People React Too Much to Short Term Things

People React Too Much to Short Term Things

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Welcome. To a special edition of squawk box ask, Warren. Legendary. Investor Warren, Buffett answering. Your questions, during the entire show the. Oracle, of the economy, the markets, and much, much more, so, tweet, email, get to Facebook, and get those questions in, Squawk. Box begins, right. Now. Good. Morning and welcome to the squawk box here, on CBC, on Jill Kernan along, with Becky. Quick I know she's, in Omaha, this morning and. Hopefully. We've all been boning up on our foreign policy, expertise, back. Yeah. I have, definitely been reading up on a lot of that stuff over the weekend we have a lot of people we're going to be talking to about that today but the, situation, in Ukraine is obviously, front and center this morning Joe I'm in Omaha, with Warren Buffett for the next three hours our, viewers will get their chance to ask the legendary investor questions, about anything and everything, good morning Warren good morning great to see you thank you for being here with us today nice to have you here and sunny all off and sunny freezing, Omaha we thought it was cold in New Jersey Joe, it's about three, degrees here, also joining us later in the program this morning Berkshire, Hathaway investment, managers Ted Weschler and Todd combs and Tracy pretty cool who has Warren Buffett's financial, assistant these are the three T's that. Warren has spoken about so frequently, obviously, a lot of questions. For these three about, what they've been doing this is a rare appearance they've, never all sat down together so we're very excited to have them joining us a little later this morning the. Major story dominated the markets this morning is coming out of Ukraine which we alluded to Russian forces have seized the southern area of Crimea, after, Vladimir. Putin, secured. Permission, from. His Parliament, to use military force in, his. Words to protect Russian citizens, Western, governments, are promising, now to isolate and, punish, Russia's, economy, demanding. That Putin withdraw his forces Secretary. Of State John Kerry will. Be traveling to key do, we call Kiev still Becky are we going with Kiev I don't know people that it's. Chicken kia that's all I know but we've, heard some former ambassadors calling achieve this weekend's developments, are playing out in the markets. Big. Time this morning we'll see. You. Know whether this holds up 132. Points. Let's, look at Europe all the major averages are under pressure today Russian. Markets also took a hit the dollar this morning, probably. Doing. A little bit better ruble, hit an all-time low against. Some, currencies, the price of gold get. A quick look at it, where that's trading today it's, up 22. Points. Or so let's. Get back, - Becky now, with. Warren World War through I mean, you. Know Becky I mean really it. Would go out would go home on Fri was a hockey game last night now, I'm hearing this it's, staggering to me and in the markets 140. Points, that, seems almost manageable. Given. You know was when we're throwing these terms around like that but I guess the Cold War at least we have to think is at. Least a scold skirmish, at this point. Yeah. And, again. Joe you pointed out the ruble is at an all-time low versus. The dollar it fell drastically today. Not only versus, the dollar but also against the euro so investors. Are sitting up and taking notice the the, mice index, in Russia was under quite a bit of pressure as well so, it. May not be playing out by more than just a hundred and fifty points right now in the US but there are some major moves happening, in markets around the globe as investors, try to figure this out again.

