OtherThis was the 54th annual shareholder meeting for Berkshire Hathaway. And while shareholder meetings are known for being lightly attended, stayed and downright boring, this was anything but. More than 40,000 people attended here, including business leaders like Activision Blizzard CEO Bobby Kodick, Quicken Loans founder Dan Gilbert, and Spank's founder Sarah Blakely. And for the first time, Apple CEO Tim Cook, was in attendance. Apple is now Berkshire's largest equity holding, and Berkshire is Apple's third largest shareholder. We caught up with Cook this weekend and asked him, what he thought about it all.
OtherI think it's incredible. I've never been to an annual meeting like this before. You know, I thought ours was lively, but there's 40 plus thousand people here. And I love the fact that Warren and Charlie take every question. And of course, through all of it, not just the wisdom that they exude, but you can feel the integrity and the humility coming out. I think it's a great learning experience. for me and for everybody in the audience, I'm sure.
OtherJoining us now is Berkshire's chairman and CEO, Warren Buffett. And Warren, what's it mean to you to have gone through this weekend?
WarrenIt's a lot of fun. I mean, you see who you're working for, and they see you when you interact with them. And they come in sort of a Mardi Gras spirit. I would say in the last 10 years, now maybe 40, well, from out of town, not 40, 40,000, but a great many from around the world. I just never get a letter of course. I mean, I know that somebody misses planes or has a car rental that isn't available or a hotel room, but they just come in the spirit of enjoying it and the people, and all welcome them that way. So people go around with smiles on their faces. I mean, we have 600 of our own people that come in from our various subsidiaries, and they really work for a couple of days. And I've never seen anything but smiles on their faces.
OtherWell, unfortunately, we're not going to allow you to rest on your loyal. this week because we have some major news that's breaking this morning. You see the markets already down by almost 500 points. The future's here for the Dow. What do you think about the potential for trade tariffs coming back on and what that might mean for the trade talks?
WarrenWell, I can't gauge how both sides will play the game. And there are always, some people negotiate different ways. And if we actually have a trade war, it will be.
[2:33]
Warrenbad for the whole world, and could be very bad depending on the extent of the war. But there's times in negotiations when you talk tough. The one thing you can't do though is you can't, you can't shake your fist first and then shake your finger later on. I mean, that is not a technique that works well. So when you do push ahead, you don't know exactly what the outcome's going to be.
QuestionerYou can't shake your fist first and then shake which finger later?
WarrenWell, well, you're more advanced on this than I have actually. But the, well, that's what you're worried about as you get the other figure back. And you have to mean it after a while, otherwise it doesn't mean anything, obviously, when you do that. And you're gauging a response from someone else that also has their own calculus and has their own internal political considerations and so on. So it's a dangerous game. It doesn't mean it's a game that shouldn't be engaged it, but it's a dangerous game. You negotiate a lot of deals, too. Would this be your tactic?
QuestionerWould this be your tactic?
WarrenWell, it isn't mine at all. But, you know, we can talk about the Occidental deal later on the illustrate. But I've had a consistent way of negotiating. And that's a consistent way of negotiating. And that's has its advantages probably has its disadvantages too but but but I just say what I'll do and and I don't do anything else so people really know that's what I mean and and they can decide whether what I've said is acceptable or not but they know that I don't go through it a game now there's lots of people in acquisitions that really like to play games and and they're used to it in their own business and and it's their way of doing it. And that's fine, but it doesn't work with me. And I don't want to, I can't afford to spend the time on it. I mean, you know, you don't know whether you're ever going to get there and you spend weeks and months. And it's just, it's, it, it would be a huge time wasteer if we did it. You know, I don't know that this is bluster coming from President Trump, though. He's already put the tariffs on. And I don't know that I would take this lightly and think that we're not going to be seeing 25% tariffs on Friday.
QuestionerYou can't, but if you're playing. If you're playing the game, you have to sound that way. I mean, if with some people in negotiations, the best technique is to act half crazy. I mean, that, you know, with your kids, you can see how it works.
[5:19]
WarrenYou're negotiating things with your children all the time, you know. I'm going to count to three and if you don't do this and that. They know you're not going to shoot them in the end, so they've really got the edge. And that goes on all the time. And it's interesting kind of with the reputation of the industry. We bought a very large auto dealership operation a few years ago. And we did make more or less our kind of deal, we named the price, and probably 20 times since then people come out and say we want to do something. And they just, we've never found one that we could do the same. same way. I mean, they just, it's just part of their lives to negotiate, and it's part of my life not to negotiate, so.
QuestionerYou made to come in with a high offer and expect that you're going to negotiate down.
WarrenYeah, and anything you say, they, and I understand that. I mean, that's the way a lot of things take place, but probably a majority of transactions. And, but it's nice to have a reputation for not doing it because it makes a lot easier. You save a lot of time.
QuestionerWell, let's talk about what it would mean if Territ on Chinese goods rose to 25% from 10% on that $200 billion worth of goods at the end of the week. How significant is that? What would it mean for Berkshire's businesses?
WarrenWell, it would mean a lot to the world. It isn't just the countries involved because, you know, they take the dollars they've received from us, net, and they buy goods in other places. I mean, their trade surplus is considerably less over all of them. their trade surplus with us. So everything intersects in the world. And it depends who gets retaliatory with us or with them. And it's easier to start it than it is to stop it. And the effects would be huge if conducted on a major scale over time. Just imagine, Becky, that our Constitution was set up differently. and that states could erect tariffs. And Michigan would put a tariff in on cars and we would have one of corn and the degree to which trade would contract in this country. The mislocated plants, the migration of workers, it would be, it would be, well, it sounds ridiculous. to talk about it because it is ridiculous. But you've got countries where you would have similar effects if you get country after country after country because you can't just have it between two countries. It will spread. Now, the very fact that it's sort of a nuclear threat is what brings people to the table.
[8:26]
QuestionerSo, I mean, that's the way many play the game, but you don't want to have too many nuclear threats out there, out there because someday somebody may feel they have to fulfill one. Right. Obviously, that's why the global markets are under pressure. It's not just Chinese markets that are down. You saw the Korea. Cosby was down by about 3%. Markets down just about everywhere at this point. It affects everything. So that's a, you're saying the market's reaction is the right one. It's not an overreaction. It's rational. And then we'll see what happens next. But obviously, if it's, if it's, You went to bed a week ago and you thought there was a 1% chance of a trade war, and then subsequent events makes you think there's a 10% chance. Markets reflect that very quickly. What would you put in terms of, I mean, you're an actuarial mind in terms of these things, what kind of odds would you put on it?
WarrenWhen you talk about two leaders of the two major economic powers in the world, that's not the sort of thing I can lay odds on. I mean, you were talking about two. two personalities who are very much used to getting their way in politics. And you're talking about how they will be perceived in their own country in terms of their behavior. And it gets very complicated. There's no way I know how to predict that. Although you've written insurance contracts on weird things than this.
QuestionerYeah. What would you, what would it take for you? to ensure that there was a deal done at the end of this?
WarrenIt would take a big premium. Yeah. This would not be the kind of thing I would look to ensure, frankly. Because it's so unknowable? Yeah, and you would have a hard time to finding the risk precisely, because if they lasted for a month and then, so you get into the duration of how long it was. You'd have a lot of trouble writing the contract. But it is. It is the sort of thing, not precisely identical, but it's that we do take on unusual risks. But this is a big one.
QuestionerWhat will it mean for Berkshire businesses specifically? And I just think on Friday we spoke with Jim Weber, who's the head of Brooks running. They've already relocated and moved a lot of their operations to Vietnam because of this concern. They've been in the process of doing that since these trade talks first kind of appear.
WarrenWell, we've seen it in our rail. Carlis intermodal stuff that arrives on the West Coast. I mean, everybody stocks up ahead of time.
[11:07]
WarrenAnd it distorts things just thinking about it. You can imagine the distortion if you get into it. And you really can't predict the speed or the degree of effect because it spreads. You can't do something between U.S. and China in a big way without it affecting all the major markets as they go around. And you're starting. you're starting a game that you don't know the ending of, but you know it isn't a good game. But like you say, it may be necessary to play another game to avoid that sort of thing. I mean, that's what mutually assured destruction was. I mean, you felt as long as you had mutually assured destruction, nobody would actually launch a missile. And this is a similar, it can be a similar type game, a little bit of chicken in it.
QuestionerYou say that intermodal railloadings were affected by it, meaning that you saw an increase in railcar loadings?
WarrenMonths ago. Months ago. Because people were trying to stop up.
QuestionerYeah. People loaded up on inventory that they thought, but I mean, if you thought there was going to be a 25%, I mean, if I thought there was going to be a 25% tax on Coca-Cola next week, I would have my house filled with Coca-Cola. It would look very good. Sales would look terrific. And guys that transported my house would be doing great and everything. And boom, it all end.
QuestionerWell, that's a big concern. I mean, if we've been looking at this great economy, thinking things are wonderful, but it was really just pulling things forward, and then you get into a situation where it stops down. Does that concern you're just about economic growth?
WarrenWell, it pulls things forward. And I think actually in the GDP figures, there was a big inventory adjustment. And no, if you think the flow of something is going to either stop or get more expensive and you need it, you're going to load up ahead of them.
QuestionerWill this change your behavior in any way when it comes to purchasing securities or making deals?
WarrenNo, we will, by the same? We will buy the same stocks the day we were paying last week. It's just I won't tell you their names.
QuestionerBut would you buy more if you get them down 500 points?
WarrenThe cheaper they get the more I buy. But it doesn't mean that you don't think the markets could go down further prepared.
QuestionerNo, I'm not buying them because I think they're going to go up the next day or the next week.
QuestionerYeah. So it's something you're watching very closely?
WarrenYeah. Oh, yeah, but we watch the prices of things we do more than current events.
[13:27]
WarrenBecause in the end, we aren't buying them because what's going to happen next month. their next quarter, you know, we're really buying them because we think there'll be good businesses 10 years now. If somebody came to us with a good business today, we'd buy it, and we'd buy it regardless of what's going on in the tariff situation. We might have, this won't be the case, but you might, we're more likely perhaps to get something when other people are fearful. And you see that in a big way instantly in a market, you know, in the market for businesses. But it's still there with people's minds. We have much more to talk about this morning, including the Occidental deal that you already referred to. But if you don't mind, we'll slip in a quick commercial break first and come back and talk more about that. Got to pay the bills.
OtherWe do.
QuestionerAll right, welcome back, everybody. We are here and news is breaking. There's just an SEC filing that came out from Kraft Hines. That's obviously a big Berkshire Hathaway holding. Kraft Hines says that it will restate earnings for 2016 and 2017 due to mis-17. team due to misstatements in the original filings. It does not, however, believe that the misstatements are what they call quantitatively material to any individual reporting period. It says that the impact on adjusted earnings is expected to be less than 2% for each year. Kraft-Hine says that it has now completed an investigation that shows several employees in its procurement operation engaged in misconduct, but none of those were members of senior management. Our guest today again is Warren Buffett. He's the chairman of Berkshire Hatham. which owns a major portion of Kraft Hines. And Warren, what do you think of this? This news just hitting while we're sitting here.
