OtherMr. Buffett, I presume, may I call you Warren? I mean, you and me, I love together, oh, Warren. Warren, you are my dest. He's a man of simple tastes. Okay, there's the 58. Okay, you have a nice thing, come again. Not always comfortable with the finer things in life. He met a lobster for the first time in his life, and he was attacking the back of the lobster, which, of course, was totally resistant. And I said, Warren, if you turned it over, you might have better luck. But don't be fooled by the modest office. There's a $30 billion investment empire behind that door. If you'd bought the S&P 500 in World War II, you'd made 54 times your money. I mean, the stock market's been a good place to beat. Warren has beat the hell out of the stock market. And for each brave soul who entrusted the young investor with 10 grand back in the 1950s, each has become a millionaire many times over. God comes first. My wife comes second and Buffett comes third. And really, I'm not too sure about the second and third place. So when he talks, there's a lot of action and people are day trading and that sort of people listen. One piece of advice I'd give him is don't do it on borrowed money. People decide if they have a good idea, they have to buy it by sundown. You want Buffett to from months and months years and years. If the stock exchange close for a year or two, for a real investor, it wouldn't make any difference. Not more bucks. That's gay. Tonight, Warren Buffett, the down-home common-sense advice of America's second richest man. Warren Buffett almost never does interviews, and he's been dodging this one for about six years, which is how long it's been since he promised me that one day, he would come on nightline. Having finally agreed, though, he has pulled out all the stops, said we could come to Omaha in late February, and that he'd buy us all lunch at his favorite restaurant. Warren likes the Dairy Queen so much he bought the company. Warren Buffett holds what is whimsically referred to as a major position in a lot of companies. Coca-Cola, Gillette, Geico, to name just a few. In fact, it's only fair that you know. I know Warren and I own stock in one another's companies. My wife and I bought a few shares of Berkshire Hathaway about 12 years ago, and Warren owns a few million shares of the Disney Corporation, which of course owns ABC. I'll try not to let that get in my way. Warren Buffett can speak for
[3:09]
Questionerhimself. I always have a feeling that one of these days, the mask is going to be ripped away. We're going to find out that you have a villa in Nice and, you know, that you drive hot sports cars around Southern California. What is it, I mean, what is this dairy queen, Omaha, Nebraska, living in the same home you've lived in for 40 years? Why?
WarrenIt's what I enjoy. You know, I like just the way I lived 30 years ago. When I live that way now, the only difference is I have a plane I can travel around and privately. But in terms of what I eat, clothes I wear, I may pay more for the clothes, but they look cheap after I put them on. And the books I read, the television I watch, whatever it may be, the bridge I play, it's what I want to do in life. That's your passion, bridge. Yeah, I love bridge. I love bridge. But what can money buy them? If I had five cars, would have a better time than having one car? I'm going to just have more possessions to keep track of. So it doesn't appeal to me. But you understand that is, that's an illusion that a lot of people chase all their lives, especially in this country. I mean, this notion that money can buy things for them that otherwise they couldn't have. You know, the big thing you want to do is you want to enjoy every day. So you want to have a job you love, and you want to work with people that you like and admire and trust. And if you've got that, you're a long way home. I am getting to do exactly what I love to do every single day.
QuestionerWhich is what? Which is what? Well, it's just, it's... What do you do? It's...
WarrenWell, not much. I allocate capital and I keep a bunch of very talented people who don't have to work, excited about working if I can. I mean, my job is to take these outstanding managers that usually come with the businesses we buy, where they get all kinds of money from me, and keep them as excited about working subsequently as they were before they sold. Let me take you back to that phrase, allocate... Yeah. Yeah, allocate capital or money. Yeah, sure. Pretend for a moment that I'm a nine-year-old. Relatively bright one, but not terribly bright. What does that mean? It means that we've got a bunch of businesses around the country, and they earn money, and when they earn the money, after they take care of the needs of their businesses, they send it to Omaha. And it's my job to take the money they earn and do the most intelligent thing that I can
[5:40]
Questionerfor our shareholders after they send me the money. But I mean, Berkshire Hathaway, what... I mean, for the longest time, I thought you made shirts. thought you made shirts.
WarrenYeah, well, we don't. That has nothing to do with a... No, nothing to do with a shirt. No, never... Never had it. So what is Berkshire Hathaway? It's a company that owns a wide variety of businesses from a candy operation, insurance operations, to a newspaper. But then we have pieces of things like Gillette, Coca-Cola, the Washington Post. And what we try to do is we try to be in businesses that have very good economics that are run by people that are honest and talented.
