot of money. And they had a lot of, you know, they had assets that were becoming worth more. And we were going to have inflation after World War, too, so that assets probably were going to be worth more while their debt was coming down. And the earnings on the preferred were terrific. They just weren't paying them out. So I was going to get $200 at some time. But the problem was that buying it at 38 and a quarter, as a matter of fact, and having it was down to 27 and walking to school with my sister who also wanted to buy three shares because I was buying it, she hated to see me get rich while she wasn't getting rich. And having her point out that this thing was going down every day. When I got back up to 40 and we each had a chance to make a $5 profit, I thought, now my sister will, again, consider me a genius, and I will have $5 more. How can life be any better so that I want to go to $200 after selling it to $40? Lessons learned early in life, probably very powerful ones.
QuestionerWarren Buffett's going to be with us until 9 a.m. We have a lot to talk about still. Once again, we are in Omaha with Berkshire's chairman and CEO, Warren Buffett. He's going to be with us through the entire morning. We'll be joined also by Charlie Munger and Bill Gates a little later in the program. But right now, Warren, let's talk through some of the individual stocks that you've spoken about this weekend.
[29:26]
QuestionerMaybe the most controversial one was Wells Fargo. You were questioned directly on that at the shareholders meeting with questions from shareholders and who have said, okay, and I did hear this from other shareholders later on. Welles Fargo has run into trouble time and time again. The fines have continued. The developments and things that we found out about some of the cockroaches, particularly as you might phrase, continue to come out. But you've stuck with this stock and said that you're not selling and that you're not selling, that you're not selling and that you have faith in Tim Sloan, who's the existing CEO. People have pushed back and said, look, this is a company that's run into trouble and it doesn't jive with what we've heard you say about Solomon. How do you say, yes, this does fit with our investing philosophy?
WarrenWell, at Wells Fargo, they made one mistake that maybe I've made from time to time, which is incentives work, and they came up with improper. They came up with improper incentives and they worked. And so they incented bad behavior, incentive incentive and good behavior. And that happens from time to time. You can put too big a commission in something or something. But let's talk very specifically about what incentives were created. They were incentives that rewarded people for the number of new accounts that were opened. And they got in the, they regularly on their investor presentations would say, we've got so many and eight would be great and six points. 6.2 was better than 6.1 products. So they put this huge emphasis to the public out there, as well as to their employees, but to the public, that they had more services per... To their shareholders. And shareholders and everybody listened. And surprise, surprise, people started creating fake accounts. And when bad behavior gets in there, other people figured out. I mean, if you get rewarded for bad behavior, you're going to have a lot of bad behavior. That's a problem. I'm sure it's a problem. from time to time at Berkshire at other places. But the real problem was when you find out about it, you've got to stop it immediately. And I don't know the details about why it wasn't stopped, but I've seen that before. And then it just gets out of hand. And if you don't stop it immediately, then if you do it four months later, everybody will come and say, well, why didn't you do something you do something four months early.
[31:55]
WarrenBut let's be a little more pointed with this. This was not just a case where Wells Fargo was not stopping bad incentives immediately. It was quashing whistleblowers who were behaving properly and firing them. I don't know the details too much on that. From what's been reported, I don't know this firsthand. I don't know this firsthand. But from what's been reported, there have been many whistleblowers who said that they were trying to do the right thing. They tried to report it. And as a result, they wound up losing their jobs. Once you have not done it. not done it, you're in the soup. I mean, John, good friend, in April of 1991, got word that Paul Mosier, a trader in government of Mons, was doing something that was very wrong. And he absolutely, John was not profiting by it. He didn't know about it. But the next minute he had to pick up that phone and call Jerry Corrigan at the Federal Reserve of New York. And everybody thought he was going to do it in the room. But it was unpleasant or he got distracted. And then on May 15th, Mosier did it all over again. did it all over again and now the position you're in is you call up and you knew this pyromaniac was out there who would sit fires and you let him ride another match and then it's you're in big trouble anyway you just you have to act i mean charlie's been very good with me on things like that he if if i tell him about anything there's a problem i mean he doesn't let me procrastinate uh and i might procrastinate otherwise it's a very human trait but anyway they and then they uncover other wrong things as you get into it. Now, a couple of our great opportunities came from similar situations. I mean, GEICO had a CEO in the early 70s who refused to accept the fact that the loss reserves were developing badly. Now, if you refuse to accurately assess your loss reserves, you also don't know your costs because you sell the product first, and then you start kidding yourself on the cost. And then you get in a hole and now you're reserves are and maybe you figure it out but then you've got to admit it if you do it and and it's just easier to shut your eyes and hope that something good happens uh and and it essentially bankrupted the company now that was a huge opportunity for us because geico was a solid company underneath but their balance sheet was a mess they needed to raise capital they almost got their licenses withdrawn and we bought half the company for less than 50 million bucks
[34:22]
WarrenSo the fundamental business that Wells Fargo is. They've still got the accounts, they've got the loan customers. We do business with them every day. And incidentally, other banks ran into much other kinds of trouble in the 2008-9 period, more on the something bigger stuff, you know, maybe mortgage back securities or something of the story. So the banks had their share of trouble, but Wells had theirs in the particularly egregious way, which was really kind of thumbing their nose at the public. They made way, way, way less money doing that than if they were bundling big MBSs and breaking it in by the tens or hundreds of millions. And the fines were, you know, even bigger. But going forward, you can stop bad practices. They should be stopped earlier and they're much earlier, easier. I look at the situation with Solomon and you came in and with the person who had to clean it up. Tim Sloan was an insider. Tim Sloan was not the one who, this didn't happen on his watch, but he was an insider. Is that, can you be an insider and still be the one who cleans it up? Well, I cleaned up affairs with Congress and tried to set a tone and everything. Derek Mawn came in and I put him in total charge of running Solomon Brothers. And he, everything he did, you know, was perfect. I mean, and he had all kinds of things he had to look at. And we didn't know when we'd get more of surprises. And he was working 15-hour days. He never asked for any extra compensation of any kind. And he was an insider at Solomon. And he was, oh, yeah, he'd been an insider there. Sure. He was one of seven or eight people that were top people I interviewed. I had to have an insider because I arrived there on a Friday, you know, and they were about closing us up. And somebody had to run a business that was doing maybe hundreds of billions of dollars worth of business and things like government bonds and everything. We had the largest balance sheet in Wall Street. So there was no way I could wait and get an outsider. I interviewed people on a Saturday. I started interviewing at nine in the morning. I got in on a Friday. And I had to come up with somebody by Saturday afternoon to run the place. And there were people in that room that had semi-contributed to the culture anyway that led to this activity. And so I picked an insider who knew about it, who knew about it, all the people involved, and the guy behaved magnificently and got me out of trouble.
[36:57]
OtherJoe?
OtherAndrew wants to talk to me. This I didn't happen to the guy. They picked, they picked a new guy. They picked Jack Vernon.
QuestionerWarren, I wonder how much Wells Fargo talk to you. They're on a complete reset now. Yesterday was the Wells Fargo championship down at Quail Hollow. I don't know if you saw it, but in the entire advertising campaign, they go back and show when Wells Fargo was, you know, was founded and they show stage coaches and everything they did and then they just go to a complete blank where they say but this happened and now it's the new I mean they paid someone to get an entire ad campaign that there's been a complete reset and we're starting over and you know the the spokesperson that they had on the on at the tournament it's all they talked about as well I mean that took a while but they finally got to the point where they're saying all that history is in the past and we're starting all over right now which is pretty amazing that they had to come to that point. Did they talk to you about that advertising campaign?
WarrenI guess they did. No, no. No, they didn't, but. No, we never, and at Solomon, we did not run an advertising campaign, but I ran a two-page double-truck ad in the New York Times, the Wall Street Journal, and the Financial Times when we reported our third quarter. And I just, I said what was wrong, and I said how we were going to change it, and it was in very small type. And we needed change.
QuestionerWell, it's interesting. It's interesting. I've I first bought in when Carl Reikert was running and I can tell you that there's no finer guy than Carl Reikert.
WarrenIt wouldn't have happened under Carl Reikert. But an institution, institutions make mistakes. And I will tell you this, we have 377,000 people working for Berkshire. And right now, I don't know whether five of them or 10 of them or 20 of them, but I'll guarantee it isn't zero of, are doing something wrong. And my job is to act when I hear about anything. and to make sure we've got some systems so we do hear about things. So we get about 2,000 contacts through what we call the hotline a year. I get anonymous letters, and those are the two best sources of finding out where something's wrong. I mean, it's better than having 100 people crawling all over the books. Anonymous, anonymous. Sometimes they sign them. But I just said, I've received one last week.
QuestionerYou received one last week about something happening at Berkshire?
[39:22]
WarrenYeah, sure. But I mean, I receive them all. They're going to come in. And sometimes people just don't like the person working next to them. So they, you know, they come in for a lot of frivolous reasons. But you have to look into what it is. And if you look at $199 or, you know, the guy next to me has bad breath, you know, or something like that. But that's the way you do find them, overwhelmingly, is tips, basically. How do you track down every one of those tips? Well, we have an audit department that sorts out the ones that they think have, that I ought to see. I mean, you know, so Becky Amick is in charge of the audit department. And incidentally, the larger companies, they have their own groups too. But those people could not only write their own company, but they can write their own company, but they can write us. And some of them just come in to, you know, a letter comes into Warren Buffett chairman. and it's usually not signed, but that's okay. I mean, and obviously, when they get very specific and say, this is going on or that's going on, that's what happened with American Express in 1964. They had a field warehousing subsidiary. They were getting coals from a guy at a bar in Bay Island to the head of the, and he was saying that tanks are phony. Go to this tank and go to that tank, and go to that tank, and you will find that it's not filled with solid oil. And the guy didn't want to hear it. didn't want to tell his boss and it just gets worse and worse and worse.
QuestionerHey, Warren, you know, after you had commented on Wells Fargo during the meeting when we discussed it on Saturday, I got a couple of emails of folks who asked me if I could find, if there could be a follow-up question. So the follow-up question is this. When you bought Solomon, you came in after Solomon had its problems. And some of the other examples that you gave, the opportunity came because you weren't in the In the case of Wells Fargo, you've been in the stock. So there were two questions. One is, do you wish you weren't in the stock when they had the problems? Meaning, would you prefer to put your money, for example, in something like J.P. Morgan, which I know you've put personal money in before. And somebody else said that, you famously said, if you lose reputation, I will be ruthless. And the question is, when will you be ruthless? Or at what point would you be ruthless either in this case of Wells Fargo,
[41:44]
WarrenWell, I'd be ruthless. I know he's working. for me, but I don't, and the answer is, of course, I wish I'd bought the other stocks, bank stocks and then sold them now so I'd be buying Wells Fargo now. I mean, Wells Fargo actually is buying a lot of shares and you can argue that they're improving the per share value because they had this bad news. They're buying it cheaper. But I think 10 years from now, I think if you look at the 10 year record of Wells Fargo 10 years from now, you will, you're very likely to find that it outperforms most of its competitors. buying more shares now, if you could, you can't because of the bank thresholds. Yeah, I don't want to give recommendations on which stocks to buy. To Andrew's other point, though, I think you touched on it very quickly, but the idea of being ruthless if you lose a shred of reputation for the company. That's Berkshire. Right, but what you're saying, you're distinguishing between Berkshire, owned companies and investments. Sure, sure. It may be worth pointing out that you're a passive indebtable. investor in Wells Fargo and the bank and you have to be. Yeah, well, I have to be a passive investor. But I'm not sure everyone understands that. Yeah, no, no, it's, we are not, we do not want to be a bank holding company. We can become a bank holding company if we own over 10% and then there's a point at which your activities could make you or something. We have no, we owned a bank and we had to dispose of it back in 1980. We bought a bank and then they passed a bank. and then they passed the Banking Act of 1969. We'd have bought more banks, actually. I like the banking business. And then they changed the law in 1969. We had 10 years to divest, maybe they changed in 1970. We had 10 years to divest of the bank we owned. But I would not. We'd still own that bank and we'd own other banks if they hadn't changed the law in the 1970 period. Okay. Folks. But I don't feel responsible. If you're having a lot of it. trouble with your Apple phone, don't mind me. Okay.