WarrenWell, that's more or less what I've heard. I'm not on the board anymore, but Greg Gable and Tracy Britt Cooler on. And so I've heard from them. And this is an update that I heard last night. And they can't, they can't issue the first quarter reports until the 10K is filed, and they can't file. 10K until Price Waterhouse signs off on it. And that apparently is going to require a restatement of a few years. And we could not report any earnings from Kraft Hines in the first quarter because if we get a dividend from Bank of America, that dividend goes into earnings. But because we have over 20% of Kraft Hines, we don't report.
[16:00]
WarrenWe don't report the dividends. We report the earnings. So we received a dividend of about $130 million in the first quarter. But we don't report that. And we expected to get the earnings before we issued our own report. But when the time came to issue our report and we didn't have anything, we just put a zero in there and explained it in our release last Saturday. And this is just a further indication of the facts as they stand now. now. At some point, Pricewater has, we'll need to be happy with the figures that are reporting. And that evidently involves a restatement. And at that time, my guess, as the quarterly figures become quite current, and that we keep picking up our share of the earnings. I mean, this has been a long standoff period between PWC and the company. If they've missed all of the deadline to get the number of the earnings. the deadline to get the numbers to you at that point?
QuestionerWhat happened?
WarrenYeah, we didn't expect it. I thought that we would have the earnings on time. And Kraft announced their earnings for last year, but they had not been signed off on by their auditors. So while they released them publicly, they couldn't file the 10K with the SEC subsequently. That's not unusual for companies to announce the earnings, before they've actually got the sign off. But in any event, it's just, you know, we thought we were going to get them this week or next week, whatever might be. And then last Saturday came, and that's our time for releasing quarterly earnings. We did not have them. So we stuck nothing in there. And then had a footnote. And we put in our press release as well that we just didn't have the figures.
QuestionerIf they're restating their earnings, Does that mean Berkshire Hathaway will also have to restate its earnings?
WarrenNo, it would be so immaterial by the time you take just our share and we're a much larger company. So, I don't know exactly what we do when we get, if it gets into the second quarter, I don't know whether we pick up two quarters and one quarter or exactly how that works. They said that this is the, they've wrapped up this investigation. Are you satisfied with what you've heard from that part of the investigation or do you know the details? or do you know the details? I don't know about that. I do know that because I've been kept abreast of some of the things. I don't listen in on director's calls or anything like that. But Greg tells me what's the high points of what or the low points of what's happened.
[18:46]
WarrenAnd we have a terrific head of the audit committee, Jack Pope. He's an independent director. He knows this sort of thing. And he's put in the hours on it. And so I feel very. very good about the fact that Jack is, he's really in charge of things from the standpoint of the directors.
QuestionerDoes the company have your confidence?
WarrenThe company has my competence.
QuestionerYou had talked about it over the weekend where you said that what you paid for Kraft was too much in hindsight.
WarrenExactly. Not what you paid for Heinz. That's correct. We just bought Heinz, it'd be a better investment. And we don't, we'd own 50, just over 50% of it. of a business that would be doing fine in relation to the what we paid for it.
QuestionerIn a situation where you've determined that you've now paid too much, what do you do?
WarrenI've paid too much for stocks, I paid too much for a lot of things. Time usually works it out, but it means that capital could have been better deployed in other areas. You can always pay too much for a business. And I've done it with stocks many times. with stocks many times. I've done it with businesses. We've got, at Berkshire, we have at least a half a dozen businesses. And I can't even use a we there. I got to say I paid too much. So, and if we make the next 10 deals we make, then there will be a couple of worlds or not that I paid too much.
QuestionerThis kicks us up for, sets us up for a much bigger discussion on where market valuations are right now, why you think you've been having a tough time, finding something that you think is a fair value. And I'd like to talk to you about some of these purchases, but we have to take another break.
OtherOkay. I want to get back out to Omaha this morning where Becky Quick is with the one and only, Warren Buffett. Becky.
QuestionerHey, Andrew, hey Joe. Let's get back to Warren Buffett. We've been talking with him all morning long about the news of the day, things that have been happening that affect the Berkshire portfolio as well. And Warren, there was other news that crossed the wires just last night in another deal. that you're involved in. That would be backing up Occidental and it's been to try and take over Anadarko, which is also engaged in talks with Chevron, who's also got a bid out there. Last night, Occidental put out its own statement and said that it's going to be revising its proposal. It's now talking about a deal, still $76 a share offer, but 78% cash and 22% stock.
[21:22]
QuestionerBy increasing that cash portion, it allows what they call significant immediate value, greater closing certainty, enhanced creation. because with this, they no longer have to ask their shareholders for permission on this. What are your thoughts about where the deal stands and what this latest update says?
WarrenYeah, I got a call yesterday after an evening. First time I talked to Occidental, actually since a week ago yesterday, Sunday. And they told me that they were going in this direction, which I like, but I have nothing to do with it. I mean, we committed 10 billion. It had nothing to do with whether, how they frame their offer, how much they offered, or anything else that all they knew was that they were sure they could get $10 billion from us if they complete the deal with Anadarko.
QuestionerOne of the pieces of the letter that Vicky Hollab, the president and CEO of Occidental, put out in its letter back to Anadarko, surprised me a little bit with just how it still seems like this is a hostile bid. There's not good faith talks that seem to be taking place. between them, based on her letter. She said this, we remain perplexed at your apparent resistance to obtaining far more value for Anadarko shareholders, which has been expressed clearly through our interactions over the last week. Sounds to me like that is still kind of a hostile bid.
WarrenWell, it's my understanding, and bear in mind, the first thing I heard about this was a week ago Friday when Brian Moynihan called and other people, I said I don't like to talk to you. And I talked to them on Sunday a week ago yesterday. My understanding is Anadarko and Occidental had talked much earlier well before the Chevron bid. And we're talking about a transaction. And then Chevron made an offer, which Anadarko accepted, but Anadarko was for sale. I mean, and so it ended up and it held talks about selling itself to Occidental. That's my understanding. And so they were talking, maybe they were talking to more than two parties. For that matter, I wouldn't know that. But they decided that they were willing to sell, I'm sure, subject to prize, obviously. And they accepted an offer, and Occidental felt they had a better offer. And that's apparently where things still still I understand, but I don't know. All the details. Part of the idea behind it had been that, well, would Occidental be able to get approval from its shareholders because its stock was under pressure.
[24:13]
QuestionerSome of the shareholders obviously didn't like the deal. By using your cash instead of issuing as much stock as they had anticipated originally, that will keep them from having to go to their shareholders to ask permission for this. And as they're saying in their own letter, that certainly increases the certainty of this deal taking place. place and remove some of that uncertainty.
WarrenYeah. I would also think that the, Cheryl, if you own Occidental, you're bullish on oil over the years, and you're probably bullish on the Permian Basin because they've such a significant portion of their assets there. So the idea that they will reduce, use less stock and more cash, it's part of the deal, although they're getting the cash from us, but I would think net, If I'd been a holder of oxidant over time, I probably would like that kind of a deal. At Berkshire, I hate to issue stock. So, generally speaking, if any company we own is buying something, we like it better when they buy it for cash than they use stock, because we like their stock. So we'll see what the reaction is to this. But I would just imagine there have been an all sort of. I imagine there'd been an all-stock offer to begin with. I would think people would net their shareholders. But the shareholders will be speaking out, but I would think that the shareholders would like the shift.
OtherAndrew's got a question from Beckin Studio, too. Andrew?
QuestionerHey Warren, I was just curious whether you were surprised that Anadarko hadn't engaged with Occidental on this at this price. And also, if there was a price at which you would think that Anadarko, rather that Occidental shouldn't pay, meaning if Chevron were to come back and they're five times the size of oxygen, they could just write a check and this could be over with if they wanted to. But if the price were to go up, I know you get preferred shares ultimately. Is there a price at which you wouldn't look at this favorably?
WarrenWell, we've committed to the $10 billion, 100%. We do not have any control, nor did we want any control over what Occidental. Occidental did with our 10 billion in the terms of everything. There's nothing in our deal that provides that they have to come back to us and request permission really to do anything. It's a remarkable deal, but that's the way we do them. And in that respect, and they, so they get our 10 billion if and when they close a deal with Anadarko
[26:56]
Warrenand they don't have to consult us. Certainly don't need our vote. They don't, it was a matter of courtesy I got to call yesterday, but it was not a matter of necessity on their part. That's one of the advantages of dealing with Berkshire. I mean, we can do things that other people don't like to do or their lawyers don't like them to do. And this is not a deal that our lawyers would have written.
QuestionerIs this deal a bet on the Permian Basin and on oil prices? Or is this just a bet on, hey, it's great to have an 8% preferred?
Warrenpreferred? Well, that's great to have an 8% preferred if there than any oil there. It's a bet on oil prices over the long term more than anything else. It's also a bet on the fact that the Permian Basin is what is cracked up to be and all of that sort of thing. But oil prices will determine whether almost any oil stock is a good investment. over time, whether it's Exxon or some wildcat driver. I mean, if oil goes way down, you don't solve that by hardly anything. If it goes way up, you make a lot of money. And it's not what it does next week or next month or next year. You're buying reserves that go far out into the future. So you have to have a view on oil over time. And Charlie and I have got some views on that, not too specific, because they're not that well informed, but they are, we feel good about doing the financing.
QuestionerWhy don't you just buy it yourself? It's only a $35 billion deal and you've got $110 billion in cash sitting around.
WarrenWell, that might have happened if Anadarko would come to us, but we wouldn't jump into some other deal that we just heard about through somebody coming to us and seeking financing. We hope people come to us on businesses. But I had no idea that this transaction was going to happen. I mean, we could go Friday when I got the call from Brian Moynihan. Well, I read in the paper about the deal. But I've never had any contact with antinarko of any sort.
QuestionerDavid Faber reported last week that you had said you would offer up to $20 billion, dollars double the $10 billion that you did do on this deal is that the case if they needed it but I think they I mean they have a arrangement obviously with the Bank of America who called us I don't know anything about that deal I just know that the B of A has arranged that debt financing if there were a different sort of thing but what I meant to some extent with that is I'd be also very happy if somebody calls tomorrow
[30:01]
Warrenneeds $20 billion. Occidental just needed the $10 billion. Okay. But you like doing these deals at bigger sizes, not smaller sizes? Exactly. Back to Andrew's point, this is there for forever. It doesn't matter if the bids go up, doesn't matter what happens along the way. Your $10 billion is in this deal for whatever happens? Yeah, there is. The lawyers don't write deals like this, but we tell them to. There's no material adverse. There's change. There's no, if the stock market closes, but the steel closes, we're there under all circumstances. And we don't, we have not written any outs into it. But that's part of the traction of doing business with Berkshire. And besides that, we do it all ourselves. So it isn't something that's parceled out among 10 parties and each one comes in and has to get their permission to make change. changes and all that. When they came to my office at 10 o'clock on Sunday, we could go Sunday. They knew that if we agreed, which we did by 11 o'clock, they knew Berkshire was 100% in. Now they had their own board of directors meeting the following evening. But they could say to their board, you're going to get $10 billion from Berkshire. one this closes and you don't need to give a thought to it.