QuestionerYou have... You have said many times that you don't get into a business in order to get out of it again. I mean, you come to state.
WarrenYeah, so Beth do us part. Right.
QuestionerWhy?
WarrenWell, it just fits my personality, for one thing. But I mean, businesses have ups and downs. Well, I'll accept that. But I'm looking for businesses that have a whole lot more ups than downs and the ups are higher than the downs are low. But I enjoy. I don't want to be in business like playing a gin rumby game. Every time I pick up a card, I gotta give up one in my hand. For example, we're sitting here in a dairy queen for a reason.
QuestionerYeah. A, you claim to like Dairy Queen lunches.
WarrenYeah, I do. For a long time. And B, you own this place?
QuestionerWe own the company that franchises this place, right?
WarrenExactly. Why'd you buy it?
QuestionerWell, we bought it. I mean, what was it that went through your head?
WarrenWell, it was, A, it was a business I could understand. Now, there's all kinds of businesses I can't understand. And I try not to buy into those because if I, why should I expect to make money in something I can't understand? So I'm not in any high-tech businesses, for example. But I understand that, you know, an ultimate hamburger or, you know, a peanut buster or a deli bar, and I can, I can handle that. And I like the people that run it. I like the economics of the business. It's a good business. You've got thousands of people that are paying you a royalty for your name of Dairy Queen, and the business grows a little every year. It generates cash. The cash gets sent to Omaha, and then we go out and buy other businesses with that. I mean, just to give me a sense of what goes through your head. It could have done. been Berger King rather than Dairy Queen. It could have been McDonald's.
[7:50]
WarrenYeah, and both of those are very good businesses that you've just named. They're not for sale. And we owned a piece of McDonald's for a while. It's a good business. But Dairy Queen was available. The price made sense in terms of what we were getting, and I like the fellow running it. So we wrote a check.
QuestionerThat's important to you. In other words, you would not buy a company if you didn't respect, maybe even respect, maybe even respect, like the people who run it.
WarrenYeah, I don't go into change management. If you go in business with somebody causes your stomach to churn, you know, I say that's a lot like marrying for money. It's probably not a very good idea under any circumstances, but it's absolutely crazy if you're already rich, right? And so I'm not going to do it. I mean, if I can add 1% or 5% to my net worth by being around people, you know, who make me want to throw up, I'm not interested.
QuestionerYou do something with your stock that is absolutely unique and you know where I'm going. I mean, you know, yours is the only stock on the market that is, I don't know what it's worth today, but $70-something,000 a share at the moment. Why didn't you ever split it?
WarrenWell, if you run a public company, like Burtshire is, anybody can buy the stock. But by following certain policies and communicating in certain ways, you can in effect filter out to some degree the people that have similar ideas and expectations and measurements who will then enter the the theater in effect. So if you have a theater and you put ballet and then you have a rock concert inside, you're going to have some very disappointed people. If you put rock concert and then you have a ballet, you're going to have disappointed people. You want to have an enterprise that attracts the people to fill the seats, the shares, fills the seats that are in sync with you. And not splitting the stock means to some extent I filter out people who think that a stock stock split is a wonderful thing. It doesn't have anything to do with the value of the business by having a pizza that's cut into eight pieces instead of four pieces. I mean, eat the whole thing. Same size, same size pizza.
QuestionerAbsolutely. Getting two hat checks in a restaurant. But you understand what the theory behind splits is and people think that, okay, if you take a $100 stock and you split two for one, more people are out there who can afford a $50 stock perhaps than who can afford $100 stock. And what you're telling
[10:08]
Warrenme is, I don't want those people. Why not? Well, we've got a stock you can buy for the B stock for $2,400. So one share of that cost $2,400. A lot of businesses have minimum investments that are $2,400 or more. I mean, in terms of real estate partnerships or mutual funds. I mean, I've never told anybody to buy Burture stock. And if I were to give advice to somebody about how to have a marriage that would last and they could only seek one quality in their spouse, if only you're interested in is having the marriage last, would you look for humor, intelligence, looks, whatever? What you really want in your partner low expectations. And that marriage will last. I can't say anything else. And I would rather have people who are pleasantly surprised in Berkshire Hathaway anytime that people are disappointed.
