OtherLet's bring on our special guest this morning, Berkshire Hathaway, Chairman and CEO, Warren Buffett, joining us just after writing his annual letter to shareholders.
OtherAnd Warren, this is a big deal.
OtherIt's something that the investment community kind of waits on and sees as a must read because you spend so much time actually writing this yourself.
WarrenYeah, too much.
OtherWhen do you start writing the letter?
WarrenWell, this one, I started very early because I had one section in mind. It turned out to be the last section. But when I talk about the American tailwind, I probably wrote that in late summer. And then I work around different sections, but it takes a long time.
OtherYeah, I am not a first draft writer.
OtherWell, for people who have been reading this for a long time, this letter was markedly different than you've written for the past three decades or so, because at the top, the opening of every letter in the past to this point, has been Berkshire's percentage change in book value as the measure that you thought was most important. This time you kind of stripped it out and said it's not the most important metric anymore for a couple of reasons. One is which Berkshire has changed so markedly, but also you just think it's not going to be the way that you'll be measuring things in the future.
WarrenNo, it's not the more relevant figure, at least over time, not in any one year period, but basically it's market value because we have become. overwhelmingly an operating company, and we hope to become even more so than a company that really held a lot of stocks and bonds. So I've actually talked about that in previous reports. I wouldn't have wanted to quit in a year where I got clobbered by the one I was dropping and was adopting one that made me look good. So I actually included them both in, and it was a good year to make the transition.
OtherAnd you said it's different.
WarrenI've always had the image that I am talking to my sisters. I have two sisters. They're both, Berkshire is pretty much their whole investment. They're smart. They're not active in business, so they're not reading about it every day. But I pretend they've been away for a year, and I'm reporting to them on their investment. And then this year, because we may be repurchasing shares, I tried to. to have the vision that they were talking to me about whether they should sell their shares. And I was explaining to them exactly how I would look at it if I were in their shoes.
[2:37]
QuestionerSo it's Deird Doris and Bertie at the start, and then I take that off at the end. But I'm talking to them and I'm trying to talk to them in a manner where if, you know, they're practically entirely in Berkshire and if they were thinking of selling some, here's what I'd want them to know before they made a decision. To do that, you used a new description for coming up with it this time, which was the idea of having five groves. You being maybe a timber company and having five groves that Berkshire's really invested in. You broke down and looked at each of them on a case-by-case basis, one being the non-insurance businesses that Berkshire owns, another being the equities bunch that you have, the final ones, the insurance companies, but you also have treasuries and cash that you're holding. And what I'm, oh, and then businesses that you own part of, not all of, would be the five groves. That's pretty interesting. How'd you come up with the idea of just the groves? Because it is something that somebody who's not so steeped in business can get their head around pretty easily.
WarrenWell, Berkshire, you know, has dozens and dozens and dozens of companies. And when analysts look at it, you know, they want to go out and figure out, you know, how many boxes of valentines we sold, you know, at our candy company. And you can get totally lost in terms of looking at the. the forest by trying to look at every tree because some of the trees are flourishing, some of them are decaying, and some of them are huge and important, and others are more or less twigs. So I thought I would group the assets in a way that was logical and where you could sort of figure out the valuation that you might attribute to that particular grove. And I think it's a lot better than trying to describe 80 or 90 businesses with three 300, what, close to 390,000 employees. I mean, we're in one of the businesses right now, and this is a very interesting business. But we've got Jordans in Boston, we've got Starr in Houston, we have R.C. Willie, and to go through everyone and tell them about the latest store we opened, and it's much better just to look at them in groups, because they make sensible groups.
QuestionerTo that point, this is the Ask Warren show, and we have gotten a lot of questions that have come from viewers, some from Berkshire shareholders, others from people who are just longtime watchers. I'd like to bring up a question that comes from Marcello P. Lima, or Lima.
[5:02]
QuestionerHe writes in, and I think this comes from Twitter, Mr. Buffett, in your letter, you note that some of Berkshire's trees are diseased and unlikely to be around in a decade. Which ones do you have in mind, and how do we prevent healthy trees from joining them?
WarrenYeah, well, I did say that, but I would not name the ones that have major problems just from a morale standpoint, the people. We're going to keep running them. But we have companies that are on the down swing as well as on the upswing, and it would be very tough. And the ones that are, as I call it, diseased, they're a very, very, very small part of our earnings. You'd gain nothing analytically and you'd have 100 people go to work today feeling, you know, well, we might as well give up or something of the sort. I don't like to name them specifically, although you could probably figure some out by looking at our list of companies. Some companies are just in the wrong industry, I mean, if you, you know, if you made, you know, whatever it may, well, even making televisions of this country. I mean, that was a hot industry, you know, when I was young, and we don't do it anymore. We saw a lot of them here at our store, but so I would not, I would not like it if I were. working at Company X and my boss had just got through saying, you know, you're in decay.
QuestionerYou do name some of the big redwoods that you consider to be essential to the Grove, though. I think you said that Berkshire Hathaway Energy and the railroad, Burlington, Northern Santa Fe, are two of the biggest redwoods that stand in the groves.
WarrenWell, they're big. Yeah, they're big. And both set records for after-tax earnings last year combined, they earn right around $8 billion after tax. And $8 billion is a lot of money to us. That's a third of our operating earnings. We earned 24, a large fraction of operating earnings last year, $24 billion. And those two companies alone earned eight. Now, Berkshire Hathaway Energy also has multiple companies. But the BNSF railroad is just one big railroad.
QuestionerLet's talk about that operating profit number. It was $24.8 billion. but on a gap basis, which you're now focusing on, it was $4 billion. And that comes because of accounting change that came into play this time around. It was a $20.6 billion paper lost on your investment holdings that you now count back in from the huge amount of securities that you own and then also the $3 billion right down on Kraft.
[7:43]
QuestionerYou go out of your way to emphasize again that you don't think people should be looking at these gap earnings, even though you're reporting them that way.
WarrenYeah, and we say the same. Well, that's the final gap earnings. The $24.8 billion also are gap earnings. operating earnings. And I think they were, we had some outside tailwind on that, but they were 41% greater than any year we've ever had on operating earnings. But beyond that, we have this large portfolio of stocks and also the right down in Kraft Times, but the main thing was the portfolio of stocks. And we've made a lot of money over in stocks over time, but there's been years when we've lost money to it. I tell the shareholders that we expect to make money on stocks over time. We haven't got the faintest idea what years will be up or down. And then they changed the rule last year so that unrealized gains or losses are recognized through gap income. That had not been true for dozens and dozens and dozens of years before. So that changed our figures. But that's what I That's why I tell Doris and Bernie what's happened in accounting during your year as well as the business. But you should point out this time it was a decline of more than $20 billion. There will be quarters where you'll see a huge upswing and you don't think people should pay attention to the upswing either. These are just fluctuating numbers. No, they should pay attention to how we do over 10 years in the stocks we own. But actually, the way the rule works now, you know, every minute it's recorded in earnings is marked to market. We are buying stocks that in some cases will hold 10, 20, maybe even longer years. And those companies are retaining earnings, they're reducing the number of shares. They've got a lot of things going for them. And I would, you know, I have bet a lot of money. We had 173 billion of equities at year. And I love having those and they will make us money over time. But I have no idea what they'll do in the next year or two.
QuestionerAll right. Let's talk through a few other questions that have come in from viewers just regarding Berkshire while we're here. Eric LaFont wrote in and said, Warren, how have you structured Greg Abel and Ajit Jane's compensation now that they oversee dozens of different businesses? You did point out that you think the business is much better run now that those two are vice chairman each running their own set of companies.
[10:15]
WarrenYeah, our proxy will be out very soon that shows what they received. I think unless there's some calendar quirk or something. something like that, they will have each received $18 million last year. And the base salary is a high percentage of that, and then a bonus is discretionary with me. But they're doing a fabulous job. Bonus is discretionary just based on anything. I wake up in the morning. Yeah. On that same sort of. only one you'll read about like that at a proxy. There's another question that comes in regarding Greg and the G that says this is from the rational walk. A suggesting question on Monday, given that Abel and Jane are not only responsible for running most businesses, but also vice chairman, shouldn't they be up on stage along with Charlie at the annual, meaning many of us would like to hear from them? Yeah, well, you will hear from them more in the sense that they will be up front with microphones ready to take on. any questions that come. It's not going to be that many years where the two of us are, but they will be up on the stage when we rearrange the format. And rearranging the format means rearranging me and charling to some degree. But it's logic, it's logical for them. And I hope lots of questions get directed to them at the annual meeting, because we'll feed them into them. I should mention one thing about their comp. There's this rule. And I may not be giving it to you exactly proper. But there's a rule for public companies that you get to deduct only a million dollars for a compensation unless the excess is tied to some formula. So everybody pays, you know, you can be running the super company of all time. And they tend to raise the base salaries so they're a million or two million. And then call the rest something that qualifies under the IRS where they get the deduction for it. I didn't know that's why that's just. Believe me, every company can host it, and their employment consultants know and everything. So you have all of these salaries, but then they have something that makes it very easy for it to make a lot more money. And that money is deductible, whereas I don't think what we pay in the way of excess, I think it's over a million, is deductible. But, I mean, it would be a joke. And so we are paying them a fair amount of money, I believe. that's not deductible, whereas almost any other company you see that they're designing it so that it is deductible.
[13:07]
WarrenI always wondered why the base salaries are, yeah, it's ridiculous. I mean, it's so transparent, but it makes everybody feel good. They passed it, I don't know, 10 or 20 years ago. And immediately everybody, oh, we just had this revelation that now that you're really only worth of base salary, this is a tiny amount, you know. And they came to me about designing something like this, you know. I said, you know, it's just a joke. I mean, we're not going to pay it a million dollars a year. So, you know, they've got huge responsibilities. So you'll see it, you'll see a little different situation. I think the bonus I give them, I think it was 16 base and two bonus, I think the two is probably deductible. So 619 on the East Coast and you're already making friends. Well done.
OtherLet's get to another question from the audience. This comes from, Ryan Chan, he asks, how are Ted and Todd's performance since they joined about eight years ago? The money managers who are there, Ted Wechler and Todd Combs, have they perform better than index? Charlie said recently that most money managers did not add any value compared to an index.
WarrenYeah, the first few years, each of them, they came at a slightly different time, maybe a year to a year and a half or something different times. of the index and they got paid compensation. Now they got it paid so it came in thirds so that it could be clawed back two thirds of it if they missed the second year and so on. Overall, they are a tiny bit behind the S&P each by just almost the same margin over the same time. Over the entire period.
QuestionerOver the entire period. And the entire period is a little different for both.