QuestionerOkay, when we come back, we're going to talk more about the prices you see in the markets and whether you think prices are fair at these levels, whether you think they're too much. But again, our guest is Warren Buffett. Obviously, many stocks are under some pressure from what they were seeing from these Chinese trade talks, what the implications are from all of that. One share that is, one stock that is under pressure today, shares of Apple. If you want to take a look at the chart, closed on Friday at 211, 75. This morning, the bids at 204.91. The ask is at 20510. And that's because China has been such a huge component for Apple. Tim Cook talked in the last earnings last week about how things seem to be really improving there. Tim Cook also traveled to Omaha this weekend. He was here for the Berkshire Hathaway annual meeting. It's his first time coming here. But for Berkshire, Apple is now the biggest investment that they have in their equity portfolio. It's also, Berkshire is also the third largest investor in shares of Apple. So when we sat down with Tim Cook this weekend, I got the chance to ask him what he thought and how he found out that Berkshire was first buying into shares of Apple. Listen in.
[32:43]
QuestionerI found out probably like you did, which is the 13F gets filed and somebody tells me about it. Oh, this is really cool. Warren Buffett is investing in Apple. You know, we welcome all shareholders. But we run the company for the long term. And so the fact that we've got the ultimate long-term investor in the stock is incredible because our interest are lined. And then I knew Warren before then, but we had no idea that we're looking at the company. They do all that obviously secretly and have their own method of doing that. And it's been a privilege and I'm super happy they've been accumulating. What happened when you found out? Was there talk around the office? Were there any high fives or was it a, oh boy, now what?
OtherIt seemed like a, it seemed like recognition in a way, like an honor and a privilege. And I don't mean that in a lighthearted kind of way. I mean, wow, it's Warren Buffett is investing in the company. And yeah, and so it felt great. And I think for the whole company, because we knew that he didn't, you know, He's been very clear he didn't invest in technology companies and companies he didn't understand. He's been totally clear with that. And so he obviously views Apple as a consumer company and in a different kind of way. I think that's a, that's really special.
QuestionerWarren, what did you think hearing this? Because when I told you we were going to tell you how he found out, you said, oh, good, I'd like to hear the story. You've never talked to him about that?
WarrenI didn't, not about that specifically, no. I've known Tim a little over the years. I'd see him maybe at least once a year and then maybe twice year. And I've talked to him on the phone a few times and I sent him a letter. I sent him a Martin Luther King speech some years ago that was kind of lost to history that was terrific and I thought he'd enjoy it. But no, I didn't call him up while we were buying. I tried to keep as quiet as I can when we were buying anything.
QuestionerChina, though, is a huge issue for Apple. It's why the stock had been under pressure earlier this year, or at the end of last year. Last week on the earnings call, it certainly sounded like they thought China, the situation there, was improving. What does this news today mean for this, for you?
WarrenWell, the important thing is really what the relationship is with China, three years, five years, 10 years, 20 years from now. And this, I mean, this all enters in, and certainly,
[35:31]
WarrenIt's hard for me to imagine that the two most important countries in the world would do dumb things over a long period of time, but they could. I mean, the possibly always exists that you get miscalculations or egos or national pride or whatever it may be and that things do escalate. I don't think that will happen. I know it shouldn't happen. I think it's a low probability. But that would be bad for everything Berkshire owns. I mean, it isn't a question of Apple or have a very negative effect on our economy, other world economies, and there's chain reaction of sorts type of things. So I don't think it will happen, but I don't think it's zero the probability. You say it would be bad for virtually all the businesses that Berkshire owns, but Apple's in a pretty unique position, because it is so front and center, because it's already come up as a potential target for some of these things. Do you think Apple runs a special risk or not?
WarrenWell, it would have, I mean, obviously in terms of our electric utility in Iowa, it's going to, would have a very minor effect relative to other types of businesses. But the ripple effect, if you get a recession, and it hits everything almost. eventually. So I think it's very unwise. It's kind of like having a, if you have a nuclear war, you don't want to say ha ha ha ha, you know, if you're in Canada because we're attacking the United States or something. It's impossible to contain it if you have two superpowers in trade involved. And you can't predict exactly how it spreads.
QuestionerApple shares are down 3% this morning. Just looking at the chart. Yeah. That's good. Why?
WarrenWell, because they're repurchasing shares, and when they repurchase shares, our interest goes up and we don't lay out a dime. I love it, you know, and obviously it's better to buy it at X than 2X. They've said they'll purchase, they've reauthorized up to $75 billion in additional shares.
QuestionerYou're behind that? You're in favor of that, I should say?
WarrenWildly in favor of it.
QuestionerWe're going to talk a little bit more about share repurchases, not just with Apple, more broadly because it is a question that came up pretty frequently this weekend at the annual meeting too.
WarrenRepurchases can be the dumbest thing in the world or the smartest thing in the world. I've seen both. But they're just repurchases by the company are just like purchases by us. They're dumb at one price and they're smart at another price. And I like it when companies, I like it when we're invested
[38:26]
Questionerin companies where they understand that. Many companies just repurchase and repurchase and it's the thing to do. and they're encouraged to by some shareholders and by their brokers and repurchases can be dumb. They can be smart. At Apple, they meant smart. We will talk more about this and much more with Warren Buffett when we come back after a quick break. Again, picking up with Warren Buffett where we left off. Warren, we did talk at the top of the last hour about what the China tariffs potentially mean for business and what they mean for Berkshire. But you're looking at the markets down almost 500 points this morning. And for people who are just waking up and just kind of trying to figure out what this means for them, for their portfolios, for their businesses today, I'm sure they've got some questions. What can you tell them? What do you say when you look at the markets, I guess, down 460 points right now for the Dow?
WarrenWell, I'm saying if you own a farm and you're worried about selling your farm because you read the newspaper this morning, or if you own a perfectly decent business in your town and you're worried about selling or you think you should worry about selling your business today because. Then you should think about worry about thinking about selling stocks. But if you look at stocks as businesses that you own little pieces of, why in the world should you sell it based on on headlines of any sort? I mean, if you expect a business, if you expect a farm to be a good investment over 10 years, if you expect an apartment house to be a good investment over 10 years, and if you own a marketable security, which is an interest in a business, and you expect that business to be a good business over 10 years it's nonsense to get feeling good or bad about what stock prices do in a day unless you have extra money and they go down and then you feel better because you can buy more of them cheaper just like if you could buy the farm right next you cheaper you'd love that if you were a farmer you know usually that's an analogy that I understand and agree with but this time around a farm in particular I would be pretty worried if I was the farmer trying to figure out if I should be planting soybeans or if I think I'm going to be able to make enough money to get things back this time around. Tariffs have hit the farmers particularly hard and a lot of them have said they're
[40:32]
Questionerbehind the president they want to see us get to a better situation but many of them are also in a position where look they've already asked been asked to give a lot they thought we were about to reach a deal and they're hoping that when they're making decisions for this planting season they have some clarity
Warrenwell it's true that business generally has improved markets improved everything and the farmer has not participated in that so this has been a very good economy for a time I mean that we've been coming back for eight or nine years and businesses kept getting better interest rates have been low for business stocks have gone up and the farmer has not participated the same way so maybe I shouldn't have used that example but they if you have a decent business I mean you buy into a business you don't buy a stock that wiggles around you know and and people understand that but then they behave as if it's bad news when the business the price goes down if you had a half interest in a wonderful business and the person that all the other half came in and they were depressed by these headlines today and they said also to you my my share of the business a lot cheaper than yesterday because I think this whole thing is going to just end the world you just say here I wish you weren't so depressed but if you're selling to me cheaper you know the business is going to be here five years from now and ten years from now and all headlines you don't know what the going to look like in three years or five years or ten years what you do know is that the United States is going to grow over time and that businesses are going to generally do well and if you own decent businesses you'll make money
Questionerthat's a great long-term perspective but for the shorter term not just for stock prices even for companies that are trying to think about their quarterly earnings or trying to figure out how they're going to be able to pay for some items or figuring out how the relationship with the supplier is going to work at this point it could be an impact pretty that's very fairly large in the short term
Warrenour own subsidiaries obviously where they thought that tariffs could be increased they've loaded up more on inventory I mean you you make business decisions but you don't make a decision about whether to buy or sell the business if you've got a good business and you've got it if you're going to own a business
[42:48]
Warrenfor 10 years you're going to see a lot of terrible headlines you know I bought into my first business in 1942 and they didn't notice that I did but just imagine all those headlines at that time and the world you know the Philippines were falling I mean we were losing the war and but the United States is going your kids are going to live better than you did and your grandchildren are going to live better than they do and and generally speaking productive assets are going to be worth more in this country and if you own a diversified group of of productive assets you'll do fine as long as you don't read the papers
Questioneralthough you did say an hour ago that the sell-off when the dad was down by about 500 points was not an undue sell-off was not overdone at that point if we actually get into raising tariffs by 25 percent it may not be undue i mean in the day or the week but uh you shouldn't need
Warreni don't have the faintest idea how to buy and sell stocks for a day or a week or a month i know how to buy businesses for a long period of time i'll be wrong on some of them you won't be wrong on america in terms of that when you look at the markets today if you see cheaper prices would that mean that you would buy more of a stock that you might have bought last week yeah some of them will hit levels that i might have been below i will always react well to declining prices but if i like if i like to buy a business you know if i could buy this hotel we're in and they drop the price is that good news or bad news for me i mean if i like to buy hotels so point that some people get it and some don't but when you are buying a stock you're not buying something that wiggles around or is on a charter has a target price you're buying part of a business if you're right about the business you don't pay a crazy price you can be right about the stock as long as you don't do dumb things yourself
Questionerum over the weekend a lot of questions came up about share buybacks yeah people were asking specifically about berksher why don't you buyback more shares of Berkshire especially when you have $110 billion in cash on hand what's your answer to that?