QuestionerLet's take a short break, and then when we come back, what I'd like to do is talk to you about investment in the market as it exists today compared to the kind of thing that you do. Those are very different.
OtherBack with Warren Buffett in a moment. He knows some companies very well, and that's the ones he's trying to concentrate. And he's waiting for them to be attractive. When they're overpriced, he says, I'll wait a little while, and maybe something will happen internally or externally. As the whole market go down or inside the company, then he jumps in. He's sort of like a dove flying over the battlefield with a big check. He's waiting for something to happen. And back once again with Warren Buffett.
QuestionerIt seems to me that you are the very opposite of the typical Internet investor today. I mean, I see, I have sort of images of these kids hunched over their computers, buying one minute, selling the next minute. That's not you.
WarrenI don't have a computer at the office for me. I mean, there's for other people there, but not me.
QuestionerYou don't use it.
WarrenI don't have a computer. I use it at home to play bridge, but I don't use it in the office.
QuestionerBecause?
WarrenThere's of no utility. I mean, all I'm trying to do is buy a piece of a business in an attractive price, and the computer doesn't tell me how to do that.
QuestionerAre you a little bit nervous when you, I mean, I understand you're a very tolerant person who probably is willing to let anybody do what they want to do, but as you look at what's happening to Wall Street today. The incredible, I mean, companies that go up 100, 200% over a week
[12:36]
Questioneror two and then maybe drop 50% over it. Does that make you nervous?
WarrenWell, it's always, it's more exaggerated now than most of the time in the past, but we've had a lot of speculative activity and all kinds of things over the years in markets, and it frequently doesn't come to a good end, but it'll be with us 100 years from now, just as it was. with us a hundred years ago.
QuestionerWell, there's just a lot faster. It's, it's, it's, it's, there's a lot of action and, and people are day trading and that sort of thing.
WarrenYou know, I, the one piece of advice I'd give them is don't do it on borrowed money. But many of them are.
QuestionerI know. I mean, they're buying on margin.
WarrenYeah. Some of them will come to a bad end on that.
QuestionerBecause?
WarrenWell, because things don't go up forever, and a lot of the, a lot of the valuations strike me as extreme. And if you own them on borrowed money and they go down one day, you know, you don't get to play out your hand. out your hand.
QuestionerTalk for a moment about your own philosophy compared to what you see going on right now. Because again, your philosophy is, as you once described it to me, you called yourself an elephant hunter. I sit there in the tall grass and I wait there with my elephant gun until I see an elephant come along. And then I shoot it. But you may, I mean, what you really mean is that you'll sit there and you'll study a company over a period of months or even years until you're finally convinced that that's the right company. company for you. That is about as far from the way that a lot of trading goes on today as anything can be.
WarrenYeah, the key, if there's one key to what I do, it's I look at every share of stock as being a part of a business. So if I'm going to buy 100 shares of General Motors or General Electric or whatever it may be, I try and look at what the whole business is selling for, and then do I want to buy this tiny little piece of that business of that price. That means I think about the business. I don't think about the price action of the stock or I don't think about what people are saying they're going to earn next quarter or anything of the sort or look at charts. I just try and look at the business. Now, what does that mean? It means I have to understand the business. A lot of businesses I can understand. I can understand Gillette. I can understand Coca-Cola. I can understand Wigley's chewing gum. I mean, those are things that I can understand. And I kind of,
[14:44]
Warrenwhen I say I can understand it, it means I have a pretty good idea of what they're going to look like 10 or 15 years from now. That's understanding of business. Counting on the growth, then, of the businesses that you bought.
QuestionerYeah, that's all.
WarrenYeah. I mean, that we own Seas Candy, for example. I haven't had a quote on Seas Candy since we bought it in 1972, but I know the business is doing okay. I don't need a quote on it. And, you know, people manage to live through Saturday and Sunday without getting quotes on their stocks. The stock exchange quotes for a year or two, for a real investor, it wouldn't make any difference. I sometimes have the feeling as I look at the stock market today and investment as it is carried out today by so many millions upon millions of people. But to some degree, we're engaged in a bit of a pyramid scheme. That, you know, as long as everybody keeps putting money into the market, it's going to do well, but one of these days somebody may say, whoa, bad idea.
QuestionerAm I being silly about that?