WarrenAnd they now manage about 13 billion. They've done better than I have. So I... Well, that's a good measuring stick. Yeah. So, no, it isn't a measuring stick. But I mentioned it because if I don't, somebody else will. So, you know, they also, both of them have done an incredible amount of work in terms of acquisitions. and Todd and particularly on our medical venture. They, anything at Berkshire, we made an arrangement with Lee Enterprises in terms of managing our newspapers. Ted handled all that. I mean, you know, he got my approval on it, but he did a million details. And they're both, they both have contributed all kinds of ways to Berkshire. But it has been a tough time to beat the S&P. But that's the deal we've got with them. And they've got a small
[16:06]
Warrencarry forward of deficiency to make up. I mean, they had some clawed back earlier. They made pretty good money for a few years, substantial. Some clawed back because of the three-year look-back arrangement. And then now they've got a small carry forward. Okay. Another question that came in. But they've done better than I have. I have. Tony Dickinson writes in, what changes should we expect from Geico with the transition from Tony nicely to Bill Roberts? And how do they approach leadership differently? Are they, they're two peas in a pot on that. I mean, they've worked together so long, they're so compatible. They have the same feelings about, about Geico. I mean, nobody can quite match Geico's so. Tony's feelings about Geico. But they, there's just no change. I was at a meeting of Geico that they had maybe 40 of their top executives, and everybody went around, introduced themselves, and gave the length of time they'd been with Geico. I think the shortest time any one of those people said was 19 years. Wow. Geico grows its own.
OtherWe are here at the Nebraska Furniture Martin. We're going to talk more about a story I think you have from Mrs. B, the Flempton, This is Blumpkin, the founder of Nebraska Furniture Mark, coming up a little bit later. Right now, we're going to take a quick commercial break. Welcome back to a special edition of Squawk Box. We are live in Omaha, Nebraska, with Berkshire Hathaway's chairman and CEO, Warren Buffett.
QuestionerWarren, we're just sitting down with you for the first time since the news last week that Kraft Hines put out. There was so much news, it's hard to even summarize it all. When they came out with earnings that missed expectations, they said, by the way, it's not going to get better in 2019. They revealed that there's an SEC investigation taking place into a accounting, they wrote down the value of the brands by just over $15 billion. Were you surprised by any of this news? What did you think of what happened? Because the street was surprised, so the stock was down over 30%.
WarrenYeah. Well, I may have learned a week or 10 days before about something like the FCC investigation. I'm not on the board, but Greg's on the board, and I talked to Greg. And Greg had been talking a lot to the head of the audit communications. audit committee and he's a terrific guy, Jack Pope. But the write-down, I do my own write-downs in my mind. So I was not surprised by that, although the accounting firms look at write-downs a little
[18:45]
Warrendifferent way than I do, but I would not argue with them on it. And I can give you some math that was substantiated. I've been watching, I was wrong in a couple ways on Kraft Heinz. But the, I think we talked the Glyde luncheon time about the packaged goods brands losing some ground against the retailers. What was that just over a year ago? Six months ago. The glide, the package goods companies are always in a struggle with retailers. Our family had a grocery store for 100 years. And then we didn't have much bargaining power. But the really strong brands, they can go toe to toe with Walmart or Koshka or whomever it may be. But the weaker brands tend to lose out. Now, the interesting thing about Kraft Hines is it's still a wonderful business in that it uses about $7 billion of tangible assets and earns $6 billion pre-tax on it. So on the assets required to run the business, $7 billion, they earn $6 billion roughly after depreciation pre-tax. But we and certain predecessors, but primarily we, we paid $100 billion more than the tangible assets. So for us, it has to earn on $107 billion, not just on the $7 billion that the business employs. And we don't have a way, it'd be wonderful, we had a way to deploy another $7 billion. and it earned $6 billion, but it isn't there. So I think that when you're going toe-to-to-toe with a Walmart or a Costco or maybe an Amazon pretty soon, and you have a modestly good, Brad, maybe one word of the trends a little against or something like that, you know, you've got the weaker bargaining hand than you had 10 years ago. The really classic situation, as I say, if you think about it, Becky. Heinz was started in 1869. So they've all that time developed various products, particularly ketchup, things like that. The craft part of it's a little more murky, but it goes back to CW Post in 1895. Those companies have brought all kinds of brands. All kinds, you know them, you had them when you were a kid, you have them now, some of them. They've been distributed worldwide through tens and hundreds of thousands of outlets. They've had hundreds of millions of trying. They spent a fortune on that. advertising. And their sales now are $26 billion. Costco introduced the Kirkland brand in 1992, 27 years ago, and that brand did $39 billion last year, whereas all the Kraft and Heinz brands did $26, or $7 billion. So here they are, 100 years plus, tons of advertising, build into people's habits and everything else.
[21:55]
WarrenAnd now Kirkland, a private latest. a private label band comes along and with only 750 or so outlets does 50% more business than all the Kraft Hines brands. So House brands, private label, is getting stronger. It varies by country around the world, but it's bigger and it's going to keep getting bigger. Okay, a couple of questions on it. First of all, does that mean you overpaid? Well, we did overpay. We didn't overpay for Kraft. I mean, for Hines. We bought that originally. 50-50 deals private. The 50-50 deal with 3G. Pardon? With 3G. Yeah, with 3G. We had two stockholders. And then we overpaid for, we overpaid for Kraft. And we wrote down $15 billion of that. And that's the CPA's way of looking at it. Actually, the markets marked it down more than that, and probably quite properly. I mean, the thing to remember is like, you know, you know, you know, you know, you know, you know, know how the stock doesn't know you own it. You pay $10 for a stock, it goes to $8, and you think if it gets back to $10, I'll sell it. If it goes up to $20, you say I can take out, sell half of them, take all my money. All those things are nuts. But in business, if we paid $7 billion for Kraft, which is all it takes to run the business, it would still earn the same amount as if we paid the $100 billion premium. The stock, the business does not earn more just because you pay more for it. And we not only after buying craft, everybody started speculating about things we buy. So the prices of everything went up. And then on top of it, we pay large premiums for it. And we misjudged it.
QuestionerI hear what you're saying about the house brands and the competition from places like a private label brand that Costco puts out. But what about just millennials changing habits? How much of it is that younger consumers don't want the brands that their parents and grandparents want it?
WarrenThere's some changing habits. But if you think about it, people don't really change their habits. don't really change their habits that much. If you try to think of the billion-dollar brands that have been created in food, and their private label is, there's very few billion-dollar brands being created in food. The fellow did it in yogurt, probably, you know. But you don't really see that that has not been a huge change. Physical volume hasn't changed much. The ability to price, though, has been changed. And that's huge. We had an analyst on last week on Friday talking about what she perceived as the problems with Kraft Hines.
[24:32]
WarrenAnd she said she thinks they're underinvesting in the business. I mean, that's kind of been 3G's way to cut to the bone and that's how you make this profitable. But she thinks the brands have been underinvested in. Would you agree with that? I don't think so, but that's hard for me to tell. But the, I see, well, I was on the board. I mean, I saw lots of innovation on different products and you saw them average. to some extent. I do not think, but I don't know this for sure, but I think if you take the 10 largest food companies, I think in innovation, they've tried a lot of things. But how many things work? If you look at Kellogg and General Mills and go up and down like Coca-Cola, I mean, how many new products really become big? You read about them at all. But, but, but take Heinz ketchup, you know, it's got 60% of the ketchup market. It's got higher percentages in other parts of the world. And it's a very, very, very, very strong brand. Philadelphia cream cheese is a strong brand. But other brands are weaker. And that you are right, certainly, that in certain categories, maybe in a Kool-Aid or, you know, jello or something like that, you know, they'd go back 75 years or something. And there's some secular trend against that. But that isn't the key. I mean, they cut costs not in innovation or in product quality or anything like that. They just took it out of SG&A, basically. Now, they may have made a mistake in terms of working, I shouldn't say they, we may have made a mistake, we may have made a mistake, in terms of trying to push hard again. and certain of the retailers and finding out that we weren't as strong as we thought they were. We were.
QuestionerLet's go to one of the questions from viewers, because we got a lot of questions related to Kraft Heinz. This one's number T5. Someone named J.C. Dominguez wrote in. Is this the type of incident in time when you buy more Heinz, or do you pull the plug?
WarrenOh, we don't pull the plug on it. I mean, we've never sold a share of Kraft Heinz. And if we sold or bought, or bought, it has to be reported within two days. So we wouldn't be able to do anything significant. But it isn't our style. We are the partners with 3G on it. And so we have exactly the number of shares we had before. And I guess I should never say never at age 88 in terms of somebody else might do. But I can tell you, I have absolutely no intention of selling.
[27:21]
WarrenI've got absolutely no intention of buying. Why wouldn't, if you're sticking with the business and it's 30% cheaper today, why wouldn't you buy more? Because it isn't worth as much. So you think it was a fair right down that the market is. At 35, you've got a billion, 200 million shares out. So that's $42 billion for the equity and we owe $30 or $31 billion. So the whole company is selling for $71 or $2 billion. And as I mentioned, it has about $6 billion of operating income. Now, for $6 billion, would you pay $6 billion? Would you pay a lot more than 72 where it doesn't look like it's going to be going up for a while? Maybe even what they said is going to go down in 2019. You know, we, there are other things, I think, where you get more for your money and better prospects. Not that I regard the prospects for Kraft Heinz is terrible. I mean, I would, if I had to bet one way or another, I think people will eat more of our products this year than last year. But if you see. better places to deploy money. Why don't you sell? Well, A, we can't, as a practical matter, move around tens of billions of dollars that easily. But beyond that, well, it is, I mean, if we're working with a million dollars or $10 million, would I have a position in it? No. You move around with a million or $10 million. And Ted and Todd can move around reasonably well with 13, but that's going to be difficult. I mean, you are, you do, you know, you dance like an elephant, not like some guy on dancing with the stars.
OtherWe have a lot more questions that have come in regarding the partnership with 3G and 3G style of doing things. But we'll get to that in just a little bit. In the meantime, we have to take another break. Okay. I do have great things to talk to you about.
QuestionerI'm worried, I mean, I think you think the market's expensive, Warren, so I want to talk to you about that. I mean, you don't like to say that and you say long term, it's going to be fine. But you've got a lot of metrics you're looking at that, like the market cap to GDP or GNP. That looks expensive there, right? I mean, there are things that look expensive and you're having trouble finding things. So, you know, you need to be honest with us about that. Is it really expensive?
WarrenJoe, it depends on interest rates. We've talked about that before. If you tell me that 3% long bonds will prevail over the next 30 years, stocks are incredibly
[29:54]
Warrencheap. Okay. Because even, you know, I mentioned that Kraft Heinz earned $6 billion on $7 billion in tangible assets. Even if you pay $70 billion and you earn $6 billion on it, that's better than having $70 billion out in 3% government. Interest rates govern everything. And if there were a way to short 30-year bonds and own the S&P for 30 years, I would give you enormous odds that the S&P is going to beat 30-year bonds. Now, we've had this period of extended long-term low rates not only here, but around the world, and now it looks like we're not going to jack them up very fast. So we may be in a new world, the world that Japan entered back in 1990, and if so, stocks will, when we look back on it, will look very cheap. But this has not been the history of the United States to have these continued low interest rates. So I, there's no, if I, if I had a choice today for a 10-year purchase of a 10-year bond that whatever it is, or 10 years, or buying the S&P 500 and holding it for 10 years, I'd buy the S&P in a second.
OtherWell, that brings us to a question that a viewer wrote in. This is T67, Pierspant says from the annual report in the 13F, it looks like Berkshire was the least active in the public markets in the quarter when the stocks were the cheapest. You also did fewer buybacks in the fourth quarter when Berkshire was cheaper, was taking the foot off the gas in the fourth quarter a conscious decision. And based on what you just said, we got all these signs that looked like the Fed was not going to be raising rates in the fourth quarter, too. So why wasn't that a buy signal for you?