OtherWe have much more from Warren Buffett still to come. Today we are introducing the Warren Buffett Archive. This is a website with the world's largest collection of Buffett speaking about business, investing, money, and life. It includes 25 full annual meetings for Berkshire Hathaway with Warren Buffett and Charlie Munger,
[44:12]
Othertaking questions from the audience. It goes all the way back to 1994 with a highlight reel for each year. By the way, folks. This is the only place that you can get this complete archives. It's also got 130 hours of searchable video. It's synchronized to 2,600 pages of transcripts that have been painstakingly checked by Alex Crippin, who did a phenomenal job of running through and making sure he knew exactly what everything that was mentioned was done. This was done by hand, I'm calling it instead of AIAC for Alex Crippen. There are 500 video clips covering scores of subjects, plus CNBC interviews, a Buffett timeline, and a Berkshire portfolio tracker. If you want to check it out, make sure you do it today. It's Buffett.c.com. Warren, you got a chance to take a look at this too. And this came from you giving Steve Burke, our chairman at NBC Universal, access to 25 years of annual meetings. This is stuff that only Berkshire's been holding on to for this time.
WarrenYeah, Steve had suggested it to me a few times, and then he suggested it a little stronger. And it sounded like a good idea. I didn't think it could be done. like this. So we just gave him all the annual meeting material. We didn't give the movie because that's got some stuff that we promised not to put out. You made with celebrities who have done this. The celebrities, come on, yeah. But in terms of the annual meetings, you know, door to, you know, portal to, you know, portal and everything we had, everything we had. And even, you know, with university students or anything we had, we gave, we gave Steve. And I told Steve, you can do with it exactly what you want. I mean, I've known Steve a long time. And I thought it'd be an impossible job, but I knew that if it was done, it would be done well. And it blew my mind when I saw it. I mean, it's been really useful for me, just going back trying to figure things out. Because over the years, things kind of blend together when you said what or exactly what you said, or if it was you who said it, or Charlie who said it. The search function is better than I had anticipated, just in terms of being able to look up things. Like maybe I wanted to find out when you started buying shares of Apple. Type in Apple shares and it comes up. And I can even go back, link to the transcript, and then click to the video of you saying exactly why you were buying it. Yeah, it'd be more fun for me to just recall what I was saying at the bottom of the whole, but it's all there.
[46:32]
QuestionerI mean, and that's the way it should be. I just love the idea. Great, thank you. And folks at home, if you are wanting to check this out, the address again is Buffett.com. The website is live. We'd love to hear what you think about it, too. Again, folks, we are live in Omaha, Nebraska. This was the site of the Brookshire Hathaway, annual meeting this weekend, the 53rd annual meeting. Our special guest is Berkshire's chairman and CEO Warren Buffett. And Warren, thank you again for being with us this morning.
WarrenIt's fun.
QuestionerIt is fun. I want to talk through the cash hoard that Berkshire has. At the end of the year, you had $116 billion in cash. You told us last week that you had spent about $12 to $13 billion in the first quarter, so you were thinking the cash hoard was closer to $100 billion based on some other things that you had potentially bought as well. Okay, so you're spending billions of dollars, but you still have $100 billion. Is that ideal?
WarrenNo, no. It's, we earn very little on it, but that is, we will learn very little on it. But that is, we will learn a little more this year than I, but it's just about the world's worst investment except doing something dumb that you're doing for a longer term. But it does give you the ability to move very quickly if something very big comes a lot. long, but I would much rather have that number be $30 billion than $100 billion, and have that the other $70 billion invested in, ideally in businesses we own, but also in securities we own. And we did, for example, put out, I don't know what it was, how much was in the first quarter, and how much was in April, I'm not sure. But we put out $15 or so billion net into stocks. And I like that. And it wouldn't, if I could find them, and buy them in sufficient quantity, if that had been $50 billion, I'd have been even happier in the first quarter or if we'd bought a $50 billion business. But you don't want money burn a hole in your pocket either. I mean, we make, if we buy a business, we buy it to keep. So if we pay X for a business or two X for a business, the business doesn't know. It doesn't adapt itself to what I pay. It's going to earn the same. And so if I make a mistake, if I make a mistake, on purchase price, Berkshire Hathaway lives with that mistake forever.
QuestionerSo for the rest of us who see you sitting on $100 billion, we think that you think the market looks expensive and that you can't find anything that's worth putting your money into that makes it better than cash or short-term treasuries.
[49:10]
WarrenWe own $170 billion worth of equities. We go up every quarter and we want up a fair amount in the first quarter. So, no, I would rather own the $170 billion. 70 billion of stocks we have, then own Treasury bills by a very significant margin. But there are limits to how much I can buy of some of these companies that I like. Usually we quit at 10% almost always. So, now, if you told me I had a choice and I couldn't make a change. If you told me I had a choice of owning treasury bills, long-term treasuries, or common equities. And I was going to keep it for 10 years or 20 years. I'd do it in a second. And we'll get the money employed. Something will happen. Something will happen, meaning a big deal? It could. Yeah, sure. I can spend it all tomorrow. I mean, I wouldn't spend a whole hundred, but I, I, although if $100 million, $100 billion deal came along, Charlie and I really liked, we'd get it done.
QuestionerYou'd get it done by spending it all or by financing part of it?
WarrenWell, we'd probably have to, and we might buy. borrow 30, or we might sell some things. I mean, but one way or another, we'd get it done if we'd like the deal. There are questions that came in from shareholders that I got this weekend, and I didn't get a chance to ask you all the questions that came in. Some of them said, is $20 billion still the amount that you feel comfortable holding? Others asked, if you've got all this and you're telling all of us to put our money in an S&P index, why don't you put that $100 billion in an S&P index? That wouldn't be the dumbest thing in the world if we did. But that's a lot to move in and out. No index fund would take it, I mean, to start with, knowing that we would want to want to, might want to yank it out, 50 billion of it out in a week. So we'd almost have to create our own index fund to do it. It wouldn't be hard. Well, it'd be a fair amount. I mean, they're better set up to do it than we are to buy 500 stocks in the proper proportions and keep it indexed. But we could create something that was a quasi-index fund. And that, that's a that's... That would have been smarter than what we've done, Becky. That's... That was smarter. I mean, I've thought about that some. I think it's a little harder to act when you see something later on if you do have to unwind 500 positions and all. I like to move when I move. But Net, if you told me over the next 30 years that Berkshire would keep its excellent.
[51:55]
Warrenwould keep its excess funds. We still have $20 billion, at least in treasuries, or treasury bills. But if you told me we were going to follow for the excess money, we were going to follow an index fund policy versus the Treasury bill policy. I would say the index fund policy would work well, assuming we could execute it reasonably well.
QuestionerOkay. Let's talk about Apple, the place where you were spending, the bulk of that cash that you were in the first quarter where you were deploying it. $12 to $13 billion that you put in, that's on top of the, I think, $27 or $28 billion. Maybe it was $29 billion you already owned an Apple as of the end of the year. Yeah. That's a big chunk of that $170 billion. It's the biggest stock that you own by far. It already was before you bought these additional shares, 75 million shares. Why?
WarrenWell, I should say, in the past, we have plenty of times when a single stock was a bigger proportion of our total net worth, but in terms of recent times, well, it was a company I liked, a business I liked, very much, and we could buy a lot of it. There's some others that, there are much smaller companies, we just can't buy that much. I might like them equally as well, but I can't put as much money in it. But I clearly like Apple, and we buy them to hold, and we bought about 5% of the company. I love to own 100% of it. But that's the test. Would you like to own 100% of a company if you're going to buy 5% of it? We're not buying a stock when we buy Apple in our minds. We're buying 5% of a business. We buy 100% of some businesses, and when they're publicly held, we buy 5%. We bring the same thinking to it. And we like very much the economics of their activities, and we like very much. much the management and the way they think and the way they act.
QuestionerAndrew?
QuestionerOne of the other questions, Warren, that we didn't get a chance to ask over the weekend, was one about USG. This is a transaction you've been involved and you've historically avoided what are described as hostile takeovers and said you didn't want to be involved in them. This one's a little tricky because in this case of USG, you have effectively backed a company that is trying to effectively take over U.S. over USG. Can you talk about that a little bit?
WarrenYeah, we bought USG first 18 years ago. We made a substantial investment. In 2006, the company went into bankruptcy twice, and the company faced these huge asbestos claims.
[54:49]
WarrenAnd we backstop single-handedly, Berkshire did, a one-for-one stock offering, which is very unusual, and we backed with a, billion six or a billion seven, this company coming out of bankruptcy, having a one-for-one offering. And then two years later, in 2008, when the crisis hit and also hit housing, the company found itself needing money again. And we put up 300 of the $400 million they needed at that time. And 18 years from the time we bought it. from the time we bought the first stock, and 12 years from the time, we, in effect, bankroll the company in terms of coming out of bankruptcy. We've never received a dividend in the stock that we backstopped in 2006. $40 was selling, has been selling for less than that. And in general, the earnings estimates, the new products and that sort of thing, you know, falling short. Now, that happens with companies we own, too. I mean, business can be tough. But when they received an offer from another company that also had been an 18-year-old shareholder and perfectly responsible building materials company that actually competes with our company, John's Manville, this country, they made an offer and the company did not, we own 30% of USG. The company did not call and say, what do you think of this offer or anything of the sort? or anything of the sort. They just called afterwards and said that their boarded unanimously decided that it wasn't in our interest to negotiate with them or anything. And like I say, we owned 30% of the company, and then the company made a second offer and the German company Knaff. And again, they were turned down with no negotiation or anything of sort. So we really felt the directors who were probably very fine people, probably very fine people. I don't know them, but felt that they did not represent our interest. And we said that we intended to vote against them at the annual meeting. We don't have a candidate of our own or anything like that, but we just think that directors are there to represent shareholders. And we did not feel they were certainly representing us with a 30% interest. And I, and it's big, since then, the two proxy advising organization, I, S.S. and glass dealers have said that they think they recommend to vote against these directors as well. And now the company said it's going to negotiate with Knoff. So that's that is a situation. We've, that's the first time I think in the 53 years I've been
[57:48]
Otherin Berkshire that we've voted against the slate. We withheld our vote at Coca-Cola a few years ago because of a compensation And we voted a time or two against individual issues, maybe on stock options or something of the sort. But it's a question of whether the stockholders should determine whether what they think the value of the company is. All I know is that for 18 years it has not worked out that well. And management has been more optimistic than subsequent events. subsequent events delivered. And we thought they should sit down and negotiate.