WarrenNo, we had a town and there were 100 people, and we all had 100 houses. We all agreed to sell our house to each other. At the end of each year, up 20 percent, we kept doing that. We'd all feel very prosperous, and the problem would be is when somebody left town. And then we'd have 100 houses for sale, and one extra house for sale, and we'd find out what houses were really. worth at that point.
QuestionerIs that, is that, you know, and of course when Warren Buffett talks a lot of people, listen, is that, is that part of what's wrong with the market today?
WarrenNo, what happened is over the last 15 years, stocks have gone up terrifically back since 1982. There have been two very important drivers of that. One is interest rates have generally gone down and return on equity and businesses have gone up. Those are very good reasons for stocks to go up. After a while, the very active stocks going up starts drawing in other people who get a excited about the fact that their neighbor made a lot of money, or maybe they made little money over the past years. And the action of the market itself captures the attention of more and more of the participants as opposed to the businesses themselves. And that's when you get into dangerous periods.
QuestionerIs that where we are?
WarrenWe're, yeah, we're into that to some degree, sure.
QuestionerHow dangerous a period is. You never know. I mean, you know... Of course you never know, but...
[16:53]
QuestionerYou know that valuations are high. By historic standards, you know that the level of speculation is high. is high by any historic standard. And you know that that doesn't go on forever. But you don't know when it ends. It's gone on for a very long time, isn't it?
WarrenYeah, but it's gathered a lot of momentum in the last few years. The last three years prior to this one, when the S&P has gone up more than 20% every year, that's almost unprecedented.
QuestionerA lot of amateurs in the game today?
WarrenYeah. And it attracts people.
QuestionerWell, sure, as long as they're making money.
WarrenYeah, yeah. And those people will get flushed out very easily, completely. very easily compared to people who really want to buy a business.
QuestionerYour advice, let's say, to a 25-year-old who's making $25, $30,000 a year, but would like to see a little bit more come in over the course of the next few years, how should that person invest?
WarrenYou shouldn't buy on borrowed money. You should pay off all credit card debt before you buy, because any securities, because you're paying 18% on credit card debt, and you're not going to make more than 18% of your market. Then, if you want to pick stocks, stick with the things that you understand and look at them as businesses, businesses. If you just feel you want to own a part of American business over a period of time, you just put a little money in every month for the next 30 years into some sort of a group of stocks, maybe an index fund.
QuestionerLet's take a short break, and when we come back, I'd like to talk about the use of money. I mean, what money can be used for. Back with Warren Buffett in a moment.
QuestionerYou had invested $10,000 in Berkshire stock in 1965, you would have $51 million. have $51 million today. If you put that same money into the S&P 500, you'd have only about $132,000. So it's quite a difference. And we're back once again with Warren Buffett. We were talking about, we're just beginning to talk about the use of money.
WarrenYou don't use it much except to make money. I use it to build the business. I mean, I don't have cash myself. A quarter of 1% of my net worth is outside the business. 99 and 3 quarters percent is in the business.
QuestionerBut I mean, you could extract some of your wealth, if you wanted to.
WarrenSure.
QuestionerAnd, you know, what a lot of people, if I mean, George Soros is a perfect example, of someone who likes to meddle in a lot of things.
WarrenYeah.
QuestionerMore powerful. More power to.
[19:19]
QuestionerYeah. You don't. Not much. Why?
WarrenWell, I, it's probably the best answer is that because I'm having so much fun doing what I'm doing if you get right into my psyche on it. But essentially all of it, wealth is essentially a class. is essentially a claim check on future output of other people. So those claim checks in my case, 99 and a large fraction percent of them will go back to society and the foundation and they can then buy services of people or medical supplies or school buildings or whatever it may be that they think will be most useful to society with those claim checks.
QuestionerWouldn't you like to see some of that happening in your own lifetime? I mean, I always wonder what the point is of just giving it all the way to check. to charity after you die. Why not, why not do it while you're alive and enjoy it?
WarrenThere's, well, I actually, I enjoy the idea of building this endowment fund up for society. I mean, I enjoy the process myself. I mean, as you say, the game is, is enjoyable by itself. But if you think about it, if I done all of that 15 years ago, society would have had a few hundred million dollars to claim checks, and now I died tonight, they'd have 30 billion a claim check. So it's not a bad endowment fund. I have six very bright, high-grade people who's thinking above ground will be a lot better than my thinking six feet underground. And I've given them a few guidelines, but nothing that reties their hands in any way. I want them to tackle big problems. I want them to tackle problems that generally don't have a funding constituency, so that they're not the kind of things that government can attack well and that are not being attacked by philanthropy. Generally, I want to try and do something big.