WarrenWell, I thought stocks were by in the fourth quarter, just like they did in the third and second and first quarter. But sometimes we have other things in mind, too, that may use a lot of money, and sometimes they work out and sometimes they don't. But what does that mean? You were holding your cash in case a deal came from? through? We had at least one deal, possibly, it would have been very large. And so I like stocks in the fourth quarter, but I would like buying a business even better. Is that deal? And incidentally, I did say in the annual report that we expect to be buyers, net buyers of stocks in this year. We have not been net buyers, I should point out. I mean, the market's gone pretty much straight up. I still think stocks are more attractive, but I have trouble buying it one every day.
[32:28]
QuestionerIt's up. The deal that you just mentioned, is that potentially still on the books?
WarrenNo. So it's an opportunity. I don't think it is.
QuestionerIs it a deal here in the United States?
WarrenYeah. Is it bigger than a, yeah. It's bigger than a breadbox? I'll give me a hint. It's on this planet.
QuestionerSo you went out of your way in the letter to say that you do think buying businesses outright is more expensive even though you don't think stocks are too expensive.
WarrenNo question that, yeah. In stocks now, you have a, or businesses I should say, you have a huge, huge, huge buyer. And that's not only, and companies are eager to buy too, but you also have private equity. And if I don't know whether private equity, it's flexible because they can call on their partners for more money and all that. But let's just assume that they would have a, trillion available. Now, they use a lot of leverage. They call themselves private equity, but they're really private debt, to a great extent. But that trillion might buy as much as, say, 3 trillion of assets if it's leveraged with 2 trillion of debt. Well, the total stock market is something like 30 trillion. And if you take the top five companies, you knock another, or six companies, you knock four, five, four trillion off that. So you're down to something. where the buying power of private equity, plus just the normal buying power from companies that want to get in there, it's just a huge amount of competition. When you start looking around, is that, do you think the private equity companies are overpaying for this or can they make it work?
QuestionerWell, they'd rather not. I mean, they obviously want to make the best deals they can, but they are in a game that is so much more competitive than was for them. If you go back to the 1970s when, you know, when, you know, when, when, when, when, you know, when, when, you know, when leverage buyouts started, which are the same thing they're doing now, but the name kind of lost its appeal there at some point. But, but the deals you could make then were enormously more attractive than the deals you could make now.
QuestionerLet me ask you one more question that came in from a viewer. You've kind of answered this, but there may be a little bit more to the answer. This is T84 for the control room. Nick writes in, why didn't a large acquisition happen for Berkshire the fourth quarter 2008 sell-off. Are you anticipating a much bigger decline in the market?
[35:01]
WarrenOr was, I guess maybe it was the timing of it, maybe it was so quick. Yeah. Well, there too, in 2008, for example, we were going to buy Constellation energy. We ended up buying the stock and making some money on it. But that was part of a deal. When Constellation fell apart, and it was in the fall of 2008, both, I was watching the tape, Dave Sokel, was watching what was going on and we actually called each other at the same time and he was on a plane with Greg to Baltimore. Greg Abel? Yeah, that day. And we contracted to buy it. So we were, we were ready to buy that. And we tried on other things and we put, but we participated in marketable securities big time at that point too, as you know. We spent, I think we spent 16 billion in three weeks where when nobody else was spending anything. When was that? Well, between about September 15th and October 7th or 8th. And then we already had another $3 billion committed to Dow, which was not going to get taken down until later on. So we went through our cash pile pretty fast, too fast, actually.
QuestionerYou have a huge cash pile right now, though. What is it, $112 billion?
WarrenYeah, we're... And that doesn't even count the other $20 billion in cash-like? No, that does count. But the 110 or something like that, that counts 20. And, you know, I never get right down to 20 anyway, but we've got a lot of cash and we'd love to use it. But we're a private equity firm that's going to borrow six or seven times what they call EBDA, which I don't use as a metric, they're going to pay more than we are. And, you know, as I said, we paid too much for credit. If you pay too much for something, it doesn't accommodate you by earning more money to make you look good. It earns what it earns. And if we'd paid 10 billion less for Kraft, it would have still earned the same money, you know, basically.
OtherThis question that comes in, this is F7 control room. Doug Wofford writes in, Warren, when you come across bad news on a holding, for example, Kraft Hines, can you share the sequence of criteria you use to determine if the stock is on sale and buy or a bust and to sell? What really concerned you as what is in what is in back of a dip?
WarrenThe stock market is there not to instruct me, it's there to serve me. So if it comes, if there's bad news and the stock goes down, the question is in my, I have, is the long-term valuation changed? And, you know, there was, well, there was certainly bad news at Geico when we bought, for example,
[37:51]
Warrenbut there was bad news in American Express when I originally bought it back in the 60s. It was the best investment, the partnership ever made. I've ever made. So what you like is bad news about a fundamentally good business. And then you've got to make sure that it's still a fundamentally good business. But, no, bad news on a good business. We're better off because Apple stock is down significantly from where it was four or five months ago than if it stayed there. Apple will probably, they may not, but they have said they're going to go down to cash neutral. They could do it either. buy acquisitions or dividends or repurchases, and my guess is it will be mostly repurchases. They're about $130 billion away from cash neutral now. If the stock were at 200, it would buy 650 million shares. If it's at 150, you know, 150, you buy close to 900 million shares. We're way better off, you know, if it's a lower price when they're repurchasing shares. Our partners are selling out to us and they're selling out cheaper than otherwise. The worst thing that can happen from our standpoint with Apple is it sells a 230 or something like that because we don't like buying it as well at that sort of price. We have a lot more to talk about with Apple. There are a lot of questions that came in from shareholders on that too or from viewers on that. But we are coming up towards the top of the hour and to make sure that we make this a good business, Joe, I'm going to send it back to you right now.
OtherAll right, Warren Buffett's annual letter to shareholders released over the weekend. Let's get to Becky quick. And at some point you've got to find out if he has a favorite, did he vote in the GEICO contest? Does he have a favorite? The cavemen are still my politically incorrect. Oh, of all the ads? No, me too. I'm glad you got that they brought those back. And did you notice, asked Warren if he's noticed, all these other insurance companies that used to be so serious, they're all trying to do comedy now. There's one where a guy has these stupid, he's riding a bike and he's got these disgusting calves that they're all doing comedy because it works so well for GEICO. Warren? Does he notice that?
WarrenThe camel, I think, is winning on the contest. Oh, you know, I like him, too. Like, look, look, look, look. Yeah, the camel's, yeah, well, I was back at GEICO 10 days ago, and the camel was running well ahead.
[40:07]
QuestionerYou should win some type of mad, you know, madmen or advertising men. Madman? You single-handedly, you know, turn that into, you know, people need to do that. If, I mean, Geico, what the heck is a GEICO? It's a government and Martin, you know, it would have gone nowhere, but you, you know, you know. You ramped up all that ad spending and look at it now. So, I mean, you really, that's sort of, they owe you, the whole advertising industry.
OtherI'm, Joe, I, I am so glad that you remember that I was the one that came up with the idea of the Geico, the gecko. I mean, that lizard. People of Geico seem, people at Geico misremember that entire. They think it was their idea. And I remember the day that sketched that little guy out and said, why don't we try the, that that happened on the show a lot. I thought it was crazy. I know. Neither one of us gave. credit where we, you know, that people forget what we do.
QuestionerYeah, I know that. All right. Yeah. Well, our day will come. Hey, Warren, let's talk a little bit about what Joe was just talking about. And Joe, stay there because I know you wanted to ask about B-Y-D that might play into this. The trade talks with China. Yeah. How big of a deal is that? What have you seen on your companies, on your investments?
WarrenWell, I see the monthly reports from the companies come through, and a fair number. You know, not an insurance at all, obviously. But a fair number of the tariffs have had some impact. Now, we're talking 10 percent tariffs. And they, a number of them say, if it were 25%, there'd be some big adjustment. Some of it, the suppliers have swallowed over in China. And some we split with them, but it pushes prices up. up. I mean, there's just, there's no question about that. But it hasn't had a big effect at 10%. A number of them told me at 25%. I mean, the world changes. You either get a lot more money for your product, or you source it differently, or you do something. So are you relieved to hear of the deadline being extended and being pushed off that March 2nd, it's not all going to go to 25%?
WarrenWell, I'm relieved at the idea that there's still some chance that sense we'll prevail. It is bad for China. It's bad for us if we get into some kind of a trade war. And, you know, negotiations are tough in something like this. This is a big deal to both countries. And to some extent, you're playing a game of chicken because it hurts both countries.
[42:48]
WarrenAnd I generally think when two very small, smart countries have something very important at stake. They'll end up making rational decisions. I mean, I've been figuring that way with the Russians ever since, you know, the nuclear bomb. That even though you get all kinds of tensions and people generally figure out what's best for themselves and the best thing for both China and the United States is to work out something sensible that both sides can live with.
QuestionerDid you think there was valid reason for amping up these negotiations, for saying, hey, hang on a second, we're not getting a fair shake?
WarrenWell, I think we haven't been getting a fair shake to some degree, but I think we can sustain, I mean, to some extent of the United States can do things that no other country can do. So as I think number of smaller countries, for example, if they want to run trade surpluses with us, I mean, and it strengthens their economy. It doesn't hurt us that much. I mean, I think we've got a role to play in the world that way, but I don't think we can be Uncle Sapp either.
QuestionerJoe, you have some breaking news?
OtherYeah, out of the General Electric, breaking to a lot of us that realized GE had this much money tied up in biopharma. The company General Electric is selling its biopharm a business to Danahur, kind of interesting, Danahar, for $21.4 billion, and $21 billion of that will be in cash. GE says it's going to use the proceeds to reduce leverage, strengthen its balance sheet. It expects the deal to close during the fourth quarter of this year. And there's a lot of, you know, there's a lot of comments about how, you know, from Culp, about how this is in keeping with their plan to reduce leverage, strengthen the balance sheet, and all the other things. The deal, Danaher, meanwhile, sees the deal adding 45 to 506. to adjust that earnings per share in the first full year. And instead of us talking about this, Becky, me or you, I guess we should get Warren's comments on what he thinks of this move.
QuestionerLet's do just that. And I do want to bring up, this is something Warren that we got viewer questions about, too, randomly GE. Control room T102, Brian Savage wrote in. Mr. Buffett, given the recent turmoil with GE, do you believe Larry Culpe is the right man for the job? And if you could advise him, what would you inform him he should do? Lastly, if he is the guy, why haven't you invested in a company like GE, given your current funds?
[45:25]
WarrenWell, I think you should sell the medical operation for $21.4 billion to Daner. I mean, that's that sounds, I think that GE should de-leverage. No great insights there. They believe the same thing, I'm sure. So they just, they owe more money than they should at present, and they should. sell assets to some degree, not in a fire sale at all. And this is not a fire sale price. So I applaud what they, what was just announced. And I've met Larry had a terrific record, add Dan, and we are a big customer of GE. We are a big supplier of GE. You know, I've had some connection with the company for, for decades, and they did call us in 2008 when they needed money. And so I think all America is cheering for GE, but I'm certainly one of those that is cheering. Have they called you more recently? Well, I've talked to them off and on over the last year or two. But, but I've said the same thing pretty much as what I'm saying right here. here.
QuestionerJoe, you have other questions on this front?