Perhaps No better investor, to sit down and speak with today than Warren Buffett we, are here in Omaha because, Berkshire. Hathaway's annual letter Warren. Buffett's annual letter to the shareholders, went out on Saturday, morning and Warren we've spent some time digesting a, large, annual letter I get paid by the word yeah so a, very, hefty annual letter that gives people a lot to think about as. You do every, year you laid out a lot about your thoughts about investing, in general, and taking, a look at the markets and I would ask you for your macro view on the markets but in your letter you pointed out that you don't give much credence to people offering macro you know I. I've. Been buying, businesses, and stocks for a lot of years stocked for. 71. Years and businesses, for almost as long and I've. Never really made a decision, based. On macro factors if. I find a business I like I, buy. It I mean the first stock I bought was. In the spring of 1942. And I will tell you the macro factors we're not looking good, you. Know we we were, it. Was that right after Pearl Harbor and, we were getting clobbered. In. The South Pacific and, the. War did not look good now I think almost every American probably were gonna win the war but when I bought my first stock I spent I went in a hundred percent I spent all my, hundred twenty dollars. I-i-i. Was not doing, it based on headlines I was doing it based on what I was getting, for my money but. When you did that when when you bought into it and you say you don't look at macros I can think of times in the past when you have looked at macro effects when you looked back with stocks at a low, he told Americans to buy stocks with both hands well occasionally. Stocks. Are just demonstrable, achievement, I mean really demonstrable, achievement, and I, wrote. An article in 1974. Or, did. An interview with Forbes. And. In. 2008. Wrote an article for The Times and I mean they're there. Occasionally, when they're just ridiculously, cheap but most. Of the time they're good value, but. There have been a few times when they I. Thought. They were so cheap that I should, say something you, know people have pointed out obviously stocks have come a long way since then, people have been analyzing, your annual report and realizing. That you didn't really say anything like, you've said in years past where you said at, one time a few years ago that stocks, obviously, were a much better value than gold. This time the. Excerpt that you. Put. Into Fortune a few days ago that people weren't really focusing on had two examples, that were both around real estate one the farm that you bought here in Nebraska, another, of, some real estate that you invested in just across the street from NYU from, New York University, and, that has people speculating, do you think that real estate in other areas are better places for money than stocks right now no that's but they're speculating wrong I use those illustrations, because, I don't know that much about real estate or farms, and yet, it was still possible to successfully, invest in them and and I, feel the same way about people on stocks if they if they. You. Can you can, have. A great. Long life. Long experience, in stocks and really not be a specialist, in accounting, or you know know all the ins and outs of capital, structures and all of that sort of thing and and, I used I was, just I was, probably more ignorant, of. The. Realities, of farming the realities, of that building. In New York because most people are of stocks and yet it, was perfectly possible to, come to an intelligent. Decision that you could not lose money and those, investments. And that you're probably going to make quite a bit of money you know I wonder. That because there have been a lot people recently who have raised questions about the stock market who, have worried, that it is a, fool's.

Game To try and get involved that it's the average investor can't get a fair shake I've heard people like Bill Riley Bill O'Reilly, say this very recently that he doesn't trust the stock market and thinks it's rigged what. Do you tell people well well. Isn't rigged at all I made that there have been occasions when given stocks props have been rigged but but, it's pretty hard to rig, a 20-plus, trillion dollars I mean and, the. People. Should forget about it calling up the stock market even I mean it's American, business and and. If. For, some reason, you think American, business over the next 50 years is likely to be way less productive, than it has been in the past, then. You could come to a negative conclusion, on it but I came to a conclusion on that farm that it was likely to produce a little bit more over the years and that the crops would bring a little bit more over time and I bought it on a 10 percent yield basis to start with so, when you're buying a productive, asset you. Don't want to you don't want to categorize it by some name or and then reading the paper that this or that's gonna go up or down you want to look at the you want to look at the business if you bought the house next to you to rent to somebody you'd, look at the rent you were gonna get the taxes you were gonna pay and and and what, you thought the neighborhood, would do over a long period, of time and then, you'd measure that against the purchase price the purchase price is all-important, and and the, stock market just offers, you so many opportunities. Thousands. And thousands, of different businesses, you don't have to be an expert on everyone them you don't have to be an expert on 10% of them even you just have, to have some conviction, that. Either a, given. Company or a group, of companies I would suggest, for most people it should be a group of companies you have to have a conviction, that those companies are likely to earn more money 5 or 10 or 20 years from now than their earning now and that, is not a difficult decision to come to you, also. Revealed. Something in the annual letter this year where you said you laid out the terms of your will what you've set aside for your wife I didn't, know any of this yeah well. I I I, didn't, lay out my whole well. There's. Hope for some of you who have been mentioned yet yeah. But. I did explain because I I, laid, out what I thought the average person, who's not an expert on stocks should do and, and my, widow will, not be an expert on stocks and and I want, to be sure she gets a decent. Result. She. Does need to get a sensational, result yeah and since all my berkshire shares are going to, philanthropy, the, question becomes what does she do with the cash that's left to her and I've been part. Of the closeout right part of the goes to a trustee but I told the trustee, to. Put 90, percent of it in an. S&P 500, index fund and ten percent in short-term. Government's and and, the reason for the ten percent in short-term government, says that if, there's a terrible, period in the market and she's withdrawing three or four percent a year you, take it out of that instead of selling stocks at the wrong time she'll, do fine with that and anybody, will do fine it's low-cost it's, in a bunch of wonderful businesses, and you.