WarrenWell we want to buy we will only buy Berkshire if we think that the shareholder the next day is or that same day is wealthier after we bought the stock in other words we bought it for a shade less or maybe a lot less but but at least a shade less that it's actually worth and we don't
[45:20]
Warrenset out to buy any given amount we set out to buy stock at prices below intrinsic value per share. Now, intrinsic value for share is not something that is precise to the penny or anything. It's probably a band of 10% or something like that. And my partner, Charlie Munger, if you asked us to give you a slip of paper with intrinsic value per share on it, it would not be the same figure, but it would be close. And we both would have a band or something of the sort. If you're buying it below that figure, you know, if I'm, if we've each got a dollar and you'll sell me and we put it on the table and you'll sit and you can't reach it for a while you say well I can't reach it so also you might share for 95 cents I'll give you 95 cents you know you say a dollar to you know so it's not complicated maybe it may be beyond my ability to figure out the intrinsic value of certain kinds of businesses but with Berkshire I've got a reasonable idea I try to give the shareholders the same information that I regard as important in calculating that now it can change presumably you want it to change upward over time because we retain earnings and we should be building more value but but that's the equation first of all you have to have the cash you need to run the business I mean that's Steve Jobs called me one time I mean he called me I don't know how many years ago but but he was thinking about repurchasing shares and I said see there's just two questions I said you know a you have all the business all the money that you need to develop the kind of business that you've got in your head for the next five or 10 years and oh he says we got plenty of money and then I said then the second question is is your stock selling for less than it's worth and he said it's oh yeah selling for a lot less than it's worth and I said well you've answered your own question and and but if he'd answered we need we need the money we've got here actually to fully develop our business and we've got opportunities to do it I'd say forget about it you know build the new plants and do that and maybe the casual come in later where you can buy in stock and secondly if he said the stock isn't really cheap what's the reason for buying it in did he buy back shares after that he didn't like buying back shares I think he was hoping I was going to give a different answer he didn't argue with the logic but but I think maybe I think he was hoping for a different answer
[47:50]
Questionerit's interesting that you say that because Tim Cook the current CEO of Apple was here this weekend and we got the chance to ask him about share buybacks too because share bybacks have been such a big deal for Apple they've deployed so much cash doing that and just announced last week at the earnings that they'd be buying back an additional $75 billion worth of Apple shares or at least they've authorized the repurchase of that much again we sat down with Tim Cook this weekend and here's what he had to say about that too listen in Warren this is a funny story a bit is back in 2012 I've been in the CEO spot maybe a year or so we were we had a growing amount of cash I think we had just crossed the 100 billion kind of mark if my memory is correct and I was and I was getting lots of input from a lot of different people as you can guess and when I don't have experience in something I always make a list of the people that I think are the smartest people that I can contact to to them and get advice and Warren was on the top of the list as you can imagine I'd never met Warren before and so I get his number I call out in to Omaha and I'm think I wasn't sure he take the call you know I'm just sort of calling out of the blue he doesn't know me from Adam and but he took the call and I had a great conversation with him and that was the first time that I'd met Warren and he was very clear to me I still remember he said he let me just cut through it if you believe your stock is undervalued you should buy your stock and I thought that was just the simplest way of looking at it so here's what we do is we first and foremost take care of our people and we take care of the company and the future of the company and we've been investing a ton in both this country and some others we're gonna spend three hundred fifty billion dollars in the United States and building new sites and we just announced a new expansion in Austin and so forth so all of that is number one right and then if we have money left over we look to see what else we do part of what else they do he said is to make acquisitions and what I didn't realize is he said they're they're making an acquisition every week or two they make a lot of small like was he said they've made 20 to 30 acquisitions over the last six months small acquisitions that they don't really talk about and don't tell people things about yeah yeah you knew that if you look at the
[50:28]
Warrenthe 10 queue and you know you can see but they they they make a lot of acquisitions yeah and and and and and as I hope Berkshire makes a lot of acquisitions and I'd rather buy a an attractive business than buy our own stock at its intrinsic business value if our stock gets well below that I've still got this strong and I can do both fortunately but but why how an executive can pay say we're going to spend 10 billion dollars buying stock and then not paying the attention to the price at which they buy it they wouldn't buy any other business that way and and so we're price sensitive on it on the other hand when the price is right there's no easier way to make money for your shareholders
Questioneryou say you like Apple buying back shares so you think the price is right there
Warrenwell they've done a terrific job of it they've done a terrific job they've made their shareholders a lot wealthier because Tim has done that aggressively when the price was right.
QuestionerWhat, I mean, how do you know in hindsight, do you know, how can you tell when a company is doing a bad job repurchasing?
WarrenYou have to be able to figure out how to value this properly. It's easier than you're making it sound. Yeah, the truth is if you look back and I was director of the company, but Coca-Cola kept repurchasing their shares at a time when it didn't make sense if you look at it. in the years earlier. They just, they, they had a terrifically good idea of repurchasing when the company only had a market value of, you know, in the less than 10 billion. And they bought a lot of stock and they were aggressive about it. But they fell in love with the idea. And I was a director at the time. But they're one of many. The same thing happened to Gillette, to a degree. It's interesting. interesting. Sometimes it's difficult for CEOs to be objective about their own stock price. And they think the higher it sells, the better. And it's a fine way to feel, except if you're repurchasing it and you repurchase it of prices up to the sky.
QuestionerWhen Coca-Cola was buying back shares and it turned out it was at too high of a price and you were a director, did you know that at the time?
WarrenI had a pretty good idea.
QuestionerWhy didn't you say something?
WarrenWell, I may have made some comments, but the management has done a sensational job. I mean, that's one of the reasons it got so high. They've done a terrific job. They made me a ton of money. And if you belch too often at the dinner table, you don't get invited to parties anymore.
[53:21]
QuestionerWhich is the difficulty, I think, with probably any board. It's just, it, you don't get to be anything. director if you're, unless maybe you're an activist or something, but people don't like it if you speak. And some CEOs like it a whole lot less than others. Some CEOs actually encourage a fair amount of dialogue and others, you know, make sure that all the important stuff comes up at five of 12 when you have to leave the 12 to catch your plane on the next point six hours later. That's interesting. Boards are managed in different ways. Have you known every board you've been on, which has been managed well and which is not?
WarrenWell, some are managed well in some respects, and they can be dumb financially. I mean, you have some managements that really have a money sense, and then you've got others that they're very good managers, but they're not good at, I always love it when I hear management. I ask the guy what he's doing with his own money, and he says, oh, I couldn't possibly evaluate stocks and everything. I turn that over to somebody else, and then he goes out and makes a $5 billion acquisition of something. He doesn't really know anything about, we're just buying a whole lot of stock. Some are good at it, some aren't. That's true of our managers. We have terrific managers. Some of them are good at bold on acquisitions and some of them would be terrible. Do you let the ones who would be terrible at it? Go ahead and make a bolt on acquisitions. Not very often. Some of them don't have, they have great operational sense. They don't have a money sense exactly. You know, you talk to a lot of managers, CEOs, and they don't want to run their own stock portfolio. Well, those are decisions and those are capital allocation decisions, and they know a lot of, they know a lot about businesses and they know how to value things. You'd think they'd be good investors, but I used, I had one fellow who was a big partner in back when I was running here, a partnership a long, long time ago, and he had stock options in his places, and he would regularly exercise and take the money and buy Berkshire. Well, he actually wasn't so dumb, but it wasn't exactly what the options were supposed to incent. You know, but that's unique to have somebody who understands both operations and the money side of things. Well, some really do. I'm thinking. I would say Tim Cook, for example, does. He has a real grasp of, I mean, he has a operational mind and he has a money in mind as well.
[55:56]
QuestionerWhat about Greg Abel and a G. I don't want to get that going through the alphabet on this. No, I ask it because, you know, Berkshire is in a unique position, and you have people who are doing all kinds of things, some who are managing money, some who are managing operations. Yeah. Can somebody do all of that? Both of those guys happen to have extreme money sets, but I don't want to start going through the list. Understood. I understand. Can't help a try. Well, you got the answer for the two important list. I was just wondering, Warren, you've done great over the years with the status quo. the status quo with how the United States has approached China and China trade. Berkshire's done great. We've all done great. Everything's fine. Do you wish that Trump hadn't confronted China at all? And we just aren't addressing any of these long-term problems with intellectual property or, you know, take your pick of which issue we're trying to solve. But do you just wish he had left it alone and just let Berkshire do its business the way it's been doing? Or do you think there's some rationale to confront? running China?
WarrenChina and the United States, for the next 100 years, I can tell you two facts about it. There'll be the two superpowers of the world and will always have some tensions with them. And it can well be about intellectual property. It certainly has over the last, you know, 20 years or thereabouts, 30 years. And it will be about trade. it will be about policies that they're carrying out, you know, in terms of their neighbors or we're doing. There's no way you can have two countries so dominant in the world without them having conflicts. You just don't, you know, there are going to be tensions. There are going to be negotiations. And sometimes we'll both come away thinking we lost. But it's inevitable. So I, I, I, and how you play the game, if you're negotiating, with some people that are tough negotiators on the other side. I mean, it's not, those are not easy decisions to make. I mean, if you're doing with the labor union, nobody really wants to strike. It's bad for both sides, but it's sometimes things develop to that point. So I think you should get very used to the fact that if you're a young person, that you're going to see a lot of different tensions over time. It will have been on the individuals involved. It will have been on the specifics of the situation.
[58:26]
Questionersituation. But every time we sit down, you know, it won't be like a garden party. Warren, you mentioned that there are going to be times where both sides walk away and feel like they lose. Are there times that both sides could walk away and feel like they win? Because that's usually the sign of a successful negotiation. You want both sides of feel like they want at the end. And, you know, the idea of a negotiation is to take something that, that you have the other person needs and in a sense trade that for something that they have that you need. And it's going to be constant. And there's times when it's going to be tense. It's just the nature of things.
WarrenI mean, you have that a much different level when you're negotiating nuclear arms reductions or something. I mean, we know it's in the interest to get the nuclear stockpiles down and all of that. But that doesn't mean it's easy. And you try to come up with deals that are good for both sides, but that's not always easy. I mean, I try and think about that in this scenario. And it may be particularly difficult in this scenario because for a long time, we've been dealing with China as if they were still not a superpower, as if they were still, and so we've been giving them better sides of deals. It's really hard to all of a sudden say we're taking some of that back. What do they get out of this? they get out of this deal when we are trying to change a negotiation that we think has been unfair to this plan. Well, it's difficult for us to accept the fact. It was difficult for us to accept the fact after World War II that the Soviet was a superpower in terms of military power. And there were, I mean, as you know, obviously, there are all kinds of tensions involved in that and negotiations. And it's still a worry that you have two, we have the two big nuclear stockpiles in the world. And you worry in terms of mistakes being made. I mean, it's a big game. And with China, it's overwhelmingly an economic game. And it's an economic game we didn't think we'd be in 40 or 50 years ago. I mean, the Chinese, the rise of their economy has been extraordinary. And they do some things we don't like in connection with that. And sometimes you have to get tough to make changes. And we do some things. things they don't like. But it's a reality now, and it's going to be a bigger reality as the years go by. And it's very easy for it to become a huge political issue.
[1:01:09]
Greg AbelI mean, so you'll have people fanning the flames for their own interests in politics or their own interests in business. And it's not easy to navigate. But leadership has... that's the job of leadership is to take on the tough problems. Having said that, the economy has held up very well in the face of any tensions that we've seen to this point. Jobs report incredibly strong on Friday. The last GDP report was very strong, too. So... You can't stop America. You can't stop China, though, either. But you can't stop America. I mean, we live as a country. You know, it's extraordinary what we have compared to 30 or 40 years. to 30 or 40 years ago. Even in agriculture, it makes it tough in agriculture because we get more productive all the time and that tends to depress prices. But this country is going to move forward. I mean, there isn't a question about that. But China's going to move forward. And the way to try to do it is to do it that maximizes what both countries can do well and more trade is better. But trade in specific, industries can hurt specific industries here. And that's a huge problem. The president, the heads of both countries have to be the educators in chief. And they have to explain why trade is good for the populace as a whole, and it can be terrible for people in certain industries. And then a rich country takes care of those people that become roadkill in the process of producing a better life for 330 million Americans.
QuestionerLots of people on Wall Street are not going to be sanguine about this news today. I've been reading some reports last night. Goldman Sachs saying that this is not only rapidly increases the odds that we don't get a trade pact with China, but also increases the odds that you could see Trump announce that he's going to pull out of NAFTA or that he's going to put auto tariffs on European imports. What do you think of that and what would that mean?