OtherNot so much on that. I got a lot of things, obviously, that we want to talk about. And I guess Warren probably does know GE pretty well. Does he have, I'd like a little more color to his comments on GE. He probably doesn't want to do that. What's your expression? What do you say? You criticize by just generally, but you praised by...
WarrenCriticize by category. Category. Criticize by category, praised by name. Yeah, yeah. But I guess I have a category. I have not read their 10K. Huh? Or ML or anything. No, no. You'll never get me. No? You'll never get me to do that. And I haven't seen their 10K yet. I mean, I want to get their 10K as soon as I can. And it may be, it's probably out just about now. And that's the document you have to read. It's up about 50% from the lows, I guess. some clues, I guess, more, huh? Yeah. More than that, yeah. But it's, you know, it's, it's, it's, it's selling, the equity selling for about $100 million, $100 billion. And then they have, they actually have a preferred issue that's five or six billion. And most people don't even know about that. And then they have, they had, you know, something over a hundred billion of debt. that I'm consolidating the GE capital, but I think that's the way to look at it. And they've got a couple of very good businesses. So, but they were over leveraged and they've got to reduce the leverage and clearly they're doing it. I mean, you could write a check for that.
[48:41]
QuestionerWarren, there's a question that comes in. Warren, you could write a check for that, Warren, if you really liked it.
WarrenThat's true.
QuestionerIt's true that you could, but you won't be.
WarrenOkay, I'll just paraphrase it.
Questionerparaphrase. There's a question that came in from a viewer. And I asked this because we're talking about GE, and it's one of many companies that's looking at unfunded pension liabilities potentially down the road. This is T-54 control room. Brian Bannon-Rudson, how do you see the unfunded pension liabilities across the United States affecting our economy over the next 10 years?
WarrenWell, if you're talking about the corporate sector, the unfunded liabilities have been working their way down. all the new companies don't go for divine benefit plans. So you've got, you know, if you take the four or five largest companies in the United States, they don't have divine benefit plans. We have bought a number of older companies, so we have a fair number of companies with defined benefit plans. We wouldn't start any divine benefit plans. But that is, it's not a huge problem in corporate America. I mean, you have a Sears and the pension benefit guarantee corp gets involved. and there'll be others, but it's way less of a problem than it was 10 years ago or 20 years ago. In the public sector, you know, it's a disaster. And, you know, some of the, it's interesting to me when they talk about these relocation problems, you know, in New York and Amazon, all that sort of thing, you know, if I were relocating into some state that had a huge unfunded pension plan. I'm walking into liabilities because I mean, who knows whether they're going to get it from the corporate income tax or my employees, you know, with personal income taxes or what. But that liability isn't going to, you can't ship it offshore or anything like that. And those are big numbers, really big numbers, and they may come, you can delay a long time. I mean, you're getting pushed maybe somewhat. But the politicians are the ones that really haven't attacked in a good many states. And when you see what they would have to do, I say to myself, why do I want to build a plant there that has to sit there for 30 or 40 years? Because I'll be here for the life of the pension plan. And they will come after corporations. I'll come after individuals. They're going to have to raise a lot of money. I mean, when you say that the states that come to mind, having not looked at those statistics in a
[51:15]
Otherwhile, would be Illinois and New Jersey at the top of the list. As I say, I praise my name and criticize my category. Well, let's talk about that decision of Amazon to say, forget it to a second headquarters in New York City. We were with Charlie Munger on that day. This was February 14th, just a week and a half ago. We were with Charlie Munger the day that announcement came out, and Charlie had some pretty firm comments on it. He said he thinks it's crazy that states like California and others are basically driving the rich people out. What do you think about it?
WarrenWell, I heard Charlie on that. As he says, they don't have kids. They don't, and a good many of them are charitable. They tend to give them things that are around them. And they don't use the services nearly as much relative to their taxes that they pay as the average person. And they, he says they use the hospitals. Now, no, I obviously, well, a state like Florida, which has no income tax, attracts a lot of rich people. You know, and in Texas, you know, when people relocate there, the fact that there's no income tax is a real factor. And I don't know about those two states specifically, but I have a feeling that their retirement plans are in pretty good shape compared to the old industrial states. You get legacy liabilities when you move in. Nebraska's in very good shape that for a long time that we've really been against the state having any debt. Now they get around that with leasing sometimes.
QuestionerWell, what we're talking about is state versus state.
WarrenYes.
QuestionerYou're now talking about some new taxation plans that are being recommended in Congress or by specific senators. or congressmen that are similar to some of those policies that we've seen in the states. I mean, if you just run through it, Elizabeth Warren with her wealth tax on anybody over $50 million, AOC, Alexandria Ocasio-C Cortez, with her plan to tax anything above $10 million at 70% rate, Bernie Sanders, with his estate tax going up to 77%. If those policies are enacted on a national basis, do you see that? same sort of trading off where people would potentially leave the United States. What do you think about these planets?
WarrenWell, that's an interesting question. I would say this. If tomorrow, everybody in the world had a chance to make a one-time change in where they lived, every five billion families, all of the world, the only time they're going to get the chance to make the change, but they will get transported
[54:10]
Warrenfree to any country they want to go, their family, and have citizenship. What do you think is going to happen tomorrow. A lot people come to the United States. A lot of people are going to come the United States. Very few people are going to leave. North Korea might have a small decrease in population. I mean, the point is, I mean, this is an incredible country. And it's true that right now we're raising $3.3.3 trillion and spending probably $4.3. We're going to have a deficit of about a trillion in a trillion in a very good year in the cycle. I mean, a year of prosperity, and that's 5% of GDP, and that's probably more of this. You can actually take a 2% to 3% deficit and not have the ratio of debt to GDP growth. Five in prosperous years, we're out of whack on that. So we, you know, you can cut spending, you can raise taxes. But I would say that the wealthy are definitely under-taxed relative to the general population. But your answer to that was almost a dodge of the question. I mean, if these policies drive out the wealthy people, sure, if you got your choice of where to go, everybody would want to come to the United States, but would the wealthy people do that if we changed our tax structure? Well, I think most of the people that have, the rich people, Mark Rich, being one of them, I mean, they leave because they, in his case, I mean, you know, he's leaving before the feds pick him up. And I don't think, if you offered most of the rich people, if they were sane anyway, and you said, if you stay, we're going to take half your net worth, and if you leave, you can take it all with you, and you're 88 years old like me, am I going to leave the United States? I could move. South Dakota has no state income tax. Wyoming has no state income income. So we've got two states, we've got two states, the border, Nebraska. Nebraska has a seven and a fraction percent state income tax. If Iowa, which is right across the river, had no income, I wouldn't move. I mean, it, it, uh, now I, I think people want to come here. I think if you made that offer, I made the United States, there'd be more people come to the United States than any place else, and they would come, they would come if the deficit was one trillion or one point two trillion. I mean, this is the land of opportunity. Do you think they're good policies? Do you think they're good tax policies. Warren, you're making a decision to leave all your money to the private sector
[56:45]
Questionerin terms of charities. And because you think, I assume you think maybe it'd be better spent there than by the government. Isn't it possible that it's just not the right idea to just what's already a bloated, you know, what some people would think, a bloated entity, address the spending side of things, else maybe you ought to reconsider if you think the government is so good at spending money. Well, why leave it all in the private sector? Go ahead and give it all to the government and let them do it. You seem to have an idea that it's better treated if you do it with philanthropically.
WarrenI've got about four choices, Joe. I mean, let's say I have $80 billion. A, I can spend it all. But even to spend it all, I would have to sell Berkshire stocks. So I would incur taxes of, you know, $20 or so billion in spending. So the government would then get $20 if I wanted to spend it all. I don't know what the world I'd spend it on. I can give it all to my wife on death and then there's no tax. I can give it, I could give it four million people $20,000 each. And there'd be no, well, there'd be no tax on it. As long as I give gifts to separate people, up to $20,000, I can do that. There's no tax. One thing you could do, the estate tax is the wealth tax. I mean, in theory, you get taxed on wealth on the estate. Now, you're allowed to give to charity 50% cash, 30% appreciated stocks, and have it deductible from your income. They let you essentially deduct all the gifts of wealth at death. So you could have a limitation that you could only give 50% of philanthropy and treat it the same way actually as if you're giving away from income during your life. There's a lot of things you can do with the tax law. I mean, the tax, and I think that one way or another, when the Forbes 400 have gone from now, $93 billion to $2.7 trillion since 1982, the market system, as it gets more specialized, will give more and more to the top people. If we were back in 1800 and we were all working on farms, you'd probably be worth a little more than I am because you'd work harder and be stronger. But the top person working on at farm would be worth one and a half to maybe two times what the bottom person was. But as we get more and more specialized, the guy that's the best in knocking out some other guy that weighs 200 pounds is worth $30 million a fight. Now, he's worth $30 million a fight because somebody invented television and cable vision.
[59:50]
WarrenAs we get more specialized, the rich will get even richer. And the question is, how do you take care of the guy who's a wonderful citizen and father may have died in Normandy or something. And it just doesn't have market skills. And I think the earned income tax credit is the best way to address that question. And that means probably some more taxes, it should mean some more taxes for guys like me. And however you come at it, I'm fine with.
QuestionerOkay, we'll continue this conversation. Obviously, inequality is a big issue, and it's something that's already roiling politics of Washington at this point. We can talk more about that in just a little bit. Welcome back to a special edition of Squawk Box. We are live with Warren Buffett, the chairman and CEO of Berkshire Hathaway in Omaha, Nebraska. Warren, thanks again for your time this morning. We've talked about a lot of things so far, but we have not gotten your take on the economy to this point. There was just a Federal Reserve report out on Friday that suggested that GDP for 2018 is probably going to come in slightly below 3%. What do you think the economy is doing right now just based on your businesses, based on the receipts you see, the companies that you track that you have major shares in?
WarrenRight now, just based on the monthly statements I get. In some cases, I get other data in between, but overall things are a little better. I mean, the rate of improvement has tapered, but it certainly hasn't flattened. Now, that could change next month. And home construction has been disappointing. But most of our businesses, I mean, I've seen other figures on retail that are strong. you know, including Walmarts, but I would say our retail figures in January were not strong. But January is a peculiar month. That can be affected a lot by weather, although any retailer will always like things on the weather. I, right now, things look fine.
QuestionerWhen you say it's a little better, that's relative to when? What's your comparison period?
WarrenWell, I'm saying that if it, if it develops, As I see in January and February for the whole year, I think we would probably beat our $24.8 billion. But that would depend on insurance profits because swinging away.
QuestionerOf your operating profit that you just reported.
WarrenBut the operating, yeah. Yeah. So, no, business looks decent. It's not galloping ahead, and the tariffs having a little effect at 10%. They went to 25, they would change things quite a bit.
[1:02:39]
WarrenAnd I do see some more inflationary things. But, no, I don't see anything to be alarmed about at present. What inflationary sickness? But incidentally, if you told me GDP would be down this year, we'd still be doing the same thing, pretty much.
QuestionerWhat inflationary signs do you see at this point?
WarrenWell, we just, as I get the reports from the companies, they say, these raw material costs are going up. And now, oil being down. I mean, that's the basis for a lot of raw material costs. But overall, there's more cost pressure.
QuestionerYou mentioned that housing has been weaker, home building, that you've seen that. Why do you think that is?