QuestionerWarren, another question that came up from a lot of shareholders. We covered it some in the question and answers period on Saturday, but I thought maybe you could go into a little more detail on it. Just the idea of consumer packaged goods. Companies like Coca-Cola, which hit a 52-week low last month, even though the company came in with better than expected earnings on issues. And a company like Kraft-Hine, which is down about 35 percent over the last 12 months versus the S&P being up 11 percent. It has a lot of people thinking that consumer packaged goods don't have as bright of a future. I think Georgi Paolo may have even called them, saying jokingly, that he felt like a dinosaur at the Milken Conference recently. What do you think when you look at these areas?
WarrenWell, they're still very good business. I mean, if you've got a brand, if you look at the return on tangible assets, you know, at Coca-Cola or Kraft-Times or anything, you know, you know. You've got a very good business. It doesn't look as good as it did five or ten years ago. In other words, there's two reasons, I think, for that. One is people are, seem to me, to be a little more willing to experiment with different diets or foods than they were five or ten years. Some people would say healthy diets where they won't eat things that are packaged, they think that's bad for them. It's a millennial attitude, too. They won't buy some of the old brands. Certainly, that's a factor. Oh, I think it may even. extend beyond millennials to some degree. People are more, well, they've gotten used to more change in their life generally. And so I would say that the, that there's still a huge loyalty factor and there's, but it is not as strong as it was five or ten or twenty years ago. And secondly, there's always been a struggle between the retailer and the brands. I mean, you can't, I mean, that's built into the American.
[1:00:24]
Warrenmarket system. And I would say that the retailers, and they've always had private label brands. In some other countries, private label has much stronger than the United States, for example. And the private label brands are priced below the big brands. And the retailer, every time a retailer meets up with a packaged goods, a salesperson, they're arguing for lower prices and better deals. And I would say that their hand becomes stronger as the Costco's and the Walmarts and in other countries as other countries. As they become stronger, the struggle can tilt a little bit one way or the other. I think a few years ago, I think Costco dropped Coca-Cola. And that's a real test if you want to. And of course, Sam's Club at that time started pouring it on with more coke and everything. And that, Coca-Cola is pretty strong brand, so that Costco could decide to do that. But if Costco decided to drop a bunch of other brands that you could name, they, or W. Or W. W. W.O. W.W.O.W.O.W.A., decided to drop them. I mean, the packaged good company might feel it more than the retailer would feel it, and they would come to terms faster. It's an interesting dynamic. And it's gone somewhat against the package good company. There's still good, very, very good businesses. that dynamic between the retailer and the packaged goods companies, is that a pendulum swing that swings back? I hope so. Or is this a new? No, and not necessarily. No, I mean, you've got these German discounters coming over here now. And each company's got some muscle. And if you've been selling, whether it's Coca-Cola or, you know, whatever food you may have eaten as a kid or something like that, I mean, you're pounding, you want the consumer, because you've got to win with the consumer in the end. You've got to have a product that. strong enough that the retailer has to carry it to some degree. And where their private label, even though it's priced below it, does not draw volume away. And if you take Heinz ketchup, it's very, very, very hard to take share away from Heinz ketchup. It's hard to take share away from Philadelphia cream cheese, but I could name some other products which I won't where it's easier to take share away. And the consumer is going, the consumer votes every day, and some things are affecting the consumer, like the feeling that other things are healthier or something of the short. Price affects the consumer.
[1:02:59]
QuestionerBut just the prevalence of strength of the retailer can affect the consumer, too. Is that why there's so much pressure for some of these packaged goods companies to get bigger, for new deals to come in? Like, I'm going to take and wrap up with a lot of products, and then I have more heft against the retailers if they try and church me around with their friends.
WarrenYou don't get it. If Coca-Cola were to buy... they've got the world's greatest distribution system. So they can push liquids through that. I don't know whether they could push cream of wheat or something through their distribution system. Obviously, a great distribution system is worth an enormous amount. And like I say, Coca-Cola has a great one. And Coca-Cola, incidentally, they're selling 5% more liquids. They are selling 100 ounces of liquids per capita in the whole. capital in the whole world. Seven billion people are drinking a Coca-Cola product, and they're drinking at the rate of 100 ounces a year. That's substantial. It leaves a lot of ounces to go. But they're selling more ounces of liquid. They've got more, but they've got more brands now, but they are selling than they've ever sold. And it grows year by year, and it's growing, and James Quincy is doing a sensational job on that, and first quarter even showed it. But the... if you've got a brand that's kind of lost out there or something of the sort, it's hard to get shelf space. The retailer is going to stock what will move, and sometimes that involves price, and what you want to have as a product the retailer has to have.
QuestionerThere are a lot of subjects that drew some controversy and got a lot of headlines from this weekend, including some back and forth between you and Charlie and then Elon Musk. And we're going to do some. to talk about that in just a moment, but I think we need to take a break. So Joe and Andrew, we will send it back to you in the studio, and we'll have more on that coming up in just a moment.
OtherAll right, Beck, you got a Wall Street Journal out there too, Beck. You got one.
QuestionerRight here. What do you want me to look at?
OtherI want Warren, you may have already seen this Neil Ferguson piece because it echoes some of the stuff that Warren was saying about this China skirmish that we're having.
QuestionerYeah. All right, I'm giving it to him right now. I'm giving it to him right now, Joe, so he can take a look at it. It's on the op-ed page. He'll read up on it and be prepared.
[1:05:26]
QuestionerExcellent. Because like Mr. Buffett, I think they think that it's something that because of the changing relationship we have, and things have changed since Chimerica actually came about. And, you know, China's done well, and they need to come into the real world, and maybe we're not wrong to be doing it this way. That's the thrust of the piece anyway. I would like Bob. That's a good tease, too. We can talk more about that. Yeah, I'd like Warren's comments or at least thoughts on that.
OtherWe'll have more from Becky and Warren Buffett on the other side of the break.
QuestionerWarren, again, thank you for your time this morning. There are so many things that we wanted to talk to you about this morning. One I've kind of been holding off, waiting to get your comments on, is Elon Musk. Elon Musk was brought into the conversation this weekend at the shareholders meeting by a question. I forget who asked it, one of the shareholders maybe, bringing up this idea, or maybe bringing up this idea, or maybe it was Andrew, somebody brought up this idea of of, competitive advantages and moats. Elon Musk recently said that he thinks moats are stupid. I wish he give me his. And that became a subject where Charlie weighed in and said, yes, he's right that actual moats around castles are stupid. But you guys got into a little bit where you were joking around saying that you'd like to see him try and get into a candy store. into a candy store. He responded this weekend with some tweets saying, I'm starting a candy company and it's going to be amazing. I am super, super, super serious. It just occurred to me that the plot of Willy Wonka is really messed up. Okay, okay, just for the sake of argument, what do you wish for in candy? Crypto candy? Then I'm going to build a moat and fill it with candy. Warren B. will not be able to resist investing. Berkshire, Hathaway, kryptonite, I'm killing me, L.O.L. What do you think about all of this?
WarrenWell, if you look at the leading candy, bars, for example, for the last 50 years. I think you'll find Snickers on top, and then you've got M&Ms, you've got two types, so they don't combine the Venus with the ones. But I think they're number two and four, and, you know, Hershey's in there, number three, or something of the short. Yeah. I can't take them on. I don't think Eli should take them on. They have moats. When you go into a drugstore, 7-Eleven or something, and you say,
[1:07:48]
WarrenI would like a Snickers bar and the owner says, oh, I've got something, the musk bar, at 10 cents off the Snickers bar, you say, give me the Snickers. And if he doesn't give you the Snickers, you go across the street and buy the Snickers. The brands are moats, I mean, obviously, and if you try to, you know, this product is selling, you know, to hundreds of millions of people who want Coca-Cola. If you say, I'll sell you something for two cents less, or I've got some celebrity's name on it. They actually, Richard Branson, tried virgin cola in the United States about 15 or 20 years ago. And a million others have been tried, so I don't really have the same urge to produce automobiles that he apparently has to produce candy, but I don't, I don't suggest that he take on Sniggers.
QuestionerYou're taking me literally and stepping away from the real story here, which is kind of this war of words between you and Charlie and Elon. And I just want, do you even know Elon Musk?
WarrenI've never, I've never said anything negative about Elon. I mean, you're abating me a little bit to do it. I am. But I've never, you know, people like his car and everything. But somebody mentioned that now we're talking about financing, something this morning about that. I thought I heard that a little bit.
QuestionerYes, well, actually, Andrew just read some headlines where it looked like they may be, Tesla maybe going back to market to pick up some additional financing. I'm not entirely sure. All I heard was the, all I heard was the headlines.
WarrenThat's what I call a counter-revelation. I'm trying, you know, because I think it was just a few days ago they said they wouldn't need financing. But, you know, he's trying something to improve a product. And I salute him for that, and the American public will decide whether it's a success and, and it's not easy, you know. So it's probably easier to develop a new car just to compete with stickers. But some products have terrific most, you know, probably Elmer's glue does, you know, WD40. I mean, you can, there's just certain things that you are not much inclined to be dissatisfied with it. And I would say that, incidentally, that the, that the iPhone, you know, has a terrific mode. I mean, people that have an iPhone, or maybe have some other phone, but they want to continue with a product that they've got, they want to continue with a product that they want the new version.
[1:10:16]
WarrenIt's just easier for them. They've learned how to do everything and their lives built around it and all of that. And moats are very useful. Costco has a moat in people's mind. I mean, Amazon can raise the price of prime, you know, 20%. And you can't do that unless you've built something within that image of the Amazon Prime that's based on reality that you're going to get a lot for your money and you're going to want to use it. And then you can raise prices $20. But if you're selling, you know, you're you're selling some commodity product, you can't do that, you need a mold.
QuestionerYou mentioned Amazon, so let's talk about that because you did say over the weekend that Amazon is one of the shares that you haven't bought that you wished you had. Are you ever going to buy shares of Amazon?
WarrenIt'll probably be tough. I've probably got so many psychological problems with the fact I didn't do it that's very hard to do it. I always, when I first met Jeff, I knew he was an incredible person. And he still encloses this. 1997 annual report, which I read at the time with his current annual report. And he's extraordinarily clear thinker, as well as being a brilliant thinker. And then he can execute. I mean, it's far surpassed anything I would have dreamt, could have been done. Because if I had dreamt it, if I really felt it could have been done, I should have bought it then. I knew he would do the most with whatever ID, I had no idea, the idea, that it had this potential. I blew it.