Know That takes care of itself, you specifically, said of Vanguard index yeah right attention yeah well it's it's a very very, low cost index. Fund and and there are others but, there are others that aren't so low-cost and keeping, costs to a minimum is, enormous. Lee important, in investing, whether it's farms, or. Buildings, in New York or but, particularly in socks that mean if you if, you're in effect paying out one. Or two percent annually. Of. Your. Portfolio. That's. A big big tax that. You don't have to pay people. Who are at home who are listening to this they just need to look at the expense ratio you. Could probably get one for 20 to 25 basis, points versus 100, to 200 base that's right and I think Vanguard, is actually a little under 20 basis points and, if. All. Of the people that had owned Berkshire, 40. Years ago I had never traded every, day they tried to open the stock and they just wasn't they buy their to trade it their. Returns, in aggregate, would have been exactly our returns now. If they traded it around like crazy they pay people to tell them the owners everything their returns become our returns less expensive, so it. You. Should look for, a very very low expense. Way. Of participating in, Sears and incidentally, at Berkshire. Our. Expenses, are very very low in relation to the, number 100. Possibility, of. Investments. That we have we, do have the opportunity for, viewers to write in and ask you their questions, one viewer did write in I'm sorry I'm looking for the number right now wrote in the question asking, about why, did. You lay out that you had said you set this money aside for your wife to be put into a Vanguard index instead, of put back into berkshire shares yeah well it Berkshire. Would be okay but like I said I'm giving away all the Berkshire shares and Vanguard. Is fine and. Berkshire. Would be fine but I. Would. I wouldn't want to be touting Berkshire, people. Generally I have no problem touting the S&P 500 a little all cost. Let's. Talk a little bit about what, you see in the economy, right now because through your businesses, you have an incredibly, good idea about what's happening, you have not only the, big five that. Are doing things you have massive investments, you have retail, operations, just in general where. Do you think the. American economy is headed right now it's. From. What I see and I do see figures. On at least 80 companies or so and I like, to get them I get them fast. Exactly. What's been going on ever since the fall of 2009, continues, I mean we've had this. Moderate. But, consistent, growth, now. For, four. And a half years, and. Every now and then we get excited about it speeding up and every, now and then we start worrying about a double-dip, and all that and you've heard all this different commentary. Over the four and a half years it's. Been remarkably, consistent and, and, the. GDP, figures, make bounce around a little bit in terms of what we see I would, I would, say that it's been almost a, straight, line but, not at a the. Kind of slope that people would like but, not flat either and and that's exactly what I see to this point so were we overly, optimistic in, the fourth quarter and now we're overly optimistic in. The first goal probably we'll. Know for sure later on but that's it's. Been that waves, of mine we haven't gotten wildly, optimistic and, we haven't gotten wildly pessimistic, but over. That period it. Seems these small waves of optimism, and pessimism and, and really, they you, know it's just been pretty darn steady yeah improving. How. Much as weather played a role in impact. I mean the numbers we've gotten over the last two months have been pretty but, the markets been writing it off saying don't worry about it it's been bad weather around the country it's certainly a factor I mean that our our, railroad, does, not work as well when, there's lots of snow and extreme, cold. NetJets. Doesn't work as well an. Extreme. : and and those, things compound, on themselves I mean if it's terrible, weather in one part of the country.