WarrenIt's puzzling because, you know, before 2008, you know, we were running higher. Well, I mean, the one obvious answer, you expect the household formations to go way down in a recession and we had a bad one. But you've had this big trend. trend from home ownership to renting so that, you know, that's probably changed by five percentage points. Well, five percentage points when you talk about 125 million households or 6 million houses, there are people that are living in rental units rather than houses. So that configuration has really changed. And I would have thought it would have turned back as people got the jobs back and all of that. all of that. But single family construction is really, I think it's been quite weak compared to what you would expect after 10 years of recovery in with the stock market, you know, quadrupling them from the lows and unemployment of 3.7 percent. People are just making different choices.
QuestionerJay Powell, the chairman of the Federal Reserve, is set to testify before Congress on Tuesday and Wednesday of this week. Based on what you said about the weakness in housing, based on some of the downturn that you saw, did you think he made the right move by signaling a much more dovish take last quarter?
WarrenYeah, I don't second-guess him at all. I think he's a terrific choice for Federal Reserve Chairman. He actually was at the Treasury in 1991 when Solomon was in trouble, and I saw him make a lot of very good decisions for the United States government. He's a smart man, and he's very, he's very good decisions. He's very level-headed. He understands both business and economics, and I don't think you could have a better chairman, so I will never second-guess him. I know you don't make a lot of investing decisions based on what the Federal Reserve Chief or anybody else is saying,
[1:05:28]
Questionerbut what would you be interested in hearing from him this week? What might you be listening for?
WarrenWell, I read what he says, but it doesn't affect anything we do. It just doesn't. I mean, it doesn't affect it in investments. and you know the amount of money we're going to spend on the railroad this year and energy or anything. We're plowing ahead always. We always spend more than our depreciation and we know the country is going to make lots of progress over time and we don't think we're smart enough to jump in and out as to when the time is.
QuestionerA couple of questions that came in from viewers when it comes to the economy. One is a T-19 control room. Rashad Khan asking, do you think the 10-year yields are likely to rise from current levels in the long run?
WarrenI don't know what the long run is. Well, I'm amazed that 10 years into a recovery, or nine years into the recovery, 10 years from the panic. I'm amazed that rates worldwide are what they are. This is not classical economics to have trillions and trillions of dollars still at negative interest rates, with the world doing really very, very well. I don't know, I don't understand it. I don't think the economists really understand it. I mean, they got to explain it somehow. But that's the real question for stock investors are are these rates more or less a new normal? And people who thought the Japanese rates in 1990 couldn't possibly stay where they were. That turned out to be suicide for the people that short of Japanese bonds and so on. We live in a world that wasn't described in classical economics.
QuestionerDo you think it's because of the experimentation by central banks around the globe?
WarrenWell, I think the central banks did what they had to do after 2008 and 9. In fact, I think Europe was a little late doing it, but when Draghi finally said, we'll do whatever it takes. The only one that can say that is central banks. And I think central banks behaved very well post the recession.
QuestionerYou've mentioned twice this morning how we could potentially be in a situation like Japan where these interest rates stay at these incredibly low levels. Will it work out better for us than it has for Japan?
WarrenWell, the answer is I just don't know, but Japan also has a declining population and no energy resources. And we're a different case than Japan.
QuestionerWe're here at the Nebraska Furniture Mart today. And I know that you've talked a little bit before we came on the show this morning just about,
[1:08:10]
WarrenRose Blumkin, who founded the Nebraska Furniture Mart. You bring up immigration, so I thought maybe now would be a good time to talk about that. She came here in 1917. Yeah, she came over here on a boat from Yocahama, and she landed in Seattle. And I've got the manifest of the boat here, and I've got her entry papers, and she couldn't speak a word of English. The Red Cross got her to Fort Dodge, Iowa, where her husband was. She spent two years there. couldn't pick up the language there. So they decided to come to Omaha where there were some Russian Jews, and they would feel at least they had a home of sorts. And she sold used clothing and did various things, had four children. And 15 or so years later, she'd saved $2,500. And you're in what became the largest home furnishing store in the country, except we now have a larger one in Texas. But in the 50-something largest market, she took $2,500 and turned it into the largest home furnishing store. And the punchline is that she couldn't read her right. And I've got a contract here that we signed. This is what I came out with. I typed this up in 1983, August 30. Was that two pages? Yeah, it's really just one page. I mean, this is a signature page here. And that's her signature at the top. And as you can see, it's just a scrawl. And we did not get an audit. We did not look at the property records to see. I just said, Mrs. B, do you owe any money? And she says, no. And that was it. How much did you pay? Well, at that time, we bought, we rearranged things within the family something. So we, in effect, about 80% at a value. of $60 million on a 100% basis. But we had, but we just, we shook hands. And I felt like I had the Bank of England on the other side. And then she went on to work until she was 103. If any of my managers are out there listening. That's sort of a yardstick we use now on retirement. And it was a marvelous, marvelous woman. and when never went to school a day in her life. And when the family sat down for dinner, they sang God bless America before eating. It, you know, it's an incredible story. Warren, in the annual letter this year, you read about the American Tailwind. Yeah. Well, as I point out in there, on this March 11th in a couple of weeks, it'll be 77 years since I bought my first stock and I paid $114,000. $14.75 for three shares of city service preferred. But if you had bought, if you'd been a pension fund and you put a million dollars into the S&P 500
[1:11:23]
Warrenat that time and reinvested it, during my investing lifetime, that million would have turned into $5.3 billion. You would have gotten for every dollar you put in, you've gotten over $5,000 without ever reading a headline, line, an annual report, you didn't have to know accounting, you just had to believe in America. And you didn't have to pick the right stock. You just picked America. And if that isn't a tail with, it's more like a hurricane. I mean, it is American business has done incredibly well, and America's done incredibly well. And I go back and I point out that there were 277-year periods before that, and that takes us back to George Washington getting inaugurated. And there wasn't anything here then. And now you have $108 trillion of household wealth in the United States. You know, we've got something that works. And that framework wasn't that we were working harder, wasn't that we were smarter, but we had a framework that unleashed human potential. And just think of that, 377-year periods, one of which I experienced. And you couldn't help. But all you had to do was believe in America. And you got very, very, very, you didn't have to read the newspapers, you know, nothing. You didn't have to pick a stock. That worked the last 77 years, but there's a question that came in, T29. This is from Scott Baker. With so many people in the S&P index funds, is it still market neutral and the best investment vehicle for most people? Yeah, I think it's the best investment. Because most people don't know how to pick stocks. And most of the time, I don't know how to pick stocks. I mean, it's not an easy game. And by definition, people are going to do it. people are going to do average. I mean, take everybody in aggregate, and if half of them are paying big fees and jumping around and paying brokerage commissions, the other half have to do better. And, no, it is, as I've told people, and my widow will, I've instructed the trustee to put 90% in an S&P 500 index fund and 10% in governments just so that, just for a feeling of security. But there's been no better bet than America. better bet than America. There's been nothing like it. There's one question that came in from, this is F-20, Ahmad Abu Rashad, who said, what a strong, a sustained shift to the left in fiscal and economic policy rip away at American business tailwinds moving forward. Yeah, well, my dad thought, you know, communism was coming in the 30s.
[1:13:56]
WarrenYou know, he was Barry Ann, I, Roosevelt. All my life I've been hearing half the country say that if the other, the person favored by the other half wins, things are going to go to hell. And so I pointed out in my discussion, I've lived under 15 presidents, 14 of them I've invested under. I didn't invest under Hoover. I was a little young. But seven were Republicans, seven were Democrats. I mean, after this last election in 2016, most of my friends were for Hillary, and they thought, you know, sell stocks, you know, dig a cave, whatever it might be. I told them they're crazy. You know, you do not want to have a political view in investing. And most people put it through a political prism. They just can't keep their politics out of it. They can keep their religion on them. But politics, they just have to look through those glasses. And if you've done that, if you've been a staunch Republican or a staunch Democrat through these 77 years, you'd have missed out on a lot of the party. What about now when the parties are kind of in flux? in flux. Donald Trump was not a typical Republican. And Bernie Sanders now looks like he's leading the way in some of these polls. He wasn't even a Democrat until recently. He's a socialist his whole life who just caucused with the Democrats. Well, he was an interesting candidate in 2016, because I would, you know, he, he came close, and I would say that 90% of the people that voted for him hadn't heard of him two years earlier. That's really unusual. It's given hope to a whole lot of other people. to a whole lot of other people who were entering this time. When you look at what Sanders did, what you look at what Trump did, a whole lot of people look at the mirror now and say, well, you know, that could be me. So Sanders, the big appeal I think he had was, he came, he had unusual authenticity. I mean, they all want to seem authentic, and they are authentic in a certain way, but they do move around as the polls come in and their advisors come in. You had the feeling when you listen to Bernie that he was saying exactly what he believed. You can agree with it or not, but that's a very appealing characteristic in a candidate. It may not be enough to carry anybody to victory, but it is, it makes people notice you. They really do know to some extent whether you believe what you're saying when you're out there on the stump. And Bernie, he really did hate billionaires and the campaign financing.
[1:16:33]
WarrenI mean, he was talking authentically, and he's still talking anything. I mean, I'll absolutely give him that. Do you agree with his policies or his proposed policies? Well, I agree with certain things that make him mad. I don't like the campaign finance laws. And I also think that the inequality gap has widened and will continue to widen unless something is done about it. But I also believe that the most important single thing is to have more golden eggs to to distribute around, so I don't want to do anything to the goose that lays the golden eggs. And we've had the goose that lays more and more golden eggs over the years. Unbelievable in this country. So we've got something that works in terms of the market system, in terms of turning out lots of goods and services people want. The question is, what happens to the person who's a decent citizen doesn't have market skills? And we can solve that. A rich family can handle if they've got six children and one of them isn't as good in the market. It's just as good in every other personal quality. They take care of them. And we've got $60,000 of GDP per capita in the United States. That's six times what it was when I was born in real terms. So we can take care of people and we should. But we shouldn't screw up the market system. Well, Bernie looks mild compared to some of the candidates who are running to the left of him. Well, that's because people have seen it are. I would work for him. There's somebody who wrote in. This is T-13. Ted Waller. This is probably based off a play off of some conversations we've had with Jamie Diamond, but he says, do you still consider yourself a Democrat? If you look at... I'm not a card-earing Democrat, but I never have been. I voted for a fair number of Republicans. I've given money to Republicans. I am not... Bob Strauss called me one time because he wanted me to handle finances in Nebraska. He said, let the question... First question, Warren, are you a card-carrying Democrat? And I said, no, I'm not Bob. I mean, I don't think either side has an edge in virtue or anything of the sort. I mean, I think that they have different views on things. And I think that by the time they get in politics, they sort of stake out their positions, although they move them in a period like this when they think that may help to be further left. You see people that sort of found, had a new vision all of a sudden,
[1:19:03]
Warrenbecause they saw how it worked for Bernie. But no, I will vote for more Democrats than I... In the last 30 years, I've voted for more Democrats than I voted for Republicans. I was president of the Young Republican Club in 1948 at the University of Pennsylvania. I ran for delegate to the Republican National Convention in 1960s, the only office I've ever run for.
QuestionerWhen we were just out with Charlie Munger, he said... He didn't think much of too many politicians, but he did like what Mike Bloomberg did in the city of New York. What do you think about Bloomberg as a potential candidate? And what do you think about Howard Schultz potentially running as a third party candidate?