QuestionerAnother stock that you mentioned over the weekend saying you should have known it early on was Google, Alphabet, the parent company of Google, because you knew how much they could charge you when it came to Geico.
WarrenYeah, here we were at Geico, paying them $10 or something for every click. I mean, you're, $10, $10, $10,000, and no cost of good soul, I made. And it produced results for us. That's why we paid them the money. So I had seen the product work, and I knew the kind of margins. I mean, I always said it's great to find something that costs a penny and sells for a dollar in his habit for me. This doesn't cost anything. And it's very useful. I mean, if you're looking up auto insurance on Geico, you know, you've got an interest in auto insurance. I mean, it's a very directed way of talking to people. So the real question in my mind, I'd seen all the Vista before. I used to play a bridge on all the Vista.
[1:12:42]
WarrenAnd what I didn't know was whether there'd be more entrance. I didn't know enough about technology to know whether this really was the one that would stop the competitive race and all that. But I should have done Google, too.
QuestionerYou say that Silicon Valley and a lot of things that happen there, it's not really your field of expertise. But you've been around and you've seen how a lot of things happen, particularly with how Washington can have an impact. The reason shares of Apple were down earlier this year was in part because of the iPhone, but probably also in part because the fang stocks overall were under pressure because of Facebook, the trouble it got into, the potential for regular coming into this arena. What do you think, broadly, about some of these regulatory issues, some of these privacy issues, or do you even consider it?
WarrenWell, no, I think about that. But basically, I like good news that isn't going, or bad news that isn't going to last. And I'm saying that as one of them. But, I mean, bad headlines don't bother me. I mean, I had bad headlines when I bought that stock right after two or three months after Pearl Harbor, and you were going to have bad headlines for a long time. I am not worried about, we've made the most money when there's been some temporary bad news, I mean, over time. Now, you've got to be sure it isn't permanent or something of the sort. But if people get excessively worried about, you know, people changing their tastes and what they drink, they're going to drink 64 ounces of something or other, and carbonated soft drinks have lost share. They gain share just steadily for, I don't know, how many years, probably for. forever, but then, but bad news does not scare me.
QuestionerJust to put a finer point on that, though, the regulatory issues concerning the fang stocks, you think that's just a temporary headline where maybe there's much to do about nothing here? Or you're not sure.
WarrenThe regulatory issues on which?
QuestionerOn Facebook.
WarrenOh, no, I think that's important. That's important. I mean, if you, 60 minutes had two different two different ones, they had one back on October 8th, and then they had one back on October 8th, and then they had one a couple weeks ago, that illustrated the effect of, well, the fellow, said Facebook won the election for Trump. The fellow who managed their operation in the last election out of San Antonio and was been appointed
[1:15:04]
Questionerthe head of their committee for 2020. And it's a very interesting episode. I mean, they really knew how to target everybody in the country, basically, with things that would appeal directly to them. And that could not only affect them in encouraging the followers to come up, bring out the vote, but it could suppress votes. And I mean, they, and they had Facebook embedded, the fellow used the term embedded there. I mean, so it's, it's a very, very important issue. And I think probably Congress has just begun to scratch the surface of it. What's different with what the Trump campaign did than what the Obama campaign did four years earlier, where they were using Facebook and were kind of seen as like these technology wizards for figuring it out?
OtherWell, they took a phone. first step and then I don't blame anybody for doing it and but the I guess is they thought they were doing it as well in the Democratic campaign in 2016 as the Republicans were but the Republicans were technologically advanced yeah yeah and Obama was advanced for 2012 I mean the trick is to convince people but the trick also is to get your vote out and then the trick which is not which is really tricky and it is very counter democratic is to suppress the other other guys voting.
QuestionerAnd you think that's the type of thing that will get regulators attention or will make Congress pay more attention?
OtherA lot of things in privacy will get it. You know, I am, people impersonate me, you know.
QuestionerYeah, Joe does it very well.
OtherWell, he's doing it to a very sophisticated audience in your case. But if somebody impersonates me on some website and and says something I say, I mean, to be all over the world and it isn't me. No, this has brought a lot of new. issues that are important issues out. And we're just in the early stages.
QuestionerOur special guest this morning is Berkshire Hathaway's chairman and CEO, Warren Buffett. And Warren, so many things that we've talked about this morning and over the weekend. One issue is just the economy. And I know you told us last week a little bit about it, that it does feel like things have improved a little bit, things have picked up steam. I just wonder why you think that, what numbers you see, what are the things that kind of run through your head in determining the Berkshire economic index.
WarrenYeah. I see a lot of numbers, and I get them pretty fast. I mean, they're, they're, and this is generally pretty strong.
[1:17:30]
WarrenI mean, you could look at railroad car. Anybody can look at railroad card loadings, for example, every week on, they come on on Wednesday, and you can see them by category, 22 different categories. And I think Matt Rose, may have mentioned the other day, that 18 at the 22 are up, and overall they're up, and they're carrying stuff because people are buying stuff. or adding inventory. And you see it, and you're seeing some inflation connect with some of this, but you see it in some building materials. We've seen it particularly in electronic components. We have an operation most people probably don't even know anything about it called TTI, and it carries close to a million different types of electronic companies. You can order any one of a million items from us. They're very small, but people buy it because they're using them. And we have a hard time filling orders in that business. And that's kept getting stronger now for a year right up to when we're talking here. So we're seeing pretty good business most places. The jobs number on Friday had some people speculating that we can't get much lower in terms of an unemployment rate, that it's hard to find bodies to fill the jobs that are opening. Do you experience that?
Greg AbelWell, that's absolutely true. I mean, we have a lot of jobs. We have, if you would want to be a carpet installer, you can make very good money because there's a shortage of people who know how to sell carpet and we can teach you to do it. It takes a little while, but that's a very good job. And our home builders, and you've read about this elsewhere, but we have, in addition to having a manufactured housing operation, we have a site build operations, as they call them, and we're in Denver and Austin, Texas, various places. And we have a hard time getting people for certain of the construction trades. And again, we're actually funding a school in Denver. We probably have other participants doing it just to teach people jobs that are, can pay them $60,000 or $60,000 a year. And there's, employment is tight in some areas. areas. There's no question about it. What do you do? Do you end up having to pay more than $50,000 or $60,000 a year?
WarrenWell, trying to find out how inflation gets started. The market system, in the end, if a resource is scarce, whether it's human or otherwise, if a resource is scarce, the price goes. And we are seeing, we're seeing prices moving now in some areas and less resistance to those prices
[1:20:17]
Warrenin recent months. in recent months. Which? This is not, this isn't an explosion of World War, too scarcity or anything like that. But it's definitely going that direction, Becky. And then you wonder where that gets us in terms of inflation that the Fed would start to see and potentially act against. And there are so many people who are trying to figure that out. And I don't, I see all these figures and I don't change one thing I ever do in terms of flying. I've never changed an activity based on a... activity based on a headline in my life that I can remember, or an editorial opinion or even the facts we get. I'm aware of them. And I like to know them. But it's going to be a different news a year. We're going to own the company a year from now or five years from now. But I can tell you, I mean, if you're a policy center by as a member of the Fed board, I would be, I've got a responsibility then in terms of these figures. And I'm trying to steer them to some degree. But it may not have affected or impacted. the decision on whether or not you were going to buy a business, but it does impact your valuation expectations in terms of looking at stocks versus bonds or stocks versus something else.
QuestionerYou've told us on this program that inflation acts as a weight on stock valuations. And when interest rates are so low, it should push up interest rates over time. And it's very easy. It's all about having a 2% goal, but it's another thing. to keep it from going. Once it starts in either direction, it's, we don't know how well that'll work. Let's talk about something that Joe alluded to earlier, and that's China and trade, not just with China, with Mexico, with NAFTA, other things that are happening. But our delegation just returned from China over this weekend. This is Stephen Mnuchin, the Secretary, Treasury Secretary, Wilbur Ross, Lightheiser, all of them coming back. And now we have to wait and see. We have to figure out if Trump's tough talk will start paying dividends and improved trade relations, or if it pushes us the other direction and leads us potentially into a trade war. What do you think happens? By the way, here's a tweet from the president. I believe this was Friday night. Our high-level delegation is on the way back from China where they had long meetings with Chinese leaders and business representatives. We will be meeting tomorrow to determine the results, but it's hard for China, and that they have become
[1:22:49]
Warrenvery spoiled with U.S. trade wins. Yeah, well, the answer is, I don't think we will have trade wars because, of significance. We will have trade movements. But in terms of the old-fashioned thought of a trade war where you just keep piling it on, I don't think that happens. It's counter to the interests of us. It's counter to the interests of China. It's counter to the interests of every country in the world. I mean, the world thrives on trade. that we would not have the economy, nor would China nor would the rest of the world have the economic well-being that they have without a lot of trade. And incidentally, in 1970, we exported and imported and imported exactly the same amount as about 5% of GDP. So our exports have grown to 11 and a fraction percent of GDP, which is a huge number now. I mean, but the imports of, there's about a three-point gap or there will always be people trying to get edges and all of that sort of thing. But in the end, China and the United States have a common interest in something very big and that we have a less than common interest in some things around the edge. The world will not do something stupid over time in trade. Joe, did you want to jump in here? I know this is an issue you've been following very closely.
QuestionerI would. Just a little, I mean, I think Warren probably read this piece, but it is amazing when this alliance or whatever you want to call it between China and the United States started back in 2001, it was a different world. And China really was supplying cheap labor and cheap goods, and we were benefiting from that with low inflation, it kept our interest rates low. But the article, the Neil Ferguson article, points out, China is no longer an emerging market, and they're looking more and more like us. In terms of the economy and consumers and everything else. And at this point, it only makes sense that the trade deficit has to come down. And that's something that's not, you know, it's not unrealistic for the United States to be asking for that at this point. And China shouldn't be shocked that the, and should probably make some concessions. Warren, last week we went back and forth. We said China has more to lose. China said we have more to lose. And we went back and forth with that rhetoric. But the simple fact remains, I think right now, 4% of China's exports go to the United States, less than 1% of our exports go to China. So, I mean, we can
[1:25:25]
Warrenaffect them much more significantly than they can affect us. And it's not too much to ask for them for the trade deficit to go down, even though most economists say what you shouldn't look at it that way. But I mean, it's only fair in bilateral trade. I think it was in 2003, Joe. I wrote a article for fortune, actually, about the trade deficit. I was worried about it getting too large then because, again, it was getting to be 3% or so of GDP. It wasn't specific to China at all, but it was just a question of how wise it is to let the trade deficit grow larger and larger. Because when you run a, when you are, in effect, buying more from other countries than they're buying from you, you are handing them investment funds. I mean, it's the nature. You give them little pieces of paper and they can convert that into buying. I think by government bonds, they can buy buildings here, and Japanese bought Pebble Beach in the 1980s when they were running a big surplus. So you are giving up claim checks on our country, essentially, in exchange for having more consumption now than you're producing in this country. And so I do think that there's levels of trade deficit that bother me. I had some system that did not make it country specific. But I think the world has gotten better and better. And there's no question that countries may try and take advantage in this or that. And we've actually been guilty of that sometimes in the past, too. I don't think leaders in other countries, whether China or 100 other countries, are not smart enough to realize that it's in the interest to keep promoting trade. the more we trade over time. And we don't want it to be a question of where we import 20% of our GDP and we export nothing. Now we could all quit working and we could hand little pieces of paper to the rest of the world and they can keep sending us food, they can send us autos, they send us all kinds of things. But eventually they have claims on all our wealth. So we do want to have policies where the overall trade deficit does not get out of hand in relation to GDP. And I've been arguing that for a long, long time. Guys, I'm going to take a break right now. We were going to keep going. We have both Bill Gates and Charlie Munger, who are going to be joining us at the top of the hour. But Charlie Munger is here early, and I don't want him sitting on the sidelines. So we're going to take a break so we can bring him right over.