Greg AbelIt's the problem of escalation and anything. We have the problem of that with that. problem of that with nuclear weapons. I mean, the escalation and it gets more and more dangerous as people become feeling more and more threatened and their own local political situation demands more and more action. I mean, that's the dynamic that you're facing any time you get to these major problems between countries. And that requires the wisdom of the leaders, but to some extent it requires the wisdom of the people.
[1:03:52]
Warrenthe people and how the leaders convey it and how they conduct themselves. But we will have this sort of thing happen. We've had it happen, obviously, and occasionally would turn into wars in the past. We can't do that anymore in a nuclear world. You can't get to that point and any sane person realizes it, but you don't want to get too close to that tinderbox. U.S.MCA, also better known as new NAFTA, that deal, is out there. But now I think Pelosi is saying that they're not going to bring it for a vote at this point. Are you in favor of the new NAFTA deal? Well, I was in favor of the original one. We are very, very lucky to have Canada and Mexico bordering us. I mean, and then oceans on the other side. side. I mean, it's geographically, it's a very attractive position compared to how countries are situated around the world. And we've got lots and lots and lots of common interests. And we are the big guy in the game. And there's the big guy in the game. We should do more than our share of making sure that our neighbors are growing and prospering at a rate that's consistent with our. It doesn't mean they're equal, but the, but the, the, the, the, that one of the, the, the, the, the, we live better, they live better. And trade with Mexico and Canada, enormously important. We should treat them as neighbors and not adversaries.
QuestionerWarren Buffett is our guest again this morning, the chairman and CEO of Berkshire Hathaway. We've spent the last hour and a half speaking with him, and we've got more to come. When we return, we've got other issues to talk about with Warren. We still haven't gotten to Wells Fargo, and Charlie Munger is here, too. He's here early, so we may put him on set. that early. Good, good. Give him to Wells Fargo questions. We are live in Omaha where we've been talking for the last hour and a half plus with Warren Buffett, who's the chairman and CEO of Berkshire Hathaway. Right now, we're joined by Charlie Munger, who's the vice chairman of Berkshire Hathaway. He is also the chairman of the Good Samaritan Hospital in Los Angeles, chairman of the Daily Journal, and he's on the board at Costco. And Charlie, thank you very much for being here with us this morning.
CharlieGlad to be here. It's great to see you.
QuestionerWe are coming off of the annual shareholders meeting, Obviously, we're going to talk to you guys about the news of the day. But first, I'd like to take the opportunity while I have the two of you here together.
[1:06:29]
QuestionerJust to talk a little bit about what your partnership has meant to each other. How many years, Warren, have you been partners with Charlie?
WarrenI met him in 1959, and we instantly became partners in thinking. And then over the years, we developed all these financial relationships. But I knew immediately on a meeting Charlie that we were going to be. We were in sync, and we've lasted a lot longer than I thought we would, but we have had an incredible fun together. We've done all kinds of things. Some have worked. Some haven't worked. And we've never had an argument. We disagree on things sometimes sometimes, but we've never had an argument. And never second-guess me. I try not to second-guess him. It's a great relationship.
QuestionerCharlie, 60 years. Did you know at that first meeting that you'd have a partnership like this?
CharlieWell, I knew that we were on the same page, but it's been very lucky that a little company became as big as it did, and that we've had the run we've had.
QuestionerWhat's it like? I think we're very talented and all that, but we've also had a tailwind of good luck. What's it like in terms of how you all kind of use each other as sounding boards? How does that work?
CharlieWell, I think if two people collaborate in their own way, they're better off. Einstein would not have them able to do what he did if he didn't have various people to talk to. It's more fun, too.
WarrenYeah. The ideas are better than that, but it's also more fun. When we disagree, Charlie says, well, you'll end up agreeing with me because you're smart and I'm right. Very simple. He is right. That's the hell of it. Not always.
QuestionerYou're both pretty, you both act pretty unilaterally, though. You both kind of do your own things and then come to each other after the fact a lot of time.
WarrenHe knows what I'm thinking. I know what he's thinking. And either one of us would ever do anything we really thought the other one was opposed to. We might feel like with a little selling to do. But we are in sync.
QuestionerLet's talk about a deal you did recently, Occidental. Right. Where you agreed to back them up. You cut that deal and then you called Charlie. But you knew what he was thinking already?
WarrenI didn't want to wake him up. He's on Pacific Coast time. I thought it'd be very unfair if I'm broke.
CharlieWarren knew I'd be for that deal. Sure. I knew it.
QuestionerHow did you know that? How do you know so much about each other and how you think?
WarrenWell, Occidental is in my part of the world.
[1:09:13]
QuestionerAnd, of course, I've followed to some extent the developments that are interesting. And what do you think of the accidental deal? Why do you like it?
WarrenI like it. Why? I think it's got potential. Because? Well, because I think the Occidental is right to want to do it. To buy into the Permian Basin to get more assets there. Absolutely. And what is it about the Permian Basin that you like? It's got a lot of oil in gas. I don't like a desert just for his own sake.
QuestionerI asked Warren this earlier today. If it's such a great deal, the Permian Basin is such a great deal, why didn't you just buy in a Darko?
WarrenNobody asked us to. Yeah, well, and that may sound strange, but who knows if they'd come to us? You know, we do, we do usually wait till people come to us. So it isn't like we, if we wanted to buy into the field, we necessarily, you know, start dialing and flying around and everything. That, that's... Occidental knows a lot about the basin, and we don't. Of course we like having somebody with us that knows something. about it.
QuestionerYeah, when we were at Solomon, we had something called Anglo-American, some promotional operation. Anglo-Persian. What? It was an Anglo-Persian?
WarrenAnyway. But it was... Yeah, Anglo-British or something. Whatever it was, it was neither. It was neither. Anglo-Swiss, actually. Anglo-Swiss. And they came to the directors and had this big plan for drilling in Russia, and we were going to put up a lot of money and send it to Siberia and hope that we got oil back. And Charlie said, you know, who's Anglo? you know, who's Anglo and... Who's Swiss? And of course, none of these people were... I mean, so they were relying in the name of the company. And that did not go over so well with the Solomon Board, what Charlie pointed out. But we sent a lot of money to Siberia. And they... We never got it back either. We got one little vial of oil. The guy came to see me one time after I become chairman. He showed me this magnificent, you know, exactly the kind of oil they wanted, and that's the only oil we ever saw. And that's... producing 50,000 barrels a day toward the end. They just kept it all. Yeah, Anglo-Swiss. Anglo-Swiss. Anglo-Sus. No Anglos and no Swiss. Just lies all the way down.
QuestionerLet me ask you, though, about Occidental and the steel in particular. If you like the Permian Basin, but you've also both commented on times when you think you've paid too much in the past.
[1:11:50]
QuestionerIs there a number that would hit that you would think, okay, this is paying too much for the Permian Basin, too? Charlie?
CharlieOf course. All the time. We always think that way.
WarrenYeah. But it's not anywhere near at the price that they're paying right now.
CharlieWell, we don't know. Maybe the last dollar. All we know is we're willing to do it.
QuestionerYou both have made some comments about, recently, to us, that you think prices are very high in terms of what you have to pay for a premium for buying a company outright. Is that still the case?
WarrenIt's probably more competition for buying companies by people who are using other people's money and therefore have less sensitivity to price and who are willing. the price and who are willing to borrow a whole lot more and are being offered the ability to borrow a whole lot more with less in the way of covenants and so the competition is tough on it. And they get part of the upside and none of the downside. In fact, they make money on the downside.
CharlieYeah, so that that is really terrible competition for us. And it gets worse every year.
QuestionerIs that why you're sitting on such a big pile of cash at this point?
WarrenPart of the reason, of course. Is the residual. On the other hand, You know, I would much rather own many common stocks than bonds. And of course, that's, I think stocks compared to bonds, and you have to compare, they are the old limit. And we've talked about bond yields and, in fact, being gravity. And when they're very low, there's very little gravity to pull down stocks. And that condition, that exists today. You know, we'd so much rather own the business of America than get a 3% for 30 years from the government that and people were making those choices all the time in the investment world that stocks actually in many cases, they look like perfectly intelligent investments.
QuestionerCharlie, you agree with that?
CharlieSure.
QuestionerLet's talk about some of the IPOs that have been coming to market recently because there has been a bit of a fervor. Many of these IPOs have done very well, although not all of them. Lyft shares are under pressure. Uber comes to market this week. And Warren, you mentioned this weekend, and you've talked once again, And you talked once again about how you had looked at Uber about 18 months ago and passed on that. What do you think about Uber coming to market now?
WarrenWell, because I looked at it, I really don't want to discuss Uber. And I don't have any special feelings about it than any other coming to market.
[1:14:18]
WarrenBut I would say that in 54 years, well, I don't think Berkshire has ever bought a new issue. I mean, the idea of saying the best place in the world I can put my money. money is something where all the selling incentives are there, commissions are higher, you know, the animal spirits are rising, that that's going to be better than a thousand other things I can buy where there is no similar selling enthusiasm and the desire to get the deal done and extra commissions. That's the single best thing to buy a given day. I mean, it's, and I can't think of the time we've ever done it. Ever bought an IPO? Yeah. Never bought one. How can it be? They don't even call us. Yeah. But how can it be, the best single thing to use your money for in a given day is something that you've got everybody in the world out pushing it? It just doesn't make any sense. I mean, I'm not saying that necessarily what we're buying is going to work out better, but there have to always be better things than one single issue. If you make one decision on investing, if you can't find something among all the choices we see, that is better than something that, and like I say, you know, the commission's used, they've come down, I think, now on this, but I mean, the highest commission thing that a stock salesman could sell a security was the new issue. You know, so you have all this push by, we like to buy things where nobody's making a dime selling them to us.
CharlieCharlie, just specifically on some of these companies, and I won't talk about Uber versus any of the others, but a lot of these companies are coming very late in the cycle. massive private capital that's been put to work to this point, and they still have massive losses and the need for more capital. What's even worse than that? Some of them have preference for each round, and so the rounds aren't really fair rounds. There's a lot of lying in modern finance. So you're not in favor of any of these big... I don't like lying.
QuestionerWhat do you think of these? I ask this because we have a lot of retail investors who watch and who are looking at this and they feel the excitement behind it.
WarrenWell, you get any wonderful advice from us about. No, IBOs. Whenever you buy a stock, let's say you're buying General Motors, 1.4 billion stairs out, we'll say the stock's four years a little below that, you should be able to take out a one-page sheet of paper and say, I am buying the General Motors Company at $56 billion because.