You. Know getting the planes to take care of the people there in all just pyramids. So. There's no question it's been it's, been some factor every, time we bring up weather as an excuse though somebody will point out yes but if you look at housing, numbers in the housing market in California, that's been slower and it hasn't been because of weather there what do you tell people well I can't. Tell you for sure but we we, have a couple of large real-estate brokerage firms in California in fact the largest one in the lower three counties we, just bought an or buying another one in San Jose, it's. Okay I mean and the prices, the prices, have really been quite, strong but. You, always in the winter have. Less activity in real estate but we. Bought, several. Real, estate brokerage firms last year we've already bought one this year and then, we'll. Keep buying them I like, the business okay. We're gonna continue this conversation, with Warren Buffett we have him for the next three hours Jo I'll send it back to you in the studio though because I know we have a break we have to get to two I guess we do yeah I. Have. Often thought about about. Warns, warns. Will. I. Mean. I. Think. Of you as a father figure or actually calling you dad is probably probably. Too much but. You. Know you've in the past you've given me you. Gave me a couple of bottles of ketchup, you. Gave me a brick, a brick. You gave me a little card a netjet card, that was absolutely, useless that where they had no money on it. And I'm just thinking. Are. You your situation, for the big surprise aren't, you is that am I gonna find my name am I gonna find my name in there god forbid, when when. Absolutely. Absolutely. I've been testing you Jo and and what you'll see in my will is it'll, say. To Joe who wanted to be mentioned in my will hi, Joe. You. Know that. Would be enough for me I just like to say that that would I'm, not looking, for anything else and. It's. Time for the executive, edge this is a special, edition of the executive, edge this is the ask Warren addition we are joined this morning by legendary, investor Warren Buffett and he is answering, some of your questions Warren, we got a lot of questions that came in from people I'd like to focus on some that take a look right now at Berkshire. And some of the things you pointed out in the letter one, came in from Ron Rogers in Ridgewood New Jersey and, he says that in the fall of 2013, news, came out that you were ever so close to a major multi-billion. Dollar acquisition of what, would have been another elephant, I assume you would not disclose the name of the acquisition, target but would you tell us what industry group it's in, yeah. I better, not even say what industry, was in the, because, there aren't that many companies in the industry and and by, the size of it you could probably narrow it down to two or three companies, it. Didn't happen but there's. We're. Always seeing the leaves rustling, if nothing, else I mean there's, got to be something behind those leaves. We. Will, we. Have nothing real hot at the moment but, we have things we're working on yeah you've said also on the annual shareholder, in the in the annual letter to shareholders that. When. It comes to taking a look at what happened with Heinz that, this is a template, for things that Berkshire might do in the future have. You spoken with 3G, about doing another, type, of acquisition like, a haunts well we've talked about generally.

We Don't. Have a name, but both. Georgy Paula lemon who's my partner in that and I, would. Love to do another one and. They. Have an appetite for for, making acquisitions and, they have an appetite for making big acquisitions, and can. Say. We're. A good pair that way and and and, they. Also do the work and we do the financing, and that's that's an arrangement that I can get used to so. I everything. Has happened with. Heinz. In. Terms of negotiating the contract, coming up with a buddy whatever it may be ever. Experienced had been a hundred. Percent satisfactory. So I really look forward to doing something further with them and I think we will you, talked a little bit about the Heinz acquisition, in the letter but how are things going, so far well things, are going very well. Bernardo. Has. Took. Over in June, he's. Done. Everything logically they've gone to zero base budgeting. As. I put. In the report I would expect the earnings of Heinz to be, significantly. Better this year than in a year in history you, pointed, out that you're, not somebody the difference between this and a private equity deal is that Berkshire, plans on holding this for a long long time forever. Forever, would, you be surprised, though to see a Heinz IPO, sometime, in the next five to seven years that, could happen because. The. 3G, people. They. Did that with Burger King and and they, have a number of investors, I don't know how many. The. Primary, investors, I know but they you. Know I just don't know the number but there's some of those people undoubtedly, will want to get out and if the figures get. Good as I would assume they would, they. Might have a chance to get out at a significant. Profit. And. When. They do we. Have no, obligation. To. They. Have no obligation to sell their, shares to us and we, so. It. Would be totally voluntary, on their part but but, if they were going to sell their shares and, and I've found, the price acceptable, I'd certainly offer them if I buy, the share from them because right now your equal partners for. Equal partners and we'd be equal partners even if the number of shares were somewhat different. Psychologically. We are equal partners even if the share, count isn't equal. But. I would, like I would like overtime to increase it sure it's. It's our kind of business and it's it's forever it's. It's. It. Well there will be a profitable, business its it will, be a worldwide, business and. It is a worldwide business and it, just fits into Berkshire and our problem, is putting money to work so, we're not looking to take money out of things we're looking to put money to work allah. Did it create a problem to have the guys who are still, on the board at Burger King selling, ketchup to places like McDonald's. John. So put. It that way I'm. Not sure the customer, got that. Way by that but. Certain. Of the franchisees. As I understand, it, sort. Of objected, the fact that the guy across the street who was selling hamburgers, against. Them also, was the. CEO would, come, from Burger King he had been the CEO of Burger King and I believe he's still vice-chairman. And. Certain. The franchisees, of McDonald's. Were not happy about that that's, a big account though correct it's a big account but. Berkshire. Is going to have a lot of a lot of cross lines as, we have larger that there. Will be times when with that, the, actions of one subsidiary. Irritate, the competitors, of another subsidiary is something that's, just going to happen alright we're gonna continue this conversation, let's. Get back to. Becky and Warren. Buffett in. Omaha. Becky. You. Got the. Oracle there I guess that's the Ukraine, is front and center.