QuestionerGive me a sense of what kind of thing. I mean, it doesn't have to be specific. to be specific, but I'm just interested in what sorts of things you want to affect after your death.
WarrenWell, I really, the number one problem of mankind, but I don't know how to attack it with money, I think, is a spread of nuclear knowledge. I mean, I think that the greatest danger that mankind faces is the fact that more and more people will know how to build weapons of incredible destruction, and the knowledge won't go away. I don't know how to attack that problem with money. If there's an organization formed, this process is being formed by by Lee Butler, who was the former Commander-in-Chief with what is strategic Air Command now,
[21:36]
WarrenStratcom, he calls it second chance, and he's devoting his energies, and I'm devoting some money to working on that problem. There's nobody better qualified than Lee to be working on it. The problem, investing is swing at easy pitches. You wait to see something like Coca-Cola or something and anybody can understand, and you look for easy pitches. In philanthropy, it's just the opposite. You're taking the problems that have defied solution essentially, big intractable problems. And unfortunately, that means your failure rate is going to be a lot higher, but it doesn't mean they are worth doing. They should be done, and that's what private philanthropy should be doing.
QuestionerWe talked about a couple of these issues many years ago, and you told me, for one thing, yes, you would leave a little bit of money to your kids, you've got three kids, but the idea that you would leave all this money to your kids is just silly as far as your answer. Explain why.
WarrenWell, I don't believe in the divine right of the womb. I see no reason why somebody that happens to win the ovarian lottery and come out of the right womb is entitled to fan themselves for the next 50 years, or command the resources of society. If we're going to pick an Olympic team in the year 2000, I don't think we ought to take the eldest son or the eldest daughter of who won all the prizes in 1976 and put them on the team. I really believe in a meritocracy in athletics, and I believe in a meritocracy in terms of who has the, who handles the resources of society. And we're a better society because that's the case.
QuestionerDid you discuss that with your kids at some point? I mean, you explained that to him a long time ago?
WarrenOh, yeah. And they bought into that? Yeah, they bought into it. I take the view. It's kind of interesting. You have people talk about the debilitating effect of food stamps, on welfare recipients, the cycle of dependency and all of that sort of thing. But if you come out of the right womb, you are on welfare the day you're born. I mean, instead of calling it a welfare officer, you have a trust officer. Instead of calling it food stamps, you have dividends and interest, but it's the same picture. But it's the same picture. And I really think that everybody ought to start it fairly close to the same place. Now they won't. My kids are going to get a better education than average, and they're going to be around in a different environment.
[23:45]
OtherBut I really think that the people who are handling the resources in 2020 ought to be the people who have accomplished things that command those resources. Let's just take a short break and we'll be back with Warren Buffett. You know, let's take one more look at another side of Warren Buffett. You're kind of a quiet guy, but there's a bit of a ham inside you. I've seen you at a few ABC affiliate meetings, but let's just take a look at a little piece of video tape here, and maybe you'll explain to us what this was about. The sun gets slid tomorrow, you will pay top dollar on tomorrow. No dividend checks tomorrow. If you need some money, just go borrow. day to day. So when the Dow's down, don't frown and worry. Just catch the side down and shout, hooray. What was the occasion?
WarrenI think I should buy that tape. That was the children's the same. That was the children's theater here in Omaha, and they were doing Annie, and it was a charity event. So I played Daddy Warbucks for a short period of time. Mr. Flanagan, who ran the orphanage, kept calling me Warbucks, but I explained to her that was Bill Gates, that I'm Warbux. I'm sorry, since you mentioned Bill Gates, you didn't buy a big piece of Microsoft. He spent nine hours explaining Microsoft to me. Couldn't have been a better teacher. Couldn't have had a dumber student. But I still understood a fair amount of what he was saying, because he is a good teacher, and I bought a hundred shares when I got all through. That just shows you how many dumb things you could do in this world.
OtherWell, listen, I mean, you've done all right. done all right. Warren, you're a man of your word. You told me five, six, seven years ago, whenever it was, that you would do this interview one day and maybe in another five, six, seven years you'll do one again. But thank you very much. It was a great pleasure. That's our report for tonight. I'm Ted Koppel in Omaha, Nebraska. For all of us here at ABC News, good night.