[1:16:52]
WarrenAnd if you can't answer that question, if you can't write that out, then you'll go on to something else. And if you're buying Berkshire, you have to say, I am buying Berkshire Hathaway at $500 billion. billion dollars because, and if the answer isn't something you can write, you can't say I'm buying it because my neighbor thinks it's going to go up or because, you know, everybody's talking about it on CNBC this morning or whatever it may be. Or I'd like to write around an Uber. Yeah. No. You have, yeah, that's the question you answer. Now when you buy, you know, buy groceries, buy everything else, you can answer that question. But if you can't answer it on something that you're involving your savings of, you know, many years. for why in the world should you why should you be doing it
Questionerlet me ask you gentlemen about a topic that came up over the weekend at the annual shareholders meeting and that's shares of wells fargo and and just the company to this point i got a lot of questions that were sent to me by shareholders questioning why you all have been standing behind wells fargo without saying more about what went on there charlie what do you think
Charliewell i think it's a fine company and so they made one bad decision about an incentive plan i regarded as an honest mistake not as some deep moral failure nobody was being male level under my ranks of wells fargo they just had a blind spot they had a blind spot it was it didn't get cleared up very quickly though
Questionerthat's the problem
Charlieyeah yeah but you don't you don't they lost their jobs over a blind spot and uh but i don't think Tim Sloan had a blind spot i think he just lost his job because life is hard you thought dick kovosovic i don't like it you thought dick kovosovitch had a blind spot
Questioneryeah sure
Charlieand and and the following guy john stump yeah but you don't think there was any criminal activity
Questionerof course not
Charliewell the criminal activity was people below and that was forgivable they were under a crazy incentive system is the problem fixed now i think so i think of very up very very high percentage it would be it certainly the intent is to correct it
Warreni mean it's it's it's cost the shareholders you know a lot of money and and and uh they want to correct it when i went into solomon i wanted to correct it too i never could quite say it was over though people kept asking me it's over i don't know i wanted to be over and i hope it's over and i'm trying to make it over
[1:19:24]
Warrenand i'm looking for things but uh when you have 200 well they have 260 or so thousand people it's a scary job to be running a city of 260,000 people with no cops and we have something we have some things wrong at Berkshire now that i don't know about the Charlie beats this into me all the time that you know as soon as you find a mistake do something about it and and sometimes that's unpleasant but i've got to do it i mean it i may have people that are deputized to do it but it's my ultimate responsibility and you do do it too fast
Questioneryeah is wells fargo different because it's a shareholding and not an actual brookshire company that you own out right
Warrenwell of course we we don't have any control over yeah what they do
Questionerwho should be the new ceo charlie
Warrenwell if i've been picking it it would have been temp sloan but now they're going to get somebody sometimes a new person is better and sometimes worse about i think it's about half and half
Questioneryeah that's something yeah uh i met two weeks ago or thereabouts with four people and including betsy duke the chairman and and uh i've never talked before that was first time i met her in my life or talked to her and and but uh we talked about it and it's it's a tough position to fill what what did you tell you talked to the chairman chairwoman of wells vargo and told her that you think what about
Warrenno they they call me i didn't call them i mean i mean i uh so uh i didn't jump into it but they they just asked what i thought that's the first time they asked what i thought about and and i i gave him a suggestion or two and and what was your suggestion why did these people have names uh but i've suggested i well i suggested publicly that you know not be somebody from wall street not because there aren't plenty of good people in wall street i just think that that politicians are looking for the next one to beat up on and it's good television and it plays right into the campaign and and you need somebody running it that does not bear the extra baggage of of having a label on their forehead that says wall street which will cause half the viewers to cheer for whoever's doing the beating up of
Questionerlet's get back out to omaha i'm going to start working just get i'm going to give up really i mean i spin my wheels warren buffett says one thing and he gets a column anyway warren buffett Berks for vice chair, Charlie Munger, and another special guest as he arrived to. Becky, that's so exciting.
[1:22:10]
OtherHe has. Bill Gates is here and obviously you all know that he is the founder and the current technology advisor at Microsoft. He's also the co-founder and the founder and the founder and the co-chair of the Bill and Melinda Gates Foundation. And Gemma, I want to welcome all three of you this morning and really thank you for being here. You heard at the top all of this concern about China. This is spooking the markets a little bit today. Joe's right. It's a decline of under 2% for the Dow, but still down 460 points is a number that catches your attention. And when you look at China's markets, down 5.5% and down 7%. That is certainly something that is catching their attention today too. I can't think of three better people to talk about this this morning. Bill, you've spent so much time going back and forth with China. You know the Chinese leadership very well and can understand maybe what they're thinking on some of these things. Charlie, you've spent so much time getting excited about investing there. And Bill, you've invested there as well. Warren, same thing. All three of you have traveled there and spent this time. I just wonder what you're thinking about this morning as you hear these headlines. And Bill, you're the new one at the table today. So I'll ask you to start off with this. What are your thoughts on what you hear with this tweet and the potential for a real trade war?
QuestionerWell, I think good trade relations are incredible win-win for both countries. And it's dangerous. people think this is a zero-sum game. And so I'm hopeful that despite the latest announcement, there is a trade agreement and the two countries can find ways to work together. It's the most important relationship in the world. Both sides bring a lot of strengths. So it's, I understand why markets are a little bit worried that these tariffs are going to get higher higher. When we first got the tweet, there had been some initial reports that Li Hu and the delegation from China might not be coming here. That's what we were hearing last night. This is the first I've heard just a moment ago that the Chinese have confirmed that they will be sending that delegation this week. That in itself is good news. But how do the Chinese kind of deal with this when they're forced, when they're faced with real force, like I think that tweet yesterday was?
QuestionerWell, I'm not an expert on negotiation, but it creates a dynamic where both sides could start escalating against each other, which would be a lose for both sides. So, you know, this week will be, it'll be interesting.
[1:24:56]
QuestionerYou know, they, even though China's not a democracy, see that the political dynamics don't allow them to look like they're caving in to a unilateral position. Charlie, you are an expert in negotiation. What do you think?
CharlieWell, hardly, but, well, if you go back, we put a tariff on trucks to prevent the Japanese from totally squelching the whole American auto industry. And that lasted a long time. It wasn't the end of the world. So if we end up with some trade settlement that involves some tariffs on both. I don't get excited about it at all. I've ever heard as part of normal life. Generally speaking, I think a good settlement is better than a lovely world war. Some tariffs are one thing. 10%. We seem like our economy has gone along just fine, even with the 10% tariff that existed on those $200 billion to date, is 25% tariffs on potentially all 500 billion plus of the imports coming in.
QuestionerWould that concern you about the American economy?
CharlieWell, I don't think we want a full-scale tariff war that's just as high as both sides can make it. That would be massively stupid. And if both of them are a little disappointed with the negotiations and feel a little roughed up, that's what they should feel.
QuestionerWhat do you mean? They should feel roughed up?
CharlieWell, both sides, since a settlement is so much better than a war, trade war, for both sides, they ought to just get used to having a little loss of face. and make some kind of a settlement. And I think they will.
QuestionerWhat do you think about us taking a stance, us being America, taking a stance with China to this point?
CharlieWell, I don't think Trump is totally crazy to say that in some occasions you put a tariff on to save something on domestic industry.
QuestionerIs he right that we have been on the losing side of the deal for some time? There's a lot of Americans who do that?
CharlieWell, I think he thinks of it more as a loss that we've got a trade deficit. And I, I, I, I think, I don't think that's at all automatic. So I don't totally agree with him, but I agree with Trump and part.
QuestionerWarren, what do you think in terms of who pays the tariffs? I mean, it has boosted the U.S. Treasury, but a lot of those tariffs are being paid by the companies that import the goods and then passed on to consumers.
WarrenYeah, there are attacks on consumers. And, you know, as such, it changes what people buy. It changes where things are produced. I mean, it You can readjust the world through tariffs. And generally speaking, I mean, there's
[1:27:53]
Warrenobviously exceptions for key equipment, military equipment, but I generally think that a world that a world that adjusts to something very close to free trade, more people will live better. than in the world with significant tariffs and shifting tariffs over time. I mean, it was a subject of constant negotiation and that sort of thing. There's probably a less in war, too, if there's heavy trade on both sides.
QuestionerYeah. Not a trade war. You mean a real war, yes. Because.
WarrenBut you got to remember that our country, the United States, ran on tariffs for the first 150 years. That was all around we had. This is not like some novel new thing is coming in. This is an old subject. Is it a good thing or a bad thing? Well, of course, I'd rather have total goodwill and everybody getting along. But I don't think it's the end of the world. There's some little tension on the subject. There has been since the start of the country.
QuestionerBill just now said he's not surprised by the market's reaction. Warren said the same thing earlier this morning. What about you?
CharlieWell, what do I care about a brief temporary reaction over a over some upper over trade negotiations. Does that mean? There are all so many little rebels in space time to me. Look, if you look at Chinese stocks in one market down 5.5% and the other in the other in the Shenzan market down by over 7%. Our futures are down, but that's still a decline of less than 2% this morning. Does that mean it's more painful to China than to us? Well, I don't think China likes its market going down as a consequence of a trade uproar. I think the people are more like this. Settle a thing. because they had this uproar the day. Settling sounds like a great alternative, but it certainly does. There have been a lot of friction along the way. The biggest one may be just how do you enforce it? And the feeling, at least among many of the trade negotiators and the negotiators in the United States, that when we've cut deals with China in the past, they say things and then don't follow through on it. How do you make sure that if we have a deal, it's actually enforceable? I think China, by and large, is, is a pretty good place. It's certainly worked well for the Chinese. And I think it's desirable that it works well. We want China to prosper.
QuestionerYeah, we do. If you postulate a world where in the next 50 years, China, or for that matter, the United States, but feel like they're being abused and the word isn't being kept, and you ask for one thing and then you want to ask for one thing more?
[1:30:43]
QuestionerI mean, you're going to always have tension between the two countries. You'll always have disagreements, but you can't really turn it into something where it gets out of control, and things can't get out of control. But I guess I'm going back to try and figure out which side you think is right. Nobody wants to say that. Does anybody have a feeling that?
WarrenWell, they're both right to be as concerned as they are. And I predict they'll settle it.
QuestionerWould you all agree with that same prediction? Bill, what do you think?
OtherYou know, it's a dilemma. when it appears you're reacting to an ultimatum. You know, in the Chinese case, there's no elections scheduled. So their leader won't be unelected simply because they've had to take a tough stance on trade negotiations. You know, markets up until recently were assuming this deal would get closed. So that's a little bit why you see the delta, the rational thing would be for a deal to get closed. And I, you know, I'd still rate that as likely.
WarrenI agree with Bill. Deadlines are tricky things, though. I mean, they produce reactions in people, and they can, particularly if you're responding to public opinion, they can inflame people and then they start reaction. and get their own. They're tricky things. On the other hand, sometimes it's the best way to get things done. A good sign, though, maybe that they just said that the Chinese delegation will continue to come, because I had real questions about that, or doubts about that myself, after seeing that yesterday. You want to conduct a negotiation so it doesn't look like the other guy has to cave or something. Right. The ideal thing is to make a hear a lot of them and still get the deal you want.
QuestionerOver the weekend at the annual meeting, you two had an aside on stage that a lot of people kind of picked up on. picked up on. You didn't follow up on it, so I thought we could do that here. You were talking about Dairy Queen and how your presence in China is not large, but you do have a presence in China.
WarrenYeah, we're all over China. For Dairy Queen, it is a very large presence, but not for Berkshire Hathaway. No. But you made the comment, Warren, that you would have been a much larger presence had a big deal gone through. You made it in as a side to Charlie, but it was over the mics. Well, we looked at, it didn't have anything to do with Dairy Queen. No, no, no. I figure not. We are not turning Jerry Queen into some global giant.