WarrenWell, I won't answer you on most questions, but I'll ask you on political. I would, if Mike Bloomberg announced tomorrow that he was a candidate, I would say I'm poor. And I think he would be, I think he would be a very good president. And I mean, he and I disagree on some things, but I think that he knows how to run things. things. I think that he's got the right goals for America. He understands people. He understands the market system and he understands the problems of people that don't fit well into the market system. I would have no trouble being for him. I, uh, Howard Schultz, uh, if he, well, he says he well, he's going to run as an independent. And if he ran as an independent, he, I think he would take votes away from any Democrat, including Bloomberg, if he were running. So I think it would be a real mistake for him to run. I think generally third party candidates, they're going to hurt one side or the other, and they're more likely to hurt the side that they actually favor because they're closer to that that view, and so they pull more people away that would otherwise, you know, go to the second best with that view. So I hope no third party candidate runs that pulls any significant amount of votes. I mean, there'll always be a couple of people that file, but I think third party candidates can thwart actually the will of the people of the people.
QuestionerAll right, we're up against the top of the hour. Let's get back to our special guest, Berkshire Hathaway chairman and CEO Warren Buffett, who's sitting down with us after just coming out with his annual letter to shareholders and last week just filing 13F that showed what positions you've been moving around in the stock market as of December
[1:21:41]
Questioner31st. And Warren, there were a lot of questions that were raised by that. And I just want to run through some of the holdings, some of the changes that were registered and get your take on on why. First up, Apple. You trimmed 3 million shares to 249.5 million shares of Apple, and that caught a lot of people by surprise. They were wondering if you were selling.
WarrenNo. The one other fellow in the office, one of the two, had about about six or seven million shares. He had it before I did. And he works with a limited amount of money, 13 billion roughly. So if he wants to buy something, he needs to sell something. If I want to buy something, I've got cash around to do it. So he sold about three million shares, I believe, cut it in half roughly, to buy something else. And I didn't, I've never sold a share.
QuestionerSo this was not even a conversation you had with him, I take it? This is either Todd or Ted.
WarrenIt's his business. It's his business.
QuestionerYeah, I mean, they do not check with me. I sometimes learn at the end of, well, I do at the end of the month, I look and see how their portfolio compares to the month before and see what they've done. This generated a lot of questions from viewers. And let's go to one, T-14. Jedi Marcus wrote in, if you loved it, meaning Apple, undervalued a 200 plus and a trillion-dollar valuation. At $200, dollars plus and a trillion dollar valuation, why would you sell any of this past quarter? You've answered it already. You didn't sell.
WarrenYeah, and incidentally, I've never paid $200 for any stock in Apple anyway. Would you start buying it 160 or something? Was that? No, well, I think our average average. The average cause about 141 or something like that.
QuestionerOkay. There was a question that also came in from Rick Safaraz. This is T90. He said, do you plan on adding to your Apple position throughout 2019? And I just want to also bring up a tweet from Jim Kramer. He tweeted back on February 5th, doesn't Apple trade like Berkshire is back buying? I spoke with Kramer about it. And he said, look, I don't know anything. It's just all of a sudden the stock's really picking up. It's almost as if. So are you interested at lower levels?
WarrenI'm always interested in a number of stocks we on that. There's some where we really can't go over 10%. And generally, I don't like to go over 10%, because it complicates life quite a bit. With banks, it actually throws us into the bank holding company at ground. So there are
[1:24:08]
Warrenstocks that I would buy that we own nine in a fraction percent. And I actually may be selling a little bit because they're repurchasing their shares and I don't want to drift over 10%. But Apple, I don't see myself selling. The lower it goes, the better I like it, obviously.
Questionerone of those 10% stocks. Don't you own about 5% of the shares? So is this a situation where you have been buying since it came so much lower at the end of December?
WarrenIt's really not back to where it may have briefly, very briefly got there, but if it were cheaper, we'd be buying it. We aren't buying it here.
QuestionerThere was another question that came in. This is T91 from Umar Zubair, who said Apple decelerated share purchases, share repurchases from around $20 billion in the third quarter to around $8 billion in the fourth quarter just when the stock price went down by about 30%. In fact, Apple repurchase zero shares in December of 2018 when the stock get a 52-week low. What are your thoughts on Apple's repurchased deceleration?
WarrenWell, and Apple has said publicly that they're, and they've repeated it, that their goal is to reach what they call a cash neutral position where their debt is roughly equal to the cash. I think that would take $130 billion or so to get there. But of course, they could make some acquisitions. On the other hand, they're earning a lot more than their dividends, so that number goes up. Mentally, I say to myself, we're very likely, a lot of things could change this with them. And the lower the price goes, the better it gets. But they should be at $4 billion shares probably in maybe three years. And so our 5% would become something over 6% at that point. And I like that prospect. And then we might buy some ourselves. Who knows? It depends on the price. But they will buy a lot more stock if it's cheaper than if it's higher. And it's just simple math. We're better off if in the next three years Apple is cheaper.
QuestionerYou loaded up on financials in the fourth quarter. You added to your stakes of J.P. Morgan, Bank of America. America, Bank of New York, PNC, and U.S. Bank Corp. And six of your top 10 holdings, I believe, are banks at this point. Why so much emphasis on the financials?
WarrenThey're very good investments at sensible prices, based on my thinking. And they're cheaper than other businesses that are also good businesses by some margin. And a couple of those, we own nine and a fraction percent of.
[1:26:58]
WarrenAnd I don't like to go to 9-9 because that means the next quarter, maybe I have to sell something. I try to leave myself a year, two years of repurchases. But Bank of America has been particularly aggressive on buying and stock. Brian Moynihan has done such a good job running that company since he took over. I mean, he was the most underestimated bank executive in the country. And he has everything he said he would do. He's done it and he's beat it. And he set stuff for targets all the time for himself. And he's been smart about repurchasing shares.
QuestionerAnd J.P. Morgan is a relatively new stake. You had $35 million in the third quarter, and that was a new stake. You raised it to $50 million, or $50.1 million shares, I should say, in the fourth quarter. Is that your purchase? Because for a long time, you held it in your own portfolio. Why? I've still got a little bit. But that goes back years and years and years. So why J.P. Morgan now?
WarrenWell, the better question is why we said dumb about not buying it earlier. And the answer I was, I was dumb not buying it earlier. And the answer I was, I was dumb not buying it earlier. But it's a, it's a very well-managed bank. And banks are, you can find a bank like J.P. Morgan earns maybe 15%, maybe 17%, even on net tangible equity. A business that earns 15 or 16 or 17% on net tangible equity, that's incredible in the world of 3% bonds. I mean, just just imagine that you had a deposit account with J.P. Morgan that they've made a mistake. stake and they gave you 15% on it and they couldn't redeem it. What would you sell that account for? You wouldn't sell it for 100 cents on the dollar. You wouldn't sell it for 200 cents on the dollar. You wouldn't even sell it for 300 cents on the dollar. You'd have an FDIC guaranteed instrument that would now be at 300 cents on the dollar. If it was 15% on equity, you'd be earning 5% on it, which is way better than treasuries. Now if on top of that, your deposit allowed you to let your interest compound to some extent. Now that instrument becomes even worth way more because if you have an instrument that could compound at 15% for 10 years and use the added capital, that's worth way more than three times tangible equity at current interest rates, way more. So a lot of things can happen to change that equation around and the banks like all other American, almost all other American business got a big plus last year with the new tax bill.
[1:29:38]
WarrenI mean, corporations benefited a lot, including Berkshire, including the banks. That can be taken away, you know, too. But on the other hand, the FDIC now has gotten replied. There were special FDIC charges on the big banks. They ended here recently because the FDIC has $100 billion in it now. That money has all come from the banks. The U.S. Government has not put any money in the FDIC. People think that, you know, somehow the FDIC is financed by the government. It's guaranteed by the government. But the FDIC was started in, I think, January 1st, 1934, and I think one time it borrowed temporarily, but it doesn't have a dime of government money in it. That money, and now they've got $100 billion in there, and the banks are much better off because that fund takes care of the bank here and there that goes broke. Incidentally, last year was no bank in the United States, no FDIC bank went broke. That's a long time.
QuestionerLet me slip in one more question before we take a break. Oracle, that was a stake that you suddenly popped up in the third quarter that Berkshire had $2.1 billion billion dollars of Oracle shares at the end of the third quarter. It went to zero at the end of the fourth quarter, which it's really unusual to see a technology company creep into the Berkshire holdings like that. And it's even more unusual to see it flushed out so quickly. Was that you?
WarrenYeah, and Larry Ellison's not a fantastic job with Oracle. I mean, I've followed it from the standpoint of reading about it, but I felt I didn't understand the business. Then after I started buying, and I felt I still didn't understand the business. I actually changed my mind in terms of understanding and not in terms of evaluating it. I think, I mean, Oracle is a great business. But I don't think, particularly after my experience with IBM, I don't think I understand exactly where the the cloud is going. You know, I've been amazed at what Amazon has done there, and now Microsoft is doing as well. So I just don't know where that game is going.
QuestionerThat leads us to F4, which is a question from a viewer named Mark Hall, who said, with IBM bouncing back, how do you feel about getting out?
WarrenI'm glad I got out. We got out at a lot of higher prices than this. But I'm not knocking what there, you know, but the whole market's come back. The whole market's come back. The market's at a high. I don't mean it's at a high and then it's going down subsequently.
[1:32:08]
WarrenI mean that it's just higher that's been on it for, well, really ever. I mean, when we met here 10 years ago, the S&P was at 666 and within a day or two of when we got together. And, you know, people thought America was washed up. And, you know, they were afraid of America. And what's happened to quadruple? quadruple in 10 years. How many quadruples do you get in your life? Right.
OtherOkay. We're going to take a quick break right now. Welcome back, everybody. We have a special guest today. Berkshire Hathaway Chairman and CEO Warren Buffett.
QuestionerWe've spent a lot of time this morning talking about the annual report, the economy, the markets, some of the individual stocks that you've been buying and selling. But Warren, what we haven't spent much time talking about, and we've mentioned it briefly, it was just this idea of what happened with Amazon and looking for a second headquarters. In choosing New York. initially and then saying forget about it once they saw the backlash that came up. You're a company that has never really shopped around for deals like that. What do you think of companies that do get special deals from states?
WarrenWell, I've actually helped Nebraska a few times when the governor, somebody's asked me to call a company. And everybody does. I mean, it's just, you know, it is a competitive game on locations. But it can be a little irritating. in a sense when you're already here and you're employing thousands of people. And they want to give special incentives to somebody who, and which they haven't given you, and in some cases to be your competitor. Amazon is going to compete plenty in New York regardless. But I mean, Amazon is going to affect negatively the business of many, many, many companies in every state, including New York. New York. As Jeff Bezos says, you know, your gross margin is my opportunity.
QuestionerDoes that mean you think New York was right to turn down the deal or to kind of second-guess the deal that they had originally proposed?