[1:28:02]
OtherAnd we'll have more coming up with these two in just a few moments. Guys are ready to kill me because I'm calling an audible. But Charlie Munger is sitting here, and I want him on set if he's here. So right now, we'll take a very quick. break. When we come back, we'll be joined by Charlie Munger, the vice chairman of Berkshire Hathaway. Stick around.
OtherGood morning again, everybody, and welcome back to Omaha, Nebraska, where we have been live for almost the last two hours with Warren Buffett, the chairman and CEO of Berkshire Hathaway. We are joined right now by Berkshire's vice chairman, Charlie Munger, who's sitting down with us us and joining us. And Charlie, thank you so much for being with us today. I really appreciate you being here.
CharlieWell, I'm delighted to be here.
OtherWell, let's talk about this. Between the two of you. I'm delighted to be anywhere. Between the two of you, you have 181 years of experience, and you've been doing this annual meeting for 53 years. I thought we could take just a minute or two. For both of you to reflect on these meetings, how they've evolved over time, and what it is that you enjoy so much about sitting with each other. Charlie, what do you think? Why don't you start?
CharlieWell, that's my hometown where I was raised. And of course, I like the company and I like the shareholders. and I like the festival and everybody's having a good time and we're celebrating values as well as ourselves and so of course I like it.
OtherWarren, what's it like sitting next to Charlie on the stage?
WarrenI always learn something and I certainly get surprised and Charlie and I we worked in the same grocery store less than four miles from here. We didn't work at the same time so we didn't know each other until 20 years later but But we've got an extremely good partnership. and business is more fun, just as life is more fun with a good personal partner and to have a great business partner. You know, it's just, we've accomplished more, but we've also had a way more fun. And Charlie and I, and this is true, we've had a, we disagree on a lot of things, not that many, but some. We've never had an argument in the entire time we've known each other. each other, which is almost 60 years now.
OtherWhat's one thing that Charlie's done for you? A decision, an arena, something about your life that you listen to Charlie and you're better off for it?
WarrenCharlie has given me the ultimate gift that a person can give to somebody else.
[1:30:31]
WarrenHe's made me a better person than I would otherwise have been. And that's the most you can do for somebody else. And I've listened to him. Not too many people. to do, but Charlie, you know, he's given me a lot of good advice over time. And I may hate to take it to a certain degree, but sometimes. But my decisions have been better, but I just, I've lived a better life because of Charlie.
QuestionerCharlie, has Warren done anything for you?
CharlieWell, he talked me out of leaving law practice, which turned out to be a very good idea.
QuestionerWarren, this is a place, Berkshire, where everybody's done a lot for everybody else. everybody else and that's why people like it. I don't think all these people would come just to celebrate making a lot of money. They're here to celebrate. I'd say a set of values. It's like the Catholic catacism. Catego.
QuestionerHow so?
CharlieWell, it never changes, for one thing.
WarrenYeah. And you say it's old guys in charge. It has old white males in charge, absolutely. We're seeing. the wisdom of that more and more as we go along.
CharlieCharlie was practicing law, but I said, Charlie, it's okay, as a hobby, but forget it. I know. He was right.
WarrenIt took him a while to convince me. But I'm a slow learner sometimes.
QuestionerPeople wonder how long you guys can keep doing this. Charlie, you're 94. Warren, you're 87. But you made it look pretty easy up there on stage this weekend.
WarrenIt is easy, actually, at this point. Some point it won't be. But no, I would say it's as easy now as as ever, I mean, you didn't see me enter the race that took place over the weekend or anything in the story. But this job doesn't really require, doesn't require hand-eye coordination or stamina or anything. You just sit at a desk and you apply things that you learn 60 or 70 years ago and they come in a little different form now, maybe this way or that way. But it's the perfect guy, a perfect job for somebody that wants to be working at 80 or
QuestionerYou mentioned that you have had disagreements in ways of thinking over the years. What's the biggest thing that either of you can remember disagreeing on, even though it wasn't a fight or didn't get into anything? Where is an area where one of the, one of you thought you should do something, the other one didn't, or vice versa?
CharlieI wanted at Berkshire to buy the French steak in Costco when the French left. What year was that? Oh, that was a long time ago. I was at a bridge, I was playing at a bridge, I was actually called me out of the store.
[1:33:20]
WarrenI was at a bridge. thing, which is very bad adequate at bridge service. And Charlie is saying, basically saying the French firm, the big retailing firm there, had about a 15% block or something like that. And Charlie says, shut your eyes and buy it. And he said, I'm going to shut my eyes and say no. I should have bought him. You should have bought it? Absolutely. In fact, I can't really, I can hardly think of anything Charlie is recommended that I do that shouldn't have been done. done. I would do more things than Charlie would. But that's partly because I'm there, you know, eight hours a day or something. I've got a little more inclination toward action, and Charlie wants to really wait for the fat pitch. I mean, he wants to, he would be very happy hitting 10 home runs and 10 home runs at bat in the final game of the World Series of his life and just have that be in insecurities. And that's the right way to be. And that's the right way to proceed. But I like a little more action.
OtherAll right. The billionaires keep showing up. Bill Gates is here. We're going to have more from this Berkshire Summit in just a moment. Let's get to our billionaire summit this morning. Joining us right now is Bill Gates. He is the co-founder of Microsoft. He's also a Berkshire board member. Charlie Munger is the vice chairman of Berkshire Hathaway. And still with us this morning, Warren Buffett, who's the chairman and CEO of Berkshire Hathaway. And gentlemen, welcome.
QuestionerThank you all for being here this morning. Thanks for having us. I was trying to figure out how to get into these conversations with the three of you. And it's always difficult. The three of you are brilliant thinkers. It can be a little intimidating. But I was thinking back over the years of the times that we've sat down. And you are all very similar in a lot of ways. You're analytical thinkers, your logical thinkers, your voracious readers, and you're all people who think knowledge is the ultimate quest. You want to figure out how the world works. But it occurs to me that part of the reason that your friends is not just because of what you share in common, but that sometimes you have differing opinions on these things. And you probably like to challenge each other on some of these issues. And I thought maybe we could tease out some of those issues this morning where you may not see eye to eye exactly on things, you may have more nuanced views on areas.
[1:35:35]
QuestionerSo I'm just going to throw up some areas this morning and see where you all agree and see where you all differ. And so I'll start with the idea of the markets, because this is where we started with Warren this morning at 6 a.m. Eastern, I should point out. Just the idea of where the markets are right now, are they fairly valued? Are they expensive? Is it hard to find things that you like? Bill, why don't we start with you, since you're just sitting down with us? Warren pointed out that it looks pretty expensive to him on a lot of private deals that come along, and it's pretty hard to find bargains in the market. You're a big investor, too. What do you think when you look at the market today?
OtherWell, in terms of absolute returns, you've got the tenure at around 3%. And so that's your risk-free rate in dollars. So expecting to make a lot more than 3% on things, you know, either you're being smarter than everybody else or you're taking some level of risk. So absolute returns are predicted to be lower over these next 10 years than they've been in most 10-year periods. Absolutely returns on stocks. On all asset classes. The T bill sets the rules, the strength of grass. strength of gravity. And so I don't know, you know, if you ask investors, I think they expect to earn, you know, just say state pension plans have seven and a half, a few still at 8%. That's an unrealistic expectation, which makes those deficits a little worse, actually quite a bit worse, than they appear on paper.
QuestionerCharlie, what do you think?
CharlieI agree with Bill.
QuestionerYou have nothing further to add?
CharlieI have nothing further to add.
QuestionerAll right. Except one thing, I think Berkshire's going to do a little better. Bill, you agree with that too?
OtherOh, absolutely.
QuestionerSo what does Berkshire do that gives it that advantage?
OtherWe're less crazy. There are certain bad habits we don't have.
QuestionerSuch as?
OtherThere are a million ways to be irrational. And while we're irrational pretty often, we're less. We're less often irrational than most people. That really helps. Our bad habits are not financial.
QuestionerI don't suppose you want to go into any detail there.
OtherI'm talking about Charlie, but I'm not going to talk about it.
QuestionerAll right, let's talk a little bit about the dabbling you all may do. You each have your own money, aside from Berkshire money, that you look and you invest. And Charlie, I know you've looked to China a lot of times when you start looking at places that you like.
[1:38:26]
Charlieyou like. The Munger family has invested in China substantially. Since when and why? Since about 14 years ago. And I did it because I respected the man who was going to do the investing. And it all looked inexpensive to me. And the companies looked very strong to me. And of course, this worked out. I've done way better than I had any right to expect.
QuestionerDoes it still look that way when you look to the Chinese markets?
CharlieI think that the best companies in China. The best companies in China are cheaper than the best companies in the United States.
QuestionerThe concern other investors might have before they follow in that way is that they don't know that much about Chinese companies and maybe... They're just generally afraid of China. Is there a reason that they may have some... I mean, you have people who are guiding you who understand China well. If someone was trying to do this on their own, would it be a little more dangerous?
CharlieSure. It really helps to understand the country you're operating in.
QuestionerOf course. All right. That's a stupid question. moment. You would not necessarily advise others to do this, I guess, is my point, for investors who are sitting at home watching.
CharlieI don't think it would be all that hard for any smart person to find four or five great companies in China to invest in.
QuestionerAll right, Bill, how about you? When you look around, what areas are catching your fancy? I know of things that you've done in the past, areas where you've kind of gotten into currency markets or done different things, but what are you thinking right now? What captures your attention?
WarrenWell, my tech investing is almost entirely the Microsoft stock. I think in terms of things that will have super high returns, there are tech stocks that are undervalued. You're just going to get very high variance out of tech stocks because you have some markets where the winner ends up getting a substantial profit pool. Because I don't want to have a conflict with Microsoft, I don't invest a lot in other tech stocks. but I create a fantasy portfolio to see if my predictive powers is good or not. You know, outside of that, I have a team of people who invest and they're quite diversified. They have a fair bit in China. China looks quite attractive.
QuestionerWho's on your Fantasy Technology League?
WarrenI probably shouldn't talk about that. I mean, there are some that are still private, like Airbnb, which, you know, it's a lot.