That's. Right now Warren, talked a little bit earlier about how difficult it is to try and look at some of these broader things and figure out what it's going to mean for the markets but Warren you wouldn't be selling anything today based on this know if stocks, were cheaper I'll be more, like be buying them I know we were we were buying I think one stock on Friday and, I. Presume. About selling lower today and that's terrific, was it Wells Fargo. In. Fact a lot of the questions that have come in from viewers, and from Berkshire shareholders to, have been related to your, investments, and you did detail quite a bit of your big holdings and what you thought about some of these but let me give you some of the questions that have come in Frank. And Rami writes. In you've, held coca-cola Wells Fargo and American, Express for 20-plus, years if you didn't sell those stakes down during the great bubble of the late 90s or during the last financial crisis is it fair to say that you will never sell these stocks and can, you envision a scenario that, would actually make you sell any of these positions it's, fair to say that it it's, very unlikely, that we would Salomon any, in here probably any given five-year period but. If. We need money to buy operating, businesses. We. Could sell any one of those stocks or maybe a group. Of them our, preference, at Berkshire is. To keep buying operating, big operating, businesses, and we. Like owning equities. We'll, make money in the equities as an alternative, but. In terms of building the berkshire, for the long, term we just like adding her earning. Power big chunks of earning power from. Operating, businesses which we are going to keep forever so none, of the stocks are forever but therefore generally. For very long terms there, have been a lot of questions that have come in regarding, IBM, let me go to one from Hong Kong a gentleman. Named Rajesh, pavani, who writes that iBM has underperformed, the S&P 500 by a big margin since you acquired a stake in it while, you've clearly mentioned in an earlier interview that you'd prefer that share price does not do so well so the company can buy back more of its shares at a lower price as the company's financial, performance especially, revenue, trend disappointed. You and do, you feel that you made a rare mistake by stepping outside of your circle of competence. Well the. Revenue trends have been less, than anticipated. All, not dramatically, less than anticipated. The. Financial performance has been pretty good but it's been helped by low tax rates and things of that sort. There, is a transition going on in the business. You. Know particularly in terms of the cloud and so. I, would say it's. Fair it's fair to say that I know less. About the future of IBM, than I might know about the future of Wells, Fargo or. Coca-cola. Or, the businesses we own I think, I do know enough about it that I feel good about owning. The stock but, but my, level of understanding. Of a company like IBM is, not as high as my level of understanding of a Wells Fargo or a Coke in terms of the price action that doesn't make any difference to me if. IBM. Bought in a lot of stock last year and if. The stock had been even lower they would have bought that, would have gotten more shares so the, fewer the shares outstanding the, better the better I like it. And they. Continue to buy and shares, they buy him with a good clip and I like, that but I would, like to see the revenues pick up what, do you think of the job Ginni Rometty is doing well I think she. Got handed, the company at the time of real transition, in. The in the business and and. Her. Record. I feel, fine with her at this point but her record will be judged you know five years from now there's. A lot going on in that business and I. Think. They're doing well but. The. Final, score will be five years or ten years from now are you buying more shares we. Bought a few more shares last year not not very many and, I. Think. We bought a few. Shares this year okay, let me also ask you a question, that came in, this. Is number 32 folks it's dan Youngberg who, writes in are you still as positive, on rails which. Besides besides, yours, is good meaning which besides Burlington. Northern is good and what, about the rail car companies, well. There's. Four big railroads. Of the United States and Kansas, City southern is another significant, railroad, and two, in the East two, in the West and. The. Rail business, over, time will, be a very decent business it's an enormous, asset to the country and. There. Won't be more there, may be more. There. Could be some ispeed. Passenger, and all that sort, of thing railroad but in terms of basic freight railroads, you've. Got the configuration. In this country that's going to exist for a long time and. Rail, does, move, goods. Heavy. Goods very.