WarrenYeah, well, that's what happened. They both got to the older, you know, and then the dowry was changed in a sense. I don't know all the details. But, and you're in a tough position if you're a company negotiating. with public officials because the public officials really can't necessarily be the last say. Whereas the company, if the CEO says that you got a deal, you got a deal. And on the public side, you know, there's a city council that has to ratify a mayor or something
[1:34:44]
Warrenof the sort. So it's unequal that way. Now, our experience in New York and Buffalo has been fantastic. I mean, Guy Coe went there and we got 3,000 people and the communities helped and Governor Cuomo's I mean, just generally, it's been very, very, very good for us. But I think if you're going to have a bad marriage, it's better to find out before they pronounce your man and wife than after. You still, they're both hurt a little bit by the fact that it went there. I mean, it makes people think twice about doing a deal where the community may get upset about you for one way or another or that the politicians can't deliver on it. And it, from Amazon standpoint, I mean, it hurts some a little, too. Not a great big way for either one, but it's no plus to have things fall apart. So you really, as much as possible, you want to have that sort of thing sealed before. But you need labor unions, you need political figures. I mean, a lot of things can tank it on the public side.
QuestionerYou know Jeff Bezos very well. In fact, you're working with him and with Jamie Diamond on this health care initiative. between the three companies. Can you give us an update on where things stand right now?
WarrenWell, we've got a terrific fellow in Atold Gwanda running it. It is a long, long-term problem. I mean, a process. And when we get through, we have to not only have a better medical service. I think we've got a lot of great things about our medical system, but it is costing us now 18% of GDP up for 5%. And it is a tapeworm. And if any other cost it, America had gone from 5% to 18%. Federal taxes have stayed quite constant around 18% for 40 or 50 years. Same time, medical's gone from 5 to 18. Now the little double counting there because Medicare is in it. But so we've got to stop the cost situation. But what we're hoping to find is something that will not only do a better job for our employees, but have them feel better about it and stop the ascending rate. Every point you chew up of GDP comes out of some comes from somebody else. I mean, there are only 100 cents in the dollar. But it's a very long term. I mean, it's, and we'll get something down. The probabilities, you know, I mean, we're trying to change of $3.3 billion industry, 3.3 trillion dollar industry. I'm sorry, that really for the people participating, and they feel pretty good about it. I mean, the people getting the 3.4 trillion, the hospitals aren't unhappy, the PBMs aren't unhappy,
[1:37:38]
Otherthe drug, I mean, you know, it may complain a little bit, but the people that are getting the 3.4 trillion are not screaming change, change, change, change.
QuestionerWe will have more of our conversation with Warren Buffett. Let's get back into the serious business with Warren Buffett, our special guest today, Berkshire Hathaway's chairman and CEO. And Warren, I mentioned before the break, we'd be talking about Kraft Hines again. Right.
WarrenPeople watching that because you own 26.7% of Kraft Heinz. It came out with a lot of bad news on Thursday with its earnings missing, with an SEC investigation being unveiled, with a write-down of the brands, and by the way, management saying on the call that they didn't anticipate things would necessarily get better in 2019. They do see improvement in 2020.
QuestionerYou forgot to mention we cut the dividend.
WarrenOh, I forgot about the dividend. You're right. I forgot to mention that.
QuestionerLet's just get to one of the questions we have from a viewer, T-63. This is rich before. dad. What are your thoughts on Kraft Hines following all the current news and what is your biggest concern regarding Kraft Hines' future?
WarrenWell, we have some very, very strong brands at Kraft Hines. And as I pointed out earlier, the company earns about $6 billion pre-tax, but after depreciation, not after amortization, but after depreciation, earn $6 billion on $7 billion of tangible assets. It's a fabulous business. It's in terms of return on tangible. assets. I mean, this is a great business. We're sitting here at the Ferger Mart, but it returns much higher at Kraft. It's much higher than it is in JP Morgan. It's much, you go up and down the list. There's very few companies that are earning $6 billion on $7 billion of tangible assets, but we paid $100 billion more than the tangible assets in buying. And we overpaid in Kraft. I don't think we overpaid in Heinz. And we borrowed money that related to projections that have not been met. We earn a lot of money, but we were paying out a lot of money. So we had very little in the way of retained earnings to reduce debt. So our debt of $31 billion is higher than we projected originally to rating agencies and so on. And we need to bring it down. And it comes down very slowly, I mean, unless you sell properties. I mean, even if you cut the dividend from $250 to $250 to $2.50. to $1.60, that's a billion one a year. But on $31 billion, you'll go the right direction.
[1:40:07]
QuestionerBut there's a lot of, there's real debt to be reduced. A lot of people wrote in and had questions about your partnership with 3G. 3G were your partners in the Heinz deal and then with the addition of Kraft as well. Let's go to T61. This is from James Shanahan. Mr. Buffett, how would you characterize the relationship with 3G today? Would you still consider additional deals with 3G?
WarrenYeah, I consider George Apollo and his associates. But my primary contact has been with George Apollo Lemon over the years, first meeting him on the Gillette board. And I think he's an absolutely outstanding human being. And but a year ago, he pointed out that the game had changed in terms of brands. They gave a talk at some Forbes event or someplace. And that was a full year ago. And six months ago, I told you on the glide thing that Brands had said, it's not as packaged goods are not as good of business as they were. The really strong brands are, but, you know, we've learned that over the last few years as the struggle between the retailers and the brands has shifted toward the retailers. And that's why Kirkland is a big, a very, very big brand. Walmart's going more to private label. There's some big forces on this. There's some big forces on the other side. If you've got a good enough brand, you can also call your terms. Costco dropped Coca-Cola some years ago. They brought them back.
QuestionerDo you see that ever shifting, or do you think that the game is going to be this way, weighted towards the retailers except for the biggest brands?
WarrenIt certainly looks like, particularly with the addition of Amazon of the picture. I mean, when you have Amazon and Walmart fighting, It's a little bit like the elephants fighting. I mean, the mice get trampled. And I don't see, I certainly don't see the retailers' position getting weaker. I mean, you have Aldi coming in and stronger. It just, you got, Walmart's done a very, very, very, very good job. You had Doug McMillan on, but he carries around that list of the 10 top retailers from the past. From every decade. Yeah, to remind him, you know, that it's hard to stay on top. And, but now you've got two very, and a lot of other players, too, but two particularly strong players that I've got their foot to the floor. And to some extent, we'll be pushing their own brands. In terms of the partnership with 3G, if the situation has changed, according to both Georgie Lehman, George O'Leeman and to you, if brands are not
[1:43:00]
Questionerstrong as they used to be. And as you've said in the past, it's gotten really much more expensive to try and look at any of these other consumer package goods companies and potentially buy them. Does that mean the whole 3G formula has kind of been upended? Is it really difficult to make it work if you can't go out and buy another company and then cut costs?
WarrenYeah, well, the acquisition just don't work as well. I mean, for one thing, the prices got pushed up and, you know, anything, almost anything at a price, be good, not everything, but anything at a certain price can be bad. I mean, if you pay too much, you pay too much. And it doesn't, that doesn't change. And if you borrowed a fair amount in conjunction with it, it takes a while to turn around. I do not see, well, we're not in a position to buy additional brands. And I have not thought it made sense as we've seen both prices change. and the competitive position change somewhat. I still like the, I like the businesses we have. Very much, I'll be happy to be in Kraft Hines five years from now or 10 years from now. I'm certainly happy to be George Apollo's partner. He's a terrific human being and very smart on business. But you can say that we both misjudged the retail versus brand fight as to who would be gaining ground on the other.
QuestionerWatching what happened to shares of Kraft Hines on Friday, after all that news came out after the market closed on Thursday, I mean, stock was down 30% and I think for Berkshire alone, that was a loss of about $4 billion on top of your $3 billion share of the $15 billion write down. I know you wrote in the annual meeting or the annual letter about how there are days because you have such a big portfolio, $173 billion in stocks, there are days with market volatility being back that you see a swing of plus or minus $4 billion are in certain days. I know you're like Dr. Spock, you're completely emotionalists when it comes to dealing with the market moves, but is there any part of you that gets a little queasy when you see that you've lost $4 billion in a day?
WarrenNot in the least. No, I mean, it makes me, assuming I like the business, Ben's which ones they are, but overwhelmingly during the fourth quarter, the things were going down, A, they were buying out their own stock. So I'm actually making money that day, you know, without laying out of debt. dime. And then secondly, I can buy more of some, although a lot of them I've got that
[1:45:36]
Warren10% problem with. But I mean, there are certain stocks I would have kept buying, except I was bumping up against the 10%. But, no, I mean, if you paid X dollars a pound for hamburger yesterday and you go into day and now it's at 80% of X, maybe you have a little hamburger left in your refrigerator or something. You tear your hair out over that? Or do you say, my God, you know, this is terrific. The price is cheaper. What else in the world don't you like to buy cheaper than you're paying the day before?
QuestionerThat's a fair point. If you're going to keep buying it.
WarrenThat's the very logical way of looking at things, the rational way.
QuestionerHey, Joe has a question too. Joe. Mr. Spock. Mr. Dr. Spock is that wacky guy that wouldn't console. He's the baby guy. I finally said something that got your attention.
WarrenNo. No, I actually wanted to ask about I wanted to ask. I was just talking about Dr. Spock with my say. He was, I don't know. He was, I don't know if you would just let kids cry forever. I think you need to. Anyway. No. No way. No, you can't. You can't. That guy was wacko. I'm trying to explain Freud too. Another one. I agree. Anyway, good luck with that.
QuestionerCan I ask quickly about that 60 minutes and just some some philosophical questions. Warren? So the basic thrust of this piece yesterday on electric cars was that, at least the way I read it is, in this country, I think we're starting to feel like maybe the subsidies that Tesla gets aren't really a good way to do things necessarily. And over in China, they seem to be going the other way, where they are going to subsidize this. It's almost a state-run enterprise, how much they're subsidizing electrical vehicles. As a result, the thrust of the piece was, by 2025, they're going to be doing a couple of million, three, four million electric vehicles. We're going to be stuck down under a half million. Is that what we should be doing here, in your view, or is there a reason you're invested over there in electric vehicles rather than here? I mean, is that the way to do it? Should we be subsidizing it completely here in the U.S.? Or do market forces allocate capital better?
Warrenmarkets are better generally, Joe. I mean, you know me on that. But that has made all the time. There's certain, but markets are better. I think, I actually think electric cars, I think you're going to have a lot of people pushing electric cars in the United States, even though the subsidy is going away. I think it goes away at 200,000 units or something like that, and Tesla is hitting it and so on.
[1:48:26]
WarrenBut, no, I think electric cars are very much. in America's future. And I think much sooner than autonomous driving. But I listen, I'm all for the Chinese doing what they're doing. I mean, in terms of the planet, you know, it's a good thing. So I cheer them for doing it. I don't think we'll need to do it in the United States that much. But you're invested over there. You're not invested here, right?
QuestionerOh, we bought the BYD 10 years ago, and Charlie called me up and said by this.
WarrenListen, that is totally Charlie's position, and it's done fine. And he keeps in touch with the management and all of that. That is not something that, I could not tell you within 20% what the price of BYD is. I don't look at it. So that's not your thing.
QuestionerOkay, just watching at it, you know, the spin I was getting from 60 minutes was that, you know, we don't understand that certain industries you need full-on government assistance or almost, you know, subsidies out the, you know, 10 times what they are right now to try and win at something, which is not surprising for 60 minutes, but I was just wondering whether you thought we're going to fall behind if we don't have a concerted government effort to prop up the industry.