[1:33:33]
WarrenYeah. Yeah, we've looked at good-sized things in China. You know, we've done a couple things in China. And Charlie's done more individually, and it's logical. I mean, with the kind of capital we have, the big markets outside the United States are going to be the place where you're most likely to do something. and certainly China's going to be the biggest market and outside the United States. And there should be opportunities there. And I think we are someone at Berkshire, I think that if they're looking for capital around the world, we're a very logical prospect.
QuestionerWhy did that deal not work out? Was it because of the trade tensions?
WarrenI can't go into any details on that. I thought I'd try. You'll be the first to know.
QuestionerIn terms of what you do with your businesses, do these trade talks have any impact on you, on your investments, even your own personal ones, because you all have a large individual portfolio that you do. And Charlie, I know you focus a lot...
OtherSome are larger than others.
QuestionerWell, Charlie, I know you've focused a lot on China. Does this diminish your enthusiasm for Chinese investments in any way?
WarrenNo. No, it doesn't really... If we got a call today from some business we understood and liked from China, and they were looking for a lot of... It was big. You know, we would be delighted to get that call. And we would follow through and we'd say whether something happened. But that would be very interesting to us.
QuestionerBill, how about you?
OtherWell, certainly, you know, there is in parallel with the... trade talks talks about what the technology export regime will look like in terms of things like artificial intelligence.
WarrenRight.
OtherAnd so I have some concerns about whether that will try and partition, you know, Chinese students from American students. The general sentiment towards China right now has gone down a bit. And so there are... There are businesses or business deals that have to go through a new process and they're talking about even making that tighter.
QuestionerCFAS or beyond?
OtherSo, you know, I'm worried about even the sort of intellectual cooperation being slowed down. We'll see where that goes, but it's a concern.
WarrenIf they take our intellectual property, a dairy queen, though, we can handle it.
QuestionerGentlemen, we're going to take a break right now. But when we come back, I thought we could dig into a little bit of what Joe and Andrew had been talking about before. Just the idea of capitalism.
[1:36:48]
OtherIt does seem to be under attack in some quarters these days. But maybe we can get into that a little bit deeper when we return. Welcome back to a special edition of Squawk Box. We are live in Omaha, Nebraska, with Warren Buffett, who is Berkshire Hathaway's chairman and CEO. Bill Gates, who's the co. who's the co-founder of Microsoft and co-chair of the Bill and Melinda Gates Foundation, and Charlie Munger, who is Berkshire's vice chairman. And gentlemen, we've talked an awful lot on our air recently about socialism versus capitalism, defending capitalism, all of the different political pressures that are kind of being brought as we get into another election year. And I thought maybe we could talk about that this morning, too. Over the weekend, several questions came up about defending capitalism. And Warren, you did step out and say that you, you're a card-carrying member, a card-carrying capitalist in front of everyone. What do you think about the attacks that we've seen to this point on capitalism?
WarrenWell, I think, I don't think people exactly even know what they're talking about. It isn't a capitalism. It's perfect. But if you look at what was here in 1776 and look at what is here now, this country is an incredible job in terms of the deployment of resources and human ingenuity. a product of a system. Now, does that mean that every decision should be made simply by open market determinants? There's a need for regulation, obviously, and there are things that have long-term costs and might not get built in. But the idea of people unleashing their potential, using the resources they have to create what we have now from what was here, 140 some years ago, it's absolutely a miracle. And all three of us have seen during our lifetime. And if you compare that with any centralized planned economy, I think we win hands down. And I think we've just started with what capitalism can produce in the United States. But I do think it, obviously, it needs certain rules and regulations.
OtherBill, you did an interview in Davos with someone and I, you made a pretty innocuous statement that you looked around and you thought capitalism was the best system and you got attacked online from all these people who came up with these crazy statements about how could you say things like that. I mean, what do you think about the climate when you see things like that?
OtherWell, some people think when you defend capitalism, you're defending the tax rates we have
[1:39:31]
Charlietoday and saying that higher absolute tax rates or more progressive tax rates that you disagree with them. And I don't think Warren and I are disagreeing that you could make the taxes more progressive. In fact, we've been very explicit in some areas like the estate tax and saying we think that would be a good thing. Socialism... You got your wish. It came back. Socialism used to mean that the state controlled the means of production. And a lot of people who are promoting socialism actually aren't using that classic definition. So what we're going to have is capitalism with some level of taxation. Most people really aren't arguing against capitalism. There may be a few, but most people are just saying that the taxes should change. Although you do have someone who has. I think is pulling the second highest in the Democratic Party right now, who was a socialist until very recently, Bernie Sanders. Well, whether or not he was a socialist by the full term of that, now there is some money areas. When you start to say there shouldn't be any billionaires that you have some cap on wealth or something like that, that goes beyond what I think, and you could say I'm self-interested. Well, we will exempt the present ones of. But government needs to reallocate some resources. I mean, the extreme case would be in World War, too. I mean, that's the closest we've come to socialism. You had an Office of Price administration. You had a war production board. But during peace time, you're always prepared for war, and you do that through government. Government needs to reallocate some resources. But the market system, which exists under capitalism, is an extraordinarily effective way and has proven of using resources, human and other kinds, to produce incredible goods. And Henry Ford could learn, devise a system that could turn out a couple million cars a year, but he could only use it. half a dozen himself, or his whole family could use 50. I mean, he had to turn out of a couple million cars that other people got to use. And that would not have, in my view, I think if you'd set up a government bureau in 1850 and given him a hundred years of a car, not so sure, you'd have ever come up with anything like the assembly lines of Ford and all of the things that have happened. Human ingenuity is incredible, and you want something that maximizes its use, its use and then curbs a few of the ideas that some of those people may have to sort of have it for all for themselves.
[1:42:43]
QuestionerCharlie, you've made the same point. The great proof of how capitalism works is China, when China copied Singapore and let the farmers own their own plots and let the manufacturers own businesses and so forth, China's productivity increased many times and they went from rural poverty to to modern and extreme wealth. And they did it by adopting a fair amount of capitalism. Now, if a Democratic politician doesn't understand that, he's nuts. You've made the same point, though, Charlie, that you think private sector does it much better than the government sector. However, a lot of these people who are running also want to make government much bigger. Do you have a quarrel with that or now?
CharlieWell, as they say, if you love your post office, you're going to love socialize medicine. And they don't necessarily want to make it. They don't necessarily want to make it bigger in terms of redistributing. They may want to, the market system is brutal. And it leaves behind people who are perfectly wonderful people who don't have market-related talents. Who are just unlucky?
QuestionerYeah, just plain unlucky. And in a rich society, believe me, if we have a war or something like that, we call on those people and, you know, pay them practically nothing to go fight for us. And, you know, we want... We want goods flowing, but it's going to displace the textile worker that we used to have and so on. So the function of government is not just going to get bigger. It may be in an important way to take care of people who, for one reason or another, get left behind in a market system that you also regard it as essentially this huge source of wealth and goods and services. So how do you fix the problems, or at least the perception of problems, which there's a huge perception out there in the American voting right now.
CharlieObviously, it would help if our government were wiser. And it would be wiser if the two sides didn't hate each other so much. Anger drives out reason. And there is absolute cold fury between politicians on one side and politicians on the other. It's quite counterproductive. For that reason, I don't allow myself to get angry at politicians.
QuestionerHow would you fix it?
CharlieWell, I just don't let myself get that angry.
Warrenthat angry politicians, I don't expect them to be perfect. Berger's worked better because Charlie and I've never been mad at each other.
CharlieYeah. It just does. I mean, way better. If we got mad at each other, I'd, you know, I'd try and kill his deals.
[1:45:16]
WarrenHe'd try to kill my deals. It just doesn't work that way. We don't need a couple of alpha males blustering at one another or this stuff. They ought to just cool it and take a little reputational hit and get the feathers right down. We ought to worry about the people. We ought to worry about the people that don't fit into the system. We want the system, and a lot of people are getting left further and further behind, because as capitalism gets more advanced, it gets more specialized, and there actually is greater difference between the haves and the haves-nots. And the haves can take care of the hapnots. Interesting is both parties and basically agree on that. They just... Yes, how you get there, that gets complicated. Income tax credit can make a huge... make a huge jump in that direction. I mean, Social Security, we've done various things. Over the years, we have improved. We've improved the public school systems. We've improved things that do give people more of an equal chance and take care of people who fall by the wayside. We just got to keep doing it. Bill, you've spent a lot of time on education in this country, trying to figure out how to fix it and how to make things work. What's the answer? If that's one of the problems that we're not getting people people, the advantages they need before they get into that system. How do we fix that aspect of it?
OtherYeah, I think better education is so key to the United States living up to the dream of equal opportunity. And particularly as more and more of our students are in the inner city, coming from low-income households. We really have to take the best teachers, understand what they do, and spread that further. That is the best path to a stronger form of equality. The progress has been pretty modest, but there's a lot of, you know, smart people. It's not just technology. It's helping the teachers, finding out the ones who are doing things super well and spreading that around. Even the college system, we still have very high dropout levels. And the way you catch kids early when they get off track, some use of online. I'm hopeful in the education area, although progress has been slow. Surprisingly slow? Yes. When we compare the improvements in global health, which is the other big area for the Gates Foundation, to the improvement education, education's proven to be tough. be tougher to make big gains over the last decade.
[1:48:06]
QuestionerWas that what you expected when you got started?
OtherNo, it's actually the opposite. Because global health involved going out to poor countries whose governments are really weak and there's not even stability, there's some corruption. We thought that would be the slow area to work in. But very important. That we've been surprised by how much progress there have been in the overall statistics, like cutting child to death in half. In education, although there's some points of light, some great schools, some are charter schools, some are using new curriculum. The overall figures, US math scores, dropout rates, have moved only slightly.
QuestionerCharlie, just getting back to your idea of people not hating each other so much and getting along, getting along. How do we make that happen? How do you try and push towards that? Because it seems like things have got to work for us.
CharlieWell, I think you have to do it one relationship at a time. And of course, I think it would help if both parties did not commit suicide in the primaries. If we get these extremists on both sides and they take over each party, it's just awful. The California legislature has two kinds of people, right as nutcakes and leftist nutcakes. They've kicked everybody else out.
Questionerelse out. This is not a good system. Why did it wind up like that particularly in California? Hatred. Lots of hatred. Is it redistricting? I mean, how would you...
CharlieThere was a redistricting as part of it, but mostly it's just a wonderful product of hatred.
QuestionerAre you hopeful when you look at some of the campaign slogans or campaign thoughts that you hear in the early days of 2020 campaigns?
CharlieWell, I'm not hopeful over the short term. I have the feeling that over the long term there has been progress. has been progress, and I don't think it's over.
QuestionerAll right, gentlemen, thank you for this portion of the conversation. We're going to continue with much more when we come back. And we are joined this morning by Warren Buffett, the chairman and CEO of Berkshire Hathaway, Bill Gates, who's the co-founder of Microsoft and the co-chair of the Bill and Melinda Gates Foundation, and Charlie Munger, who is Berkshire's vice chairman. And gentlemen, just taking a look at what we've been watching with the markets today. Obviously, things are under a little bit of pressure today, but we have been looking at much higher markets if you go back to the Christmas Eve low and the concern about what
[1:50:34]
Questionerwould the Fed might or might not be doing. Since that time, the Fed has sounded much more dovish. And I just wonder if you could talk a little bit about your own take on the markets. And Bill, again, I've spoken with Warren and Charlie earlier about this a little bit. So how about your take? When you hear that the Federal Reserve is probably not going to be raising interest rates anytime soon, how does that change your outlook on equities or equities versus treasuries?