Cheaply, If moved, over long distances, and and it's, also an environmental. Environmentally. Friendly compared to, highway. Traffic so the, future of railroads is very good. Also. I would say that that's true among all the four clay roads him a question, came in from someone named Curtis Carter he says do you have any plans to use Burlington, Northern Santa Fe right of way from mid-america energy to move electricity, east to west and are you considering electrifying. The railroad well, the answer to both is no okay, it's a question that I've heard from others before yeah all I kind of wondered about it if, anybody forgot away we can make a lot of money off the right away that we haven't thought of I'd love to hear of it that. Isn't the way in. Terms of how the railroad is doing though you did take some time to really lay it out the, railroad has, the, Burlington Northern has, really, benefited, from the shale boom that, we've seen in, parts of the country it's, it's benefited, and, but. All. The rails have done well recently and, in fact Union Pacific which is our direct competitor has been has done very well. So. It it's. It's. A business that. Has. Real economic, advantages, if you if, you look. At fuel costs, if you look at, drivers. Wages and on the highway at as, long as more Goods move, from. Place to place in this country rails. Are going to get their share and and it, should be good it should be very profitable business what, about the Keystone pipeline that, rate, that question was raised several times by shareholders, and, by others who say wait a second do you really want the Keystone pipeline to come because it's a direct contribute, a direct, competitor to what would happen with Burlington it's not that they, can come better it's moving it. Would be moving crude. Down from Canada and that, no. I I I think probably the Keystone, pipeline is a good idea for the country do. You expect that the president might actually pass it sometime so idea I had. Seen a study recently that came out from the State Department, that suggested. That if, the Keystone pipeline would put in it. Would end, up saving lives versus, moving that oil via the railroads it said something like six lives a year well, both sides are gonna come, up for that sort of thing there but that was from the State Department it wasn't from Viki and they. May well be right I yeah but there are there. Are leaks on pipelines and, and you, know the occasional explosion. I get no, that's very very very very rare, but, if. You, measure. Moving, millions, of barrels for a hundred years. It is d. Particularly. The oil from the Bakken and, from the Eagle for as well as. They're not to be more volatile than then people, anticipated, and that's going to require. For. One thing we've lowered the speeds you know in, many years but it's gonna be it's gonna require a new kind of tank car to yeah Burlington just said that it was buying 5,000. New tank cars. Order. So it takes it takes time we're with, a different company Marvin we're in the tank car manufacturing, business ad and. There. Will be changes made and there should be changes made and. It's. Fair to say that we've, found in the, last year. So that it's more dangerous to, move. Certain. Types of crude certainly, then, what's, thought previously and then you, know that's there's no question about it a. Lot of the rail, tank car companies rose on the announcement, that Burlington, Northern was going to be in the market for buying more, of these things would they be buying them from Martin from Marmon are they gonna outsource specifying, where they get the problem and buying them is that there's, a big backlog, at not. Only barman's tank art subsidiary.