WarrenI think there's a pretty concerted industry effort from what I hear. I mean, I think you're going to see a lot more electric. And incidentally, I mean, you know, we have an interest in pilot flying J. And so we have we have certain businesses that would be adversely affected with all electric. But I think we're going in that direction. And I think you'll see the American companies quite aggressive in that field.
QuestionerAll right. I was listening the whole time, Becky. What do you mean that's the only time?
CharlieI was listening, I've been listening. I've got nothing else to do here, but listen. So I was listening. I just like that. I like that. You know how much I love mixed metaphors. My favorite is like it's a walk in the cake. Like, you know, or, you know, there's just so many good ones, if you can mix them up. But when they start working on March.
OtherJoe, start working on your March Madness ballot. I know I won't, you know how you operate, Buffett. I mean, yeah, why don't you just offer, offer $100 billion to someone who gets a perfect bracket? It's never going to happen. It's never going to use that. It's never going to happen ever. It has happened once, didn't it?
WarrenWell, we had won a few years.
[1:51:01]
Questionerto go with a perfect bracket? Not against me a little. All you have to do is get through the first bracket to win a million dollars, assuming nobody else wins at the same time. Then you split the million. Great though. I can't wait. But we had five of them, two years ago, we had five of them that got to the last four games. And perfect. That's amazing. And four of them went out on one game and one went out on the other game. But they split it. Last year you were going to let me take over your Twitter account if I got to the final. No. Huh? Why? Whoa. If I get all eight. Look out. If I get all eight, if I pick all eight, can I have you? If he gets all. Elite eight. You got a deal. Wait, you better set some parameters on that. How long does he get to keep your Twitter account for? This is going to be good. Listen, I have other people pretending to meet me on Twitter. You might. I mean, it's very cheap. All right. Welcome back to the special edition of Squawk Box. We are live in Omaha, Nebraska at the Nebraska Furniture Mart. with Berkshire Hathaway Chairman and CEO Warren Buffett. Warren, we've talked about a lot of things this morning, but for people who are just tuning in, I'd like to go back just to your thoughts on the overall market. We just had a conversation with Charlie Munger about a week and a half ago. And I asked him if he thought the golden era of value investing was over. And he said, no, not for forever, but he thinks the game is a lot harder than it used to be. What are your thoughts just in terms of looking around trying to find businesses, trying to find pieces of business?
Questionerversus when you started the game?
WarrenWell, it's harder for two reasons, one of which is peculiar to us. We've just, we've got a lot more money. So our universe of possible things to do has shrunk from thousands and thousands of things that I used to look at when I had small amounts of money to a relatively few things now. That seems to defy logic. I have more money so I have fewer things I can do. But it's just because a deal, it's going to be much bigger with the needle. It doesn't move the needle. Yeah. So, no, I, there's probably. There's probably. 100 stocks, you know, if we put $5 billion in something and it's 10% of the market cap, which would be as much as it would be, you're talking $50 billion and up market caps. And $5 billion is 1% of our, of Berkshire's values.
[1:53:20]
WarrenSo if it goes up 50%, we make a half a percent, basically on value before tax, 35, 40 basis points afterwards. I'd love to have your problems.
QuestionerYeah.
WarrenAnd then the second thing is, I mean, obviously, I mean, obviously, you know, you know, way more competition than when we started the 19, well, really when I took Ben Graham's class in 1951, I mean, the whole world was, was my oyster because people were not going through the manuals and you had to, it's easier to get the data now, for one thing. I mean, just with the Internet, it's far easier, and I used to mail away for annual reports and go to the Interstate Commerce Commission, the Public Utilic Commission, the Insurance Commission. I went to all those offices and dug through papers, and now it's, you know, it takes five. Five seconds for somebody to get the same information.
QuestionerI'll ask this very fleetingly. Has your position changed on Bitcoin?
WarrenNo, I mean, it's too bad, but Bitcoin, it's ingenious, and blockchain is important, but Bitcoin has no unique value at all. It doesn't produce anything. You can stare at it all day, and no little bitcoins come out or anything like that. It's, it is a, it's a delusion, basically.
QuestionerSo we've gone from Rat Poison Square to a delusion. It's kind of an upgrade.
WarrenYeah, I know, who knows where we'll be next year. But I'm really sorry it happens because people get their hopes up that something like that is going to change their lives. And it was a very ingenious thing to figure out how to have a limited supply and make it harder and more expensive to create them as you go along and all that sort of thing. But it doesn't, the function, and this is explained to me by people how smarter than I am, but they say blockchain does not depend. And JP Morgan is talking about creating their own, you know, JPM and it'll be worth a dollar. I mean, it's matched to the dollar to dollar. And it's, I'm sympathetic to people that own it.
QuestionerThere are a lot of questions that are kind of like the new Bitcoin questions. We've got several questions that came in to ask you about. I'll go to T-46. This is Forka Design LLC. LLC, do you think the hemp and marijuana industry is a viable industry to invest in, even though there are still restraints on how capital can be moved and used? We've got lots of variations on this question.
WarrenIt's an industry that I don't know really anything about usage or otherwise. Never?
[1:55:48]
QuestionerNo, never. No, I couldn't figure how to do it. I couldn't even smoke a cigarette. You were talking to a guy that doesn't pick up things very fast. What do you think about college athletes and whether they should be paid? And I ask you this, having watched what happened with Zion Williamson, the Duke player whose Nike shoe blew up on him last week, I kind of reignited that whole debate. And you're a long-time watcher of college athletics.
WarrenWell, I'll say this, if I was an athlete, I think I probably should. I would probably have a view on it I should be. I mean, that you are, I mean, if you're really good, you're of enormous commercial value. And the rules of design or design. are designed to prevent you from cashing in that commercial value, you know, for some period. It doesn't, uh, so I, I, I, I, the rich schools are going to win that. Harvard may have a resurgence of football.
QuestionerUm, this one came in, T28, uh, Mututaka Gotu, said, do you see any irrational human behavior by investors or corporate Americans right now? Uh, you're, you're, you and Charlie are kind of, you and Charlie are kind of, like the police of corporate America. What do you see that you don't like right now?
WarrenWell, there's always a certain number of people doing things that are designed to take advantage of other people. I mean, the market is so big. So there's always been people that, you know, maybe it's Bitcoin, maybe it's new issues. I mean, look at all the things have been created around Bitcoin. I mean, and there's been a lot of fraud and disappearance and all these kind of things. It attracts Charlottes and it's basically, because the money's so big. I mean, if you go out and do something phony and selling yo-yo's or something, there's no real money in it, but when you get into Wall Street, there's huge money, and you can do it with little pieces of paper and they don't mounts back on you for a long time. And a lot of people get, well, made off was the old example, but, uh, but that's, that's going to happen and that's why we've got an SEC and why we've got courts and, uh, but it'll always continue. It'll always need policing.
QuestionerThere are a bunch of new technology IPOs that are slated to come to market this year. I think back to what you thought about the tech IPOs back in 1999 and not wanting to be near them. These are a little different. A lot of these actually have earnings. You think of an Airbnb, you think of a Pinterest or something along these lines.
[1:58:19]
WarrenIs this different? How do you value this stuff? Yeah, but the big ones have losses and some of them report earnings differently than I would report earnings differently than I would report earnings. I mean, it's, we don't, we haven't bought IPOs, and if you think about it, you've got a whole bunch of people on the other side who have an interest in marking up each stage of it, even if it's phony. Sometimes they offer one price for the employees that already have the shares and then, but then they have an artificial price that so they can say that this round went at a higher price. It's, they're picking the time to sell to you. I don't like, I like it. when I'm picking the time to buy in a 2008, rather than having them pick the time when they've decided this is the time we can cash in by selling to you. We're going to do you a big favor and let you buy in. So I have never been a big fan of IPOs and I'm and the valuations are kind of staggering now on some.
QuestionerAny in particular?
WarrenNo, not that I don't know. Not that I'm discussing. By category. But let's, the category of those that you think the valuation is staggering is based on what? just earnings per the market? If a company's going to come in public, we'll pick a figure, $50 billion. Okay. What should you expect it to earn in five years? You should certainly expect it to be earning $5 billion pre-tax. I mean, if you wait five years to get 10% on your money. And people, they don't sell them that way. There aren't that many companies that earn $5 billion or more pre-tax. There's a fair number, but it's not that easy, and it's particularly not that easy. It's particularly not that easy if you count what you're paying the employees in stock options and all that sort of thing.
OtherQuestion came in. This is T112 from Todd Marshall. He says, who wins more at the card, the card game bridge, Buffeter Gates?
WarrenWell, I probably play a hundred times as often as Bill, so that that's probably the only game in the world where I'd have a slight edge with him. A very slight edge of it. He probably spent two solid days working on. He'd do better.
QuestionerWhile you bring up Bill Gates, Melinda Gates has got a book coming out on April 23rd, I think is one of the best books I've ever read. What's it about?
WarrenIt's about women, and it's about women around the world. It's about herself, and it's very candidly told, and the stories are terrific. And I read it the other day at one city.
[2:00:47]
QuestionerIt's only 220 or 30 pages coming out April 23rd, and I think it'll be a huge seller.
OtherThat's great. We'll look forward to seeing it.
OtherAnother question that came in is T-55. Steve Pilgrim asks, for those of us that have lived our lives, lives and careers, reading and listening to Warren Buffett and Charlie Munger. To whom do they recommend our grandchildren listen?
WarrenWell, I hope it's to us. But that would be sort of an actuarial freak. No, there's plenty of interesting writers. But I will tell you, the fundamentals won't change. You're not going to discover anything new about investments in the next 50 or 100 years. business. You have to know how to value the business, and you have to know something about how markets operate. But you don't buy a business unless you can value it. You have to learn how to value businesses and know the ones that are within your circle of competence and the ones that are outside. And that won't change. And it really gets back to lay, investing is laying out a dollar an hour dollar purchasing power and getting more back in the future. And you try and figure out how much you're willing to pay for that bird in the bush compared to the bird in the hand.
Otherhours that you've spent with us today. We truly appreciate your time. Thank you. Warren Buffett, the chairman and CEO of Berkshire Hathaway.
OtherAnd Joe, do you have that bracket ready?
OtherI have been watched, I'm getting into it now. I watched a lot yesterday. I watched Michigan, Michigan State. I watched Cincinnati, Connecticut. I watch Xavier Villanova. And I like to, I'm into the Big East again, Warren, just, you know.
OtherYou know, our friend Bill Murray, Becky, you believe that his son and no longer coaches at Xavier, so he's going to send me all of his crap from Xavier. He immediately becomes a Louisville fan. That is weak. Just so you know, Bill's watching. He's been watching since 545 Eastern time this morning. He's over in Europe somewhere. I don't want his used Xavier stuff. I can't believe he can just switch like that. We would never do that. Would we warn you're going to be watching?
OtherHe's a fan of his son who was coaching at Xavier and now's at Louisville. You'd do the same.
OtherOkay, that's very disappointed. Anyway, Warren. He has some good golf tips for you, Joe. This is the guy who's suddenly a U-pin. Good wardrobe.
OtherYeah, exactly. All right, thank you, Warren. Becky, thank you. Did you see your picture?
OtherYours is much better than mine. I look horrible with my time. No, I haven't had time to look.
OtherAll right, look. We've got to go. Thank you, Warren.