[1:40:59]
Questioneryou know, at a fair valuation, that's a strong long-term business. Why? Because they serve customers globally. And so the reputation and listings they have, you can't just go into one city like you might for a ride service and bomb the prices, you know, go get the drivers and do a lot of marketing and just compete in that one city. Here, you have to have a global reputation. global reputation, global inventory. And so it just makes challenging that leader's position far more difficult. I mean, I've always kind of thought of Airbnb and the ride services as having some of the similar risks in terms of local regulations that could get in the way with things. Does that not concern you with an Airbnb?
WarrenOh, absolutely. But they're, you know, city by city, they get to deal with that. It's a barrier to entry for other people who come along. The competitive dynamics for the ride services versus the Airbnb are different in Airbnb's favor. I won't ask you for your entire list of fantasy technology companies, because you already told me you wouldn't tell me. But is Apple on that list, with Berkshire plowing so much money into it?
CharlieWell, Apple's an amazing company, and the multiple is not gigantic. You know, it's not like a tech speculative company where it's still looking. company where it's still losing money or anything. So, you know, I think Warren's applied, you know, great thinking there. The top tech companies do have a very strong profit position right now, but Apple has the most of all.
QuestionerAnd Warren, I guess when you have described this company, the reason you like Apple is not reasons that are technology-based reasons. You think of it as a consumer goods company.
WarrenI mean, it's the consumer behavior. behavior with the product, what they do with it, how it becomes part of their lives, and all that sort of thing that I observe and primarily reason from. Now, there was something coming out tomorrow that would obsolete everything that made it attractive to that group. You know, Bill would know it before I would. But it has a position in consumers' minds that is, and the utility to the utility to the them that's very, very, very useful and it's an incredible ecosystem that they have found ways to profit more from as they've gone along. I should mention that both of these fellows have done way better with their non-Berkshire holdings that I have. Warren, you don't even have an iPhone.
[1:43:52]
WarrenSo a fellow sent me a 10 the other day, but I haven't, I haven't. using it yet. It was a very nice fellow. I even explained, I think he pretended he was writing to his three-year-old child, and he wrote in his very nice letter and explained him what to do with it and it wouldn't bite me or, you know, do anything like that. And I'm kind of screwing up my courage here, and one of these days, I'll move. Charlie, do you have an iPhone? Of course not. What do you think about, Apple?
CharlieI've given up my adding machine.
WarrenWhat do you think about Apple? Do you have a thought on the stock?
CharlieYes, I wish we own more of it.
WarrenYeah, we talked about it. I wish we owned more of it. Why?
CharlieI think we've been a little too restrained.
Warren43 billion is not enough?
CharlieNo.
WarrenWhat do you like about the company?
CharlieWell, I like the fact that it's reasonably priced and strong. That's a very desirable combination. And the management. I like the management.
WarrenI like the management. Yes. Very intelligent management.
QuestionerLet me ask you, Charlie, about some comments that you made over the weekend. People paid attention to. My Twitter feed lit up when I tweeted about some of them. Specifically, when you started talking about Bitcoin as turds. I'm surprised that attracted to any attention. Why did you equate the two?
CharlieWell, Bitcoin is worthless artificial gold. which if it succeeded, would facilitate a lot of illicit activity. Now, that is not something I think the world needs. And the fact that it's clever computer science doesn't mean that it should be widely used and that respectable people should encourage other people to speculate in it. Bitcoin reminds me of Oscar Wilde's definition of foxhunting, the pursuit of the uneatable by the unspeakable.
QuestionerWell, that sounds better than what he uses. It sounds better than what he used before.
QuestionerWe asked earlier, Charlie, Andrew brought it up with Warren, but... I think it's a scumb ball activity. Does that serve you better?
CharlieThank you.
QuestionerYeah. We asked earlier about Goldman Sachs getting into the business of having a trading desk for Bitcoin. Berkshire Hathaway owns about $2.5 billion of Goldman Sachs. Does it bother you or does it not surprise you?
CharlieWell, I don't expect every investment bank. every investment bank to agree with everything I think. They have a lot of animal spirits in investment banking.
QuestionerBill, Charlie and Warren have weighed in on Bitcoin. Do you own any?
OtherSomebody gave me some for my birthday.
[1:46:48]
CharlieAnd then a few years later I thought, hey, I'm going to sell that. So no. There's some really good technology in terms of sharing databases and verifying transactions. that is talked about as blockchain. That is a good thing. Bitcoin and Icos, I agree completely. It's one of the crazier speculative things where it's not, as an asset class, you're not producing anything. And so you shouldn't expect it to go up. It's kind of a pure, greater fool theory type. investment. So, you know, I agree I would short it if there was an easy way to do it. What are the interesting thing? If people react when you criticize their investment, if they get mad, they're gambling. You know, if somebody criticizes Apple or purchaser, we like it. I mean, if the stock goes down, we'll buy more of it. Because it's, it's, we don't care whether it. We don't care whether it's just, we don't feel that it has anything to do with it. But if we criticize something that they own because they only wanted to go up tomorrow, they feel we are hurting them, and therefore they get very upset about it. They really like what they own, what difference would it make? If I criticize their wife or something, they don't get all upset about them. That's a bad happen. Yeah, probably that's a perfect example to use it.
QuestionerIn terms of privacy issues, we spoke with Warren about this earlier. What's happened in Silicon Valley, privacy issues surrounding Facebook and Twitter and Google and Apple and how that has kind of weighed on those fang stocks, has a lot of people looking towards Washington, wondering if there will be regulation that comes down, and looking towards the European Union where regulation is coming this month. Bill, you've dealt with regulatory. close scrutiny in the past, is this something that you think is likely to have an impact in Silicon Valley? Will the regulators come? Will it change things in Silicon Valley? And will it make it tougher for these companies to follow their business models?
OtherWell, privacy is a super important issue. But I do think that the big companies, even as regulation comes, which is inevitable, they'll be able to handle it. People don't mind having a little bit of demographic information about themselves used to target ads. That's value added to the user. You know, there are issues about medical records or the content of your communications that are very private. One challenge of the privacy laws is making sure small companies
[1:49:48]
Othercan still get involved in the ad market. These rules could block lots of new companies. So I think the challenge of privacy can be met. The challenge of what gets published on a platform, hate speech, free speech, fake news, and what you allow people to get outraged about, you know, and what you should do, every government has a view. And so making sure the government takes responsibility for those rules, I think that's one one of the toughest things for any platform where people are expressing opinions. So that's a separate issue and I think the harder of the two. You mean acting as a publisher rather than a bulletin board, going all the way back to comp, you serve?
OtherRight. And if people expect you to stop certain things and not others, they'll always do that in retrospect. And it's a real-time system with millions of people writing things. Those judgment calls, you need some standards group of the government, not a private corporation to make those calls. Charlie, what do you think?
CharlieWell, I think we always use television ads to flog the idiots of each party to the polls and to sell them in a very misleading way. And we're just shifting the misleading ads to a different medium. I do think it works better. In other words, I think the Facebook thing. It's really good at flogging angry idiots to the polls. And I think that changes the equation. So...
OtherChanges the equation, meaning you think it... It has an effect on politics. It has an effect on politics and therefore will bring in regulation? I don't... I think it therefore won't be in regulation. Because the politics... It's hard to control people who want to be silly about politics. Andrew has a question too. Andrew?
QuestionerI was just going to ask Bill, but everybody can weigh in on this. Given the ownership of GEICO, maybe you have some insight into it as well, Warren and Charlie. I was thinking of autonomous vehicles where you guys were talking about technology and even Elon Musk with Tesla. When you look at the cars and the car market that's out there, do you see, in terms of technology, any of them doing better than the other? And what do you think of Tesla, actually, as an investment itself? Bill?
OtherI don't want to weigh in on Tesla. Yeah, Tesla's making a great product. They have a very high valuation, and they will experience all the automakers coming in and competing with them. And so it's not like some tech markets that the leader gets all that market share.
[1:52:48]
OtherIt's going to be a tougher thing. The move to autonomous and electric are proceeding in parallel, and if you take a 15-year timeframe, your timeframe, it's going to be a very, very dramatic change. You know, I tend to be optimistic about technology adoption. And I think worldwide, there's a lot of cities that want to be the first to get in with these cheap autonomous services. So it's exciting, and the other car companies now have been forced to have strategies for electric cars and autonomous. Some have very impressive plans. Are there lower insurance? What does? Oh, go ahead, Andrew.
QuestionerI was just going to say, are there lower insurance rates, talking about the thing about Geico, for a Tesla or for the new Cadillac that has some kind of semi-autonomous driving, some of these new features that allow the computer to drive a little bit more than the human?
OtherYeah, presumably any cars that catch on big are going to be safer, and a safer car is going to bring lower insurance rates. There's one some, there's a modest offset to that. modest offset to that in that in terms of collision activity, the damage is done to a car by it in terms of a bumper or a side rearview mirror or something, cost far more now. It's a much more complex product. So the damage per accident, not human damage, but physical damage to the car, that will probably go up substantially. but the number of accidents won't, you won't see widespread adoption unless they're safer. And we want a safer car. So it's net, it will be bad for the auto insurance industry over time if autonomous cars become a big part of the fleet. Bill just mentioned that over the next 15 years you are going to see some pretty significant changes. Is that the time frame that Geico is looking at that too?
WarrenWell, we don't know, I mean, what it'll be. And you've got $2,000. 60 million cars on the road. Let's just say that 10% of the people took up autonomous cars in a year and now you're talking about a million eight out of the 18 million. And there's a big life cycle to it and all of that. But what does best for the consumer and is it safer over time everything will prevail over time. And that's good for the American public. It's very hard to tell who the winner will be though. There won't. It was hard under the conventional car. to pick out which would be the company that was doing the best 10 years earlier. That's why Charlie and I've talked about the auto industry forever.
[1:55:36]
WarrenSo I, it's very hard to pick winners. And it'll be hard to pick winners five years from now. Nobody's going to own the market or anything of the sort. I am amazed at how good almost all the cars are. With all those servo mechanisms and all that electricity scattered through, you can buy a car and drive it 10 years with practically no trouble. It's an amazing achievement. I mean, you were big on the electric vehicles, too, with B.Y.D.
CharlieWell, you got to remember, in China, you couldn't breathe the air in the cities. So I thought they might end up with more electric cars. It wasn't a very difficult idea.
QuestionerLet's talk a little bit about Berkshire overall and some of the changes that we've seen this year. Ajit Jane and Greg Abel, named as co-vice chairman along with Charlie on this. How has it changed your day-to-day life, Warren?
WarrenWell, not a lot, but it's made it easier. It was already easy to start with, I mean, but the, I mean, really easy. But the 5% that I didn't like, I just said, oh, those are your responsibility. That's the way I selected what their responsibilities would be. And it, well, Charlie can tell you, it's changed our lives very little, but all for the better. It's been very, it's been very, very good for Berkshire, and it's been even better for me.
QuestionerCharlie, you were a proponent of this. I think it was your idea to name them, Vice-Chry.
CharlieWell, it's hardly, you can hardly find two people who've done better in their jobs in all of America. Very outstanding people. The truth is, we were too late.
QuestionerBill, I know Succession is a common or constant topic with the rest of the board members. What does the board think about this, about these positionings, and now that they're both board members, too. What does that mean just from board's perspective?