But Trinity and others that make make cars so. Our. Backlog, runs into the middle of 2015. Those are those aren't offer, for. Crude, oil tankers, the most most inane cars don't carry crude oil when, you see a, train. With a lot of tank cars on it most, of that is not crude oil but, some. Of it is and more of it has. Been in in recent years so. It's. You can't you can't just flip a switch and get five thousand cars there, will be retrofitting. That takes place I'm sure and. And, that's. My. Guess is some of that will get moved to the to. The front of the line because it's. It's more important to get it done immediately but, but, the. Tank car problem, is a problem and and. It. Should be addressed as being addressed. But. You. Can't change the whole tank our fleet overnight mm-hmm, all right we're gonna continue this conversation, with Warren Joe we'll send it back to you right now Becky. It is buffered, a Creighton. Fan hoops do you know were there in Omaha I don't know, you. Bet I'm guys there's a game against Providence. Next, Friday, it's Saturday, it's our final game I'm gonna be there to watch McDermott, score about 60 points oh yeah yeah because, I guess you missed what happened over the weekend against my Xavier. To. Go into Cintas center, that. Was fun to watch anyway, I figured. You were a hoops yeah, they're too good Jesuit, school's right against, each other I like that you bet. We. Had a pair of Cinderella, team back at 1942. When I was a kid I've been waiting for a return. We're. Gonna continue our questions, for Warren Buffett this morning again we've been taking questions from viewers we've been getting more this morning that have been coming in but one. Of the things that happened. Over the last several months Warren is there was a story out that suggested, that the committee that looks at systemically, important financial institutions. Said. That, it was considering, Berkshire. Now again. This was a story that was just kind. Of lightly. Source that went through, I wonder, first of all if you've heard from them and, second of all there's a question that came in from William Anderson and Salem Oregon who, said the given Berkshires policy, to maintain a large surplus of capital, would Berkshire, being declared too big to fail' concern, you and would, the increased regulation, that could come with that designation be worth it the Berkshire to speed up the unwinding of the derivatives, to below the threshold so, that it would not be given that designation yeah. We've. Heard absolutely nothing from. The. People in charge of what's called, Sippy. And. Our lawyers have I have, checked that and I. Would. Not think we would be under derivatives. As. A. Well. A there they're winding down to begin with but a. Nominal. Value. There. Well. Let's see a Deutsche. Bank has 60, trillion, so. There. Are less than 1/10, of 1% of Atocha Bank for, example and. We have loads. Of liquidity we have all these different streams of earning power I think it's it's, very unlikely, they're, those those derivatives, were wind down I think on average around 2020, is that well the equity, puts to the, credit ones all, did wind down and and and, we, have very. Minor collateral, requirements we, have no condition, we never. Have any significant, short-term. Debt we always have bundles. Of cash we always have cash coming in every month it, it. Would seem on very, unlikely that we get. Categorized, we're large but ExxonMobil, is large apple large. I mean there's other large companies it's not it's not based on size it's, based on whether you're likely to get into trouble. Let's. Continue this focus on Washington. The president is coming out with his budget tomorrow President Obama, and the, the early, read that we've gotten on this is that it is going to be one. That is maybe a little less inviting to Republicans, that he feels like he's already made his outreaches. In the past and that they haven't been effective, what do you think that does to the environment in Washington was. Hard to imagine the environment, getting much worse oh. You. Know it is a you, know it's it's more or less the stalemate in Washington. Because. There's. Little, loosening, up perhaps but you have a significant. Portion of the of the. Republican, Party that can. Hold the entire Republican, Party hostage, in if the Republican Party can hold the. The. Legislative, process hostage. So. Unless. There's a real. Change in attitudes. It's. It's hard to say much happening we, didn't have a lot of questions that came in on the political front one of the ones that came in under the ask Warren Twitter, hashtag, was Warren, I know that you are concerned about the wealth gap are you, supportive, of raising, the minimum wage and, tying, it to inflation I. Thought. About the minimum, wage for 60, years I used to work at a minimum wage that got my attention first, when I was getting 75 cents an hour pennies but I.