OtherWell, the interest rate is like gravity and all these valuations are dramatically affected by it. At the start of the year, people didn't think the 10-year bond would be where it is today, and that's provided a lot of lift. So it was a big first quarter for U.S. equities. We still, if you look forward, are at these very high valuation levels. And so it's hard to see that the market will be gaining a lot over the next few years. I think people should have fairly modest expectations on what their portfolios will make in the years in front of us.
QuestionerHave you changed your positions in your own portfolio as a result of this? Have you done any major?
OtherNo, it's a very equity-oriented portfolio. It's overweight in the U.S. even though it's got a lot of overseas exposure. You know, it's a bullish portfolio that the American economy over time will do well. You know, fortunately, even if we have a few years here where markets aren't are doing that well, you know, we've been lucky we have a cushion. and the foundation continue to spend generously. But I'm amazed at how high the valuations are if you look broadly.
QuestionerCharlie, do you think that?
CharlieWell, sure. I think that if you drive interest rates down to zero and all the countries print money like crazy, it's lifted the asset vote for everybody. And I think it really is, they didn't have anything else to do in the country. Great Recession and so they took the only weapon they had and used it aggressively. I don't think we should quarrel with that. It did cause the people who were already rich to get richer. And that wasn't done on purpose or anything like that. And I think that will correct automatically.
QuestionerDo you think we should still be using that weapon aggressively, which is what President Trump would like to see happen? He wants them to cut interest rates again. I think he said by 1% and also push up quantitative easy.
Charlieonce again. I am so afraid of a democracy getting the idea that you can just print money to solve all problems.
[1:53:40]
OtherAnd eventually, I know that will fail. Singapore, which has a marvelous economy, has zero debt. If I were running the world, I would like the United States to be in that position. That is not the typical. That's nobody's position. All these politicians in Europe and America have learned to print money. And if we keep at these extraordinary measures for the Fed, I guess not just the Fed here, but central banks around the globe. Yes, but who knows when money printing runs out of control. And at the end, if you print too much, you end up in something like Venezuela. You're not suggesting that happens any sense. No, but I don't like the idea. And both parties that you had politicians say, what we've learned is we can print all the money you want. Right. We don't have to raise taxes, we just print.
QuestionerWarren, you share those concerns?
WarrenYeah, I probably could not have conceived of a world. As recently as 10 years ago, I would not have conceived of a world where you would have full employment, five percent budget deficits, with actually the probability of those rising from that level. that level and at the same time have the long bond of 3 percent. I would have said that that couldn't happen. And then people now, you have this modern monetary theory, which there's no question you should borrow, any country should borrow money in its own currency. I mean, that is not like it's some great discovery or something's been announced. Nobody can be overdone. Yeah, and that's the point. I mean, that hasn't solved anything just to solve anything. say it's much safer to borrow your own currency. But the convergence of these factors would have seemed impossible to me. And generally, if I feel something as impossible, it's going to change over time. I don't know in what way, but I don't think we can continue to have these variables in this relationship. Now, if we can, then stocks are ridiculously cheap.
QuestionerThe one thing I will say, though, is this is a conversation I feel like we've had for at least four or five years. Right. Where you're watching and continuing to wait for these interest rates, the yields to rise. We're still sitting at 2.5% on the 10-year, which is shocked. And we're sitting with very, very little inflation with the Federal Reserve that put a target for 2% on it not that long ago. And it looks like Nirvana, it looks like we found the promised land where we just, essentially money doesn't cost anything.
[1:56:42]
WarrenAnd you can print lots of money and have full employment and no inflation. And I would have thought that something would have happened before now. I don't know what would have happened. But I didn't, I wouldn't think you could have these things at these levels, the long-term rates, inflation rates, budget deficits, and have that be a stable situation for a long period of time. And I still believe that, but so far I'm wrong. So in the meantime, you haven't really changed how you... I think stocks are ridiculously cheap compared if you believe that you're going to have the 3% interest, 30-year bonds make sense. That's a big if, though. That's what makes going to work interesting. Well, this 3-7 is comfortable if everything goes down by 90%. So we're not a fair cross-section. I'm sorry, Charlie, what was that?
CharlieI say this threesome is comfortable. If everybody, if everything goes down by 90% It doesn't really hurt us. Equity is no the rest.
WarrenYeah, but we wouldn't want that kind of a world happening to everybody else. Right.
QuestionerCan we talk a little bit about health care? Because you all have spent plenty of time focusing on health care in the United States and abroad. Bill, you're probably probably. the foremost authority on global health care. Your foundation has spent billions and billions of dollars on it. I think more than $13 billion just from inception through 2017 on global health care initiatives. What's the progress? You touched on it a little bit earlier, that you've seen more progress here than in the education front in the United States. How has that kind of shown up?
OtherWell, it's phenomenal that by taking the new vaccine new vaccines and getting them out to more kids and a few other tools like malaria bed nets that we've gone from over 10 million children dying every year to now less than 5 million. Now, 5 million is still a lot. We need a few more tools, but actually the pipeline of innovation looks very good. So, you know, this is a phenomenally positive story. positive story that those deaths are weighed down and that that'll continue. What's the thing that brings you the most hope or gives you the most hope about advancements that you've made or research that you've found? Well, one that we're working on is to reduce malnutrition because if a kid is growing well, their ability not only to avoid these diseases like diarrhea, killing them, but also the degree to which they'll develop their full mental and physical capacities and therefore contribute for their own life, for their country's well-being.
[1:59:49]
OtherDramatic reduction in malnutrition would be a huge thing. And we're now gaining understanding that we think that that will be possible. It's been a long scientific journey having to do with the gut and inflammation and the microbiome. and the microbiome, but now we see that we'll get more of those kids on their growth path. And so I'm super excited about that. But malnutrition is not just them not having the food to eat, even in cases where they do have the food to eat, there's a problem.
OtherThat's right. What happens is that because their diet doesn't have much protein in it, their gut, their intestines get into an inflamed state. inflamed state and that means you get a set of bacteria in there that don't let them absorb nutrition. And so that's a downward path. And you can see even two twins, one will get that and not be growing and the other one will achieve normal growth. And so an intervention that stops the inflammation, shifts the microbiome to a more healthy mix. that would get rid of malnutrition for that child. So what is a really cheap intervention where you can see the problem and stop it?
OtherWith probiotics or something? Yes, that's the kind of thing. Although those tend to be broad spectrum. Here we're going to be to make it, scale it up and have it be a cheap, probably a pill. it'll probably be a couple of vitamins and drugs. Does that translate to things that could be useful here in the United States and other definitions? Well, the basic understanding of your gut and will finally lead us to understand not just malnutrition, but overnutrition. Why is it so hard to control people's hunger over time? Over time, people have tried to have pills to control hunger. I'd say over the next decade that will finally succeed. So even though that's not the foundation side, we're focused on malnutrition. The science of the gut and the microbiome has a lot of companies working on things that will reduce over nutrition.
QuestionerWarren, back here in the United States, one of the big problems is trying to figure out how to pay for health care and stop some of the costs. some of the costs. That's a problem you've been focused on at Berkshire along with J.P. Morgan and Amazon. What have you found? We haven't gotten any updates recently other than the name of this new organization is going to be Haven. Where are you on that process?
WarrenWe are taking the first step on what is bound to be a very long journey.
[2:02:48]
Greg AbelI mean, I would say it's not more difficult than I expected, but I expected to be ungodly difficult. And you have an industry which you have a industry which basically is about the same size as the U.S. government's receipts. And everybody always says every dollar in the budget, you know, has a constituency and every dollar in an industry expenditure has a constituency. And we've got the right person, we've got the right partners. Capital isn't a key part to it, but we've got people willing to spend the money. But we'll spend whatever money it takes if we're money. making progress. And it is going to be a long, tough pull to make major journey to make major changes. And it has no guarantee of success at all, but there's nobody, I think, that's in a better position in terms of the number of employees and the ability of the people that are partnering to get along and all kinds of things. To perhaps, perhaps, come up with something that makes the system more efficient and we'll try, but it's nothing will happen quicker. So there's no revolutionary move or anything of the sort. And there will be lots of opposition to any change. In interviewing people to run the place, we interview people in all aspects of the medical profession and activity. And they all agree 100 percent, you know, this system needs change, but of course, not my part. And that's very understandable. We expect that. And we'll find out what happens. But I know this. I would rather have the private sector come up with a solution than throw it all the government. And if the private sector doesn't come up with some solution to the increase and cost, quality is, you know, in many ways, it's unbelievable. You're just hearing Bill talk about. the advances that can be made. But it costs 5% of GDP in my lifetime or even in my adulthood, up to 18%. The federal budget has stayed kind of constant around 17%. Everybody thinks it's out of control and all these terrible things. And here are federal receipts, I should say. Now this has gone from 5 to 18 and nobody really thinks it's going to stop. Charlie, you've been, go ahead. You've been at Good Samaritan, the chairman there, for how many years?
CharlieFor 40 years. If you take Singapore, which tends to have an intelligent government and do things right, they spend about 20% of what we spend on health care, and they're healthier. And there are all kinds of abuse and counterproductive activity.
[2:05:54]
OtherThey don't have in Singapore that we do have. And Warren is right. We're going to have a hell of a time getting into Singapore's direction because human beings are profiting over the existing system. It may look like an unnecessary operation to me. In fact, it does, but to them it looks like God's work. Where would you suggest, after your years of Good Samaritan, where would you say focus here first? I think we, this system is out of control. The deductibles in ordinary corporate health insurance are ridiculous. insurance are ridiculous. If you're a poor family and you get a $5,000 bill for a baby, that you don't have medical insurance. They just change the system. And then if you take the utterly unnecessary treatment where people find a way to tap into these governments streams of money and do a lot of unnecessary work like prolonging and inevitable death and all kinds of ghastly things they do. It's, it's... I would say we have a pretty disgusting system. On the other hand, it's the best in the world in terms of its ultimate scientific capacity. But if you take all the unnecessary operations and all the unnecessary procedures and all the rackets in the thing, which Singapore is pretty well taken out, it's discouraging. As I look at Singapore, I look at the United States, how in the hell do we get from where we are to there? And if you ask me what's going to happen, I think we're going to fail to get to a... to an intelligent system. Well, on that cherry note, we are just about out of time. If I can ask you, gentlemen, we have about a minute left. If I can just ask you what you're reading, because that's something we hear back from our viewers often. Warren, what are you reading right now?
WarrenI've just finished reading very recently, and I read it one sitting that captivated me so much. A book by Melinda Gates, which just came out very recently. It's a bestseller. The moment of the list. It is a terrific. terrific. It's a story, but it's learned much about the world that you should know. And I would say most people don't know. I mean, this is a story of her experiences, it's absolutely sensational.
OtherWarren took all your time. Bill, I guess you're not upset about that. I love the book. Gentlemen, I want to thank all three of you very much for being with us. We truly appreciate it. We truly appreciate your time. Warren Buffett, Charlie Munger, Bill Gates.