OtherWell, it's exciting to have. two, you know, highly energetic, super capable people helping out Warren, and now as board members. I've gotten to know both of them for over 10 years. I'm just amazed at what they bring. They understand the Berkshire culture because they've been inside it and have benefited from it. So it's great news.
QuestionerThere are people who were wondering if this was creating a horse race for, I heard Ron Olson's knocking down that idea over the weekend. How would you respond to that?
OtherNo, it's not a horse race for being the successor. That's not a good way to characterize it.
QuestionerWhat is the right way to characterize it?
[1:58:16]
QuestionerThat the number of businesses that report to Warren is a pretty unbelievable number. And Senei have gone from one person with all those businesses reporting to him to three people. So the company's not adding a lot of staff, you know, under Greg and under Ajit. You just have three great business minds managing, you know, over 50 business entities. So it's still one of the leanest management structures you've ever seen. If you draw it out as an orange chart, you have to have one of the widest pieces of paper ever, even with the three now. So, you know, Berkshire's still very, very unique. All right. Folks, we are going to have more of this conversation with Warren Buffett, Charlie Munger, and Bill Gates. We will be back with more from Omaha, Nebraska, right after this.
OtherWelcome back to a special edition of Squawk Box. We are live from Omaha, Nebraska, and we are joined this morning by Bill Gates, the co-founder of Microsoft and a Berkshire board member, Charlie Munger, who's the vice chair of Berkshire Hathaway, and Warren Buffett, who is the chairman and CEO of Berkshire.
QuestionerAnd gentlemen, the last time. half hour, we've kind of been delving through your thoughts on the markets, on technology, on privacy issues, on Bitcoin. I thought we might take this next half hour and go a little broader, because all three of you have big ideas about the world and how to fix it. You have spent a considerable amount of money and time on philanthropic projects, on trying to find ways to move beyond, and you all happen to know a lot about so many different things. One of the issues that's been so much in the headlines over the last six months. or so has been Berkshire's move to go along with J.P. Morgan and Amazon to try and come up with a way to rein in health care costs and health care cost inflation in the United States. Warren, we've talked with you about this, but we haven't gotten the chance to talk with Bill and Charlie so much about this. And for those who don't know it, by the way, Charlie, for the last 31 years, has been the chairman of the board at Good Samaritan Hospital in Los Angeles, so he knows an awful lot about health care. Bill Gates has worked tirelessly when it comes to health care issues around. the globe. In fact, the Gates Foundation has invested $12 billion in global health initiatives just over the last five years. So for anybody who's wondering about your credentials on this,
[2:00:39]
Questionerthere they are. Why don't we start with you, Bill? What do you think about the idea of trying to tackle health care cost inflation and how that might be tackled in the United States? Is this something that could get traction?
OtherWell, I think other than improving the education system, making sure the health care costs don't continue to go up so rapidly is the biggest issue. If you look at state governments, over time, they've had to ship money away from education and infrastructure into the various health care expenses they have. And so it's a problem for the government. It's a problem for the government. It's a problem for business. So any effort to take a look at this system and have, we use the latest technology to make it more efficient, to reward the low-cost providers so that they gain market share. I think that's fantastic. I've studied it a lot, and I don't think it's an easy thing to fix, but it's fantastic that the three companies are going to work together. To the degree they succeed, there are hundreds of companies that would love to join in. But first, they've got to hire some people and it's got to come into focus.
QuestionerCharlie, let's just talk about how fixable you think this problem is. Do you see a lot of rampant waste when it comes to these issues, at least from your perspective at the hospital?
CharlieRampant waste is a good phrase, of course. Our system is shot through with rampant waste, and a lot of the medical care we do deliver is wrong. And so expensive. and wrong is ridiculous. A lot of our medical providers artificially prolong death so they can make more money. I regard that as deeply immoral, and there's a lot of it. And so I think the first time the Democrats control all three branches of government, we will get single-payer medicine. I think it's so bad that people will reach out for a complete change forced by the government. To have a young person have a $5,000 deductible. When he has a baby, that's not insurance anymore. It's some stratagem to make things better for some insurance company, but it's not really medical insurance. This whole system is shot through with defects. And of course, I welcome the fact that Berkshire is trying to make it a little better in some ways.
QuestionerHow would you go about doing it? Are there maybe not easy ways, but are there obvious ways of trying to tie with that?
CharlieIt's very hard to get to a system like Singapore's, which costs about 20% of what our system
[2:03:41]
Charliedoes and works better. From where we are now, we will never get there, in my opinion, in a big rich nation like ours. But we can have a better system than we have now. Would universal health care be the answer? You said you think that's what they have in Well, there are many defects in universal health care. But universal health care, but universal health care, with an opt-out, which they have in all the advanced nations, England, Canada, and so forth. It's a perfectly reasonable system and it exists everywhere else, so I'm not frightened of it.
QuestionerUniversal health care with an opt-out being basically universal health care that rich people pay more for and get a different level of care? Is that?
CharlieSure. Even in Singapore, if you want a better hospital room, you don't get a better doctor or a better nurse, but they'll give you a better hospital room if you want to pay for it.
OtherAndrew has a question.
WarrenI see nothing wrong with that.
OtherAndrew has a question, too. I'm assuming it jumps onto this.
QuestionerIt does on the health care front, and it's for Warren. Warren. Warren, historically, you've allowed all the managers at Berkshire to run their groups autonomously and haven't imposed different programs from headquarters. I'm curious, when you do implement the health care program with Amazon and J.P. Morgan, whether it will be voluntary for the managers to effectively choose to be part of it or whether it will be something that they're going to have to do.
WarrenA, it'll be, I may not be around when that takes place. That may be sometimes, this is an extraordinarily difficult project. I mean, this is not, and I think it might well be reasonably easy to make, do a little something here and there, but we're really hoping that something that has gone from 5% of GDP to 18% of GDP and just keeps moving, we can do something about it. It's, we have not picked an easy task. You've got 3.3 trillion or something like that spent on the health care system. And every dollar, just like in government, every dollar hits a constituency, has a defender. And I do think it's so important that it should be tried. And what I would tell our managers, and I've told our managers, that we will never, we will not be coming up with something that hurts them in terms of the care they receive. And it's going, if we come up with any kind of an improved product, I can guarantee that I will like it. I won't have, no one will have to stuff it down their throat.
[2:06:14]
QuestionerI mean, that would, and we will have people join us. But it is really an uphill climb, and, but we should be doing it. You said over the weekend that you hope to have a CEO named for this new initiative between the three companies in the next couple of months. Has it been narrowed down significantly?
WarrenIt's been narrowed down to, yeah, very few. And it's by far the most important decision we'll make. I mean, there's no way. And we've got plenty of people want the job, but it is an extraordinarily difficult job because you have to be very, plenty of knowledgeable about, enormously knowledgeable about the system, but you have to be able to get your mind beyond it. And you have to understand who you'll have to understand who you'll be able to. who you'll be, who your opponents will be, you have to understand public opinion, and you have to, and you have to, you know, you could bargain down costs in some areas 1% or 2%. But you, we really hope we can find the perfect person in terms of being able to make a real job. I mean, as Charlie will tell you, there's, there's some history in terms of what happened. When Rockefeller totally revolutionized American healthcare for the better, he went after the low. He went after the low-hanging fruit. He went after the Charlotans and the quacks and so forth. And my guess is that Berkshire will find some low-hanging fruit.
QuestionerIf you had to guess where that low-hanging fruit would be.
WarrenOh, I know, there's a lot of low-hanging, I don't want to say. Okay. We'll whisper it to our new CEO, though.
QuestionerWell, speaking of the new CEO, I realize that this is something that Todd Combs is heading it up. But given your expertise, Charlie and Bill, have you had any input into what should happen with this who the new CEO should be?
WarrenWell, Todd's a great learner, and he and I have brainstormed about, you know, what health care looks like, but not specifically on who gets hired. You know, I think there's three things that are very separable. If Berkshire, you know, finds a way to optimize its health care costs versus the entire U.S. health care system, and access versus cost, or two different things. If you add access, unless you're very careful, like a universal coverage, it will actually drive up costs pretty dramatically. And potentially lower standards are lower what access people get. Right. So when, you know, Vermont costed out what universal care would cost, even the proponents were stunned at the cost.
[2:08:58]
Othercost. So we have to perform two miracles. We have to get better access in America and get the cost down. Probably a couple other miracles we need. We don't even know about that. The goal is not to reduce purchase costs. Right. And we will have a CEO and I hope, I would expect within a couple of months. And we will need a remarkable individual that person will have to also have a number of remarkable people who wish to join the person. That's one of the things you have to have somebody that does attract other talent and so on. And so, nothing's going to happen fast, except we do want to get the CEO in place, obviously. But you're not going to turn the whole system upside down. But you want somebody that thinks about where you want to be in five years. five years and figure out some path. I mean, obviously the person has to be an expert in health care, but from which arena? Because whatever arena they're coming from becomes... Yeah, if you talk to somebody who's run a hospital for 20 years, they think everything but the hospital is a problem. I mean, it's just the way it is. Right.
QuestionerLet's talk a little bit more broadly about some of the issues that we're seeing today. Earlier we spoke with Warren about trade issues, particularly with China, with our delegation just coming back from China. But trade has been a big issue when it comes to NAFTA, when it comes to our trade agreements around the world. And the strategy from the Trump administration has been a little different than what we've seen from previous administrations. Maybe now we're going to find out if it works or not. We're at that point. Charlie, what do you think about whether or not we're going to wind up in trade wars or whether you think we get better trade agreements as a result?
CharlieI'm pretty optimistic about China and the United States working together. It would be insane for them not to work together and not to develop a trusting, constructive relationship. And I have no reason to think that that that won't happen.
OtherBill?
OtherI agree, although I would say the U.S. is making that a bit challenging right at the moment in terms of predictability and stability and finding the right approach. You know, we're all big believers in the large benefits of trade. And so the fact that the sentiments have turned against it, you need to do you need to do more to help those who aren't hurt by trade? And politically, it's impressive that free trade was not supported by either candidate.
[2:11:50]
QuestionerYou mean in the U.S. election? Exactly. Right.
WarrenIt may be the blowback after what has. happened in 2008 and 2009. People who felt like they got left behind and who haven't caught up with others. I'm not sure how else to handle that. What the right way about going to do that would have been. But Bill, you're somebody who has to go from nation to nation, country to country, and through the foundation and your work there, kind of hope that everyone can work together. Has it gotten tougher to do that or is it the same as it was before?
OtherWell, the most important relationship in the world is between the United States and China. And you can imagine lots of win-win things with trade, with innovation, with helping to drive stability for the world. We're countries with very different histories, very different governments, and so you do worries. You watch, even in these last few months, the sparks fly. But I think logic will be. I think logic will prevail. Our foundation has worked a lot with the Chinese government. You know, we're excited they're becoming a bigger aid donor. So even for the work we do to help poor countries, having this relationship be strong would be very, very helpful. Bill and Melinda as well, have actually done very big and important things in terms of getting countries to work together in the health field. field. And they have brought the world closer together in terms of attacking, particularly vaccine, but a number of things to do with health. And over time, that sort of thing will prevail in the world. I mean, when people see something working and their lives getting better, and you mentioned the problem of the prosperity. I mean, if countries get far more prosperous, they should figure out a way that all of their citizenry participate in some way. in some way. You want to keep the market system and does wonders and all of that. But you have seen what, you can, you can actually look at what Bill and Melinda have done, and they have influenced other countries to act cooperatively. And it's a tremendous achievement. You all have been incredibly philanthropic. You've given billions and billions of dollars away. But if you had to look and try and find one arena, one topic, one place that you think gets underserved, aside from what you're already doing with your own money, with the foundation money, is there an area where you would look and say, hey, here's another thing that needs some additional funding,
[2:14:37]
Otherit's overlooked, and it's very deserving. Bill, what do you think?
OtherWell, there's so many important causes out there. And we picked global health and education and by sort of specializes in those you can do a good job. But the needs are really vast. really vast. Some philanthropists are working in the U.S. justice system to deal with the inequities there. We do some work on poverty, but there's many others who have different cuts on that. The beauty of philanthropy is you're taking on these social goals that that are very, very difficult to achieve in trying to show government how to do how to do a better job. And so it's been rewarding. There's a lot of progress, but there's so many causes. And as Warren and I encourage other people to do philanthropy, you know, we hope they'll pick one of these unmet areas and get a passion for it and bring their same skills they had in business, because that's huge value out of even beyond the money.
QuestionerYou're talking about through the giving pledge.
OtherIdeally through the giving pledge. I mean, we sit and talk about it. When we sit and talk to people about philanthropy, and most of those people do end up joining the pledge.
QuestionerCharlie, how about you?
CharlieWell, better drugs and devices have the advantage they work almost automatically. And the one I see that will change the world is the new IUD is a huge contribution to human civilization. And it's just sweeping. And it's going to change. That's going to change life. And the beauty of that, it didn't require any government, didn't require any pompous bureaucracy. So they just invented a better way of doing it. And it spreads automatically. I love that kind of thing. And of course, I like the vaccinations. Think of the good that it does to do the vaccinations. And of course, if you vaccinated and I don't, it doesn't work as well. So naturally, the nations cooperate. But Bill's going to get more cooperation. you get more cooperation than Warren is. Because? He's more incentive for the people to agree with Bill. Warren's taking out entrenched interests who aren't going to like it at all.
QuestionerBill, very quickly, before we go to Warren on this, can you give us an update on where polio stands right now? Just speaking of these vaccinations?
OtherWell, we have two countries that we haven't gotten rid of polio in. It's Pakistan and Afghanistan. We're making sure it doesn't travel to other parts of the world.
[2:17:26]
Otherworld, so we have to keep the vaccination rates up. And we're doing a better job getting out to all the children in those two countries. So with luck, this could be the last year with cases. But it's very tough. You know, it's every morning I get up and see, okay, what does the case count look like? And we actually sample the sewage to see if there's any polio being transmitted. So we're very close, but zero's magic number. If you miss it, then you have to go another year. So we've got our fingers crossed. The reason that you sample sewer samples is because... Amazingly, if a kid has polio and they're in that city, if you go look in the sewage, there's so many viruses out of even a single kid, that we can detect it, and we can see which virus it's like, and so we can understand where it came from. So that's actually our best. best tool is that we politely say environmental sampling. You can see why I delegate philanthropy. My urge to sample sewage is not me. I've gotten 87 without any urge sample sewage. Bill gets excited about it. Bill gets excited about it. Bill Gates has a huge advantage. Nobody's in favor of infantal paralysis. And a lot of people are in favor of medical practices, practice that's counterproductive. Although it's not a slam dunk for the vaccinations. You've had trouble with some cultures who don't like you coming in there and some vaccination workers who have gotten into big trouble too. Well, you get rumors about vaccines, even in the U.S. that is this good for the child. If you have a child that gets a fever afterwards, people worry about that. So you have to constantly remind people of how beneficial it is. And every once in a while, when coverage rates go down, then you'll get lots of measles or pertussis coming in. So people who understand really want these things, and the progress has been phenomenal. But we have to create demand as well as supply to meet our goals.
QuestionerWarren, I want to come back to you just in terms of finding the cause that you think is important that you maybe hope somebody else will spend some time on. time on.
WarrenWell, I think the number one problem of mankind is weapons of mass destruction. I mean, we have learned since 1945 how somebody with bad intent or some organization with bad intent or occasionally some government with bad intent, the knowledge is there of how to kill millions of people and in some cases the intent might be.
[2:20:25]
WarrenThe intent might be there. The materials have been hard in the case of nuclear to some extent, and now you've added cyber to the equation. So that's the not, I consider that the number one problem of mankind. I don't know how to use money to fight it particularly. And but then I believe in women having the right to decide what to do with their bodies. And that's been advanced very consider. very considerably, but there's still a lot of work to be done there. But I believe the number one problem to get beyond weapons of mass destruction in the United States is to figure out how to maintain all the benefits of a market system, which works wonderfully in creating more output all of the time. And at the same time, make sure that people that are really don't fit a market system very well. very well, still live decent lives, and we've got the resources to do it. And we've made a lot of progress on our Social Security progress. I mean, we take better care of our young than old. But we haven't figured out the way to take some very good care of somebody that just doesn't fit into the market system, but it's a perfectly decent citizen. And a rich society should solve that one.
QuestionerAndrew has a question as well. Andrew?
QuestionerI don't have a serious question, Becky. I have a, hopefully, fun question. fun question for the bunch. This was actually a question, Warren, that came in over the weekend from a guy who was in the audience, Alexis Ohanian, who's the CEO of Reddit. He's also the husband of Serena Williams. He was desperate for us to ask this question. So I'm going to ask of you, Bill Gates has, by the way, already been asked this question. It's a famous question on Reddit in these Ask Me Anything sessions that they do. It's a bit of a logic train question. So the question is this, and I don't know if you've Listen, I don't know if you've ever heard it, would you want to battle a one horse-sized duck or a hundred duck-sized horses? And there's huge debate on the internet about what the right answer is to this question.
WarrenWell, you've gone to the wrong place to find the answer. Oh, I will go out and buy a bunch of ducks that meet the test and horses meet the test, and we'll have a real life. illustration, but I do not bring any insight to that one. Bill probably knows the answer already.
OtherMy attitude is that Warren knows more about it than I do. I ask you guys a question that I was surprised didn't come up this weekend.
[2:23:09]
QuestionerYou all are voracious readers, and generally somebody will ask you guys at the annual meeting what you've been reading recently. Let me just toss that out. Bill, you constantly have a list of what you've been reading. What makes it this year? What makes it this year?
OtherWell, the top would be this new Hans-Rosing book called Factfulness. It's very readable. It talks about how the world has changed, and Hans shares how he had some misperceptions that he didn't see all the progress. And I talked to you about how to think about news and where we're going. So that's brilliant.
QuestionerCharlie?
CharlieWell, I read a book by a Chinese economy. economist who had worked in the World Bank. And his general idea was that we had learned better how to help a poor nation develop. There was a lot of stupidity in the early days when we'd give some very poor and backward nation a big steel plant. Of course, it wouldn't work. And I think this economist was right. So I think generally speaking, there's a lot that's right in the world.
QuestionerYeah. Warren, have you been reading anything lately that's caught your attention?
WarrenWell, yeah, but I narrowed down a little bit more. I've always recommended Chapter 8, you know, the Intelligent Investor, which stays up there among the top sellers for years. But so in that same spirit, I would recommend reading Chapter 4 of Stephen Pinker's new book. And there's some very interesting reasons to be optimistic about the world. in that chapter.
QuestionerWhat does it focus in on?
QuestionerYeah. Tell them the name of the book, Bill.
OtherIt's called Progressive Phobia is the chapter name, and the book is called Enlightenment Now. It's another book like the Rawlsing book that talks about the progress we've made and how we could learn from the places we've made even faster progress. It came out of the work he did in his previous book, Better Angels of Our Nature, where he saw that violence was going down. And now he's looked at a lot of other things, like workplace safety and happiness. And it's a more serious read than a lot of books, but really fantastic.
QuestionerWe've spoken a little bit with Charlie and Warren about what they've learned from each other. I'll ask each of you, as we're wrapping up this hour, what you've learned from Berkshire, broadly, as board members, as board members, as people who travel together, who work together, who have fun together, and spend time together, just what it's meant over the years.
[2:25:57]
QuestionerBill, I'll go ahead and start with you because you haven't gotten to weigh in on this yet. Something you've learned from Charlie and or Warren and the board at large.
OtherWell, from Warren, the whole approach to thinking logically, thinking long term. It's been an incredible education and totally shaped how I think about things. The fact that then there's this incredible set of people, including Charlie and the managers, that I've gotten exposed to, we have, in our second board meeting, a bunch of the managers come in and talk about their businesses. And it's one of the most fun times of the year to hear about very different businesses and the competitive dynamics and how technology affects them and how a system where you have these great long-term thinkers with very high integrity who are dealing with these challenges. So, you know, my whole business education started the day I met Warren, and the Berkshire team has helped keep it going at full speed.
QuestionerWarren?
WarrenWell, it's very important in life to associate with people who are better than you are. And it's the most important decision. You will go in the direction of the people that you associate with, and you'll get ideas from them, and you'll get ideas from them, and you'll see how their behavior works and all of that sort of thing. And the most important decision, usually in that respect, is your spouse. But it's enormously important among your friends to have people that you admire as well as have a lot of fun with and you will move in the direction of their better behavior. And with both Bell and Charlie, I've learned a lot. I've had an enormous amount of fun. of fun. But I pick up on their ideas. And that's been a very good thing.
QuestionerCharlie, I'd like to have, you have the last word today on that topic.
CharlieWell, I said to the Berkshire managers this year as I looked out over the crowd. The nice thing about this room is that we would all feel pretty safe just delivering our children to almost anybody selected at random from the group. You couldn't say that at most places. I should say there's a horse race for power and prominence or something or other. So we have a very admirable bunch of people and we have less bureaucracy than almost anybody. And so that is not a small achievement. I don't think of a single, I can't think of a single company of our size that has less bureaucracy than we do.
QuestionerDid you set out to do that at the beginning?
[2:28:46]
WarrenWell, we always hated bureaucracy. And so I would say in a sense, yes. Wouldn't you say they weren't? Yeah, absolutely. No. We both... We both hated it. And we had the ability, or, you know, was fortunate, we could create the company to some extent that we wanted to have. And I've always said it was crazy to be a painter painting something at the end you didn't is not the painting you wanted to have. And Berkshire is a sort of painting. And we haven't walked into some huge organization and had to claw through the progressions and the politics. and the politics that went. And we have created what we want to create. I don't think we could fix a big bureaucracy. No, we couldn't. We could create something that didn't become a big bureaucracy. But we couldn't fix one that's already bureaucratic.
QuestionerCharlie, Warren, Bill. I want to thank all three of you for your time today. We truly appreciate it.