It. Really cuts both ways I, mean that. You'd. Like to have people being paid more but you also want to have as many people employed as possible, so that one cuts both ways and I can argue either side of that I think the one thing that does make sense is, to, increase, the Earned Income Tax Credit I mean that that, does increase, the income, of people who, are working and and. There's. No question that the market. System which is the greatest system ever seen for producing lots of goods and services also. Leaves more and more people behind as it gets more and more specialized, and we've seen that and that's. Something that a very rich country should address but I think the Earned Income Tax Credit is a better way meaning. That you'd rather I mean when I've asked people like Peter, Orszag that question he'd said he'd like to see both of those things the income tax credit and a higher minimum wage i I, wouldn't. Fight him on the minimum wage but I. Think you can accomplish way, more through the internet income tax credit with, with without. Negative, effects. Than. The minimum. Wage I mean if you're gonna have a minimum wage of $15. And it didn't hurt anything. Else I would love it, but. Clearly, that isn't the case so I there's. Trade-offs on the minimum wage and it's very hard to quantify those trade-offs have people come out with these exact studies they don't know no but the CBO recently. Came out with a study that suggested. Half a million dot half, a million jobs would be lost five. Hundred thousand if the government were to go to $10.10. An hour by, the year 2016. They. Said, that it could be either zero or it could be a million jobs, that were lost where, do you think the likely. No. I don't know you. Know directionally. That it goes the situation. Otherwise, you know we we'd. Have a $15 minimum wage was no effective employment, I'd be a hundred percent for but. It would so, I I, don't. Know and it's very hard to quantify the trade-offs and usually just get proponents, of either side, just pulling out the figures that substantiate. Their, position, the. Earned Income Tax Credit I think is much clearer I mean that that, puts more money in the pockets. Of people who are working for low wages and I that, that's what I'd like to see it, doesn't it, doesn't, distort. The. Market system in any great way. But. Yeah. That's the way I would go Berkshire, employees what three hundred and thirty thousand, employees, how, many of them make. Minimum wage, very. Very few I mean I can't, give you the antibody that'd be very very few okay, let's let's ask a related, question that comes in from Ian enm on, Twitter he says if you were advising Obama on economic, policy what's. The greatest thing his administration, could do right now to accelerate, job growth. Well. I I. Think, that, obviously. Further. Fiscal, stimulus, would. Increase. Job growth. But. You pay a price for that, I. Think. I think. The market system will in will. Grow jobs over time as it has been the last four years it's just that we. Had such a shock to the system five. Years ago and we really were in the emergency room and that the recovery, has been has. Been slow and I think most, people expected, that but they're still disappointed, with it as it happens you, know we had Sam Zell on squawk box on Friday and he came up with a really interesting analogy. He almost put some of the blame on the Federal Reserve at this point saying that, when you have zero interest rates it's, like not having a shot clock in a basketball game that there's no severe. Incentive, to get that, money into investments at this point that people think they have a lot of time well. I would. Disagree with that I mean if, I've got money at zero, interest rates I want to get, and. I'm looking for projects all the time and we just. In plant and equipment we, invested over 11 billion dollars last year that was a record for us I but. I any, project, that comes to me that has a reasonable, payout, whether it's wind farms and and I wear whatever it may be you. Know I love, building more freight cars or, whatever it may be and and zero interest rate really, pushes me I mean if interest rates for 15, percent you know I I, would be sitting there with a 15 percent alternative, and and it would be much tougher for capital, projects, to catch my eye so, I would, argue just the reverse let me ask you one more on the political front stand, uzi writes in he says how do you compare the, President of the United States performance.

With Brian Moynihan's performance, over the last five years, obviously, you own a big stake in a Bank of America that Brian Moynihan the u.s. of America in the Bank of America they. Both had very very tough jobs and they, both settle down to do them and and, you. Do things one thing at a time and Brian. Moynihan is, took, something it was a big, big mess was she had hairatan and, and, the, size, was almost, overwhelming, and he just methodically. Has worked, on one problem after another, but, he did not have to get the United States Congress to agree with him, we're. Gonna continue this conversation, again. Warren Buffett is with us for the remainder of the show the. Forbes 2014. World's billionaires, list is out and if. You want to take a look at it this morning we happen to have one of the gentlemen who is on that top of the list who's there Bill Gates comes in number one with 76, billion Carlos, Slim has, 72, billion, Amancio. Ortega comes in at 64 billion and Warren Buffett number four at fifty eight point two billion dollars when we were talking about it how much have you given away over the last several years, well. I gave. Away about a hundred and sixty thousand, a shares so. Which. Would be 16. Million. Or so 27, billion so even after that you still have fifty eight point two billion dollars on the list you're number four here's, the list we have it right here. I want. To ask some questions that have continued come in from viewers. Part. Of what, you talk about every year in the annual report or, the annual letter is you lay out how each of the insurance companies have done you lay out how each of the businesses have done someone, named latticework, with, m ng, writes. In and says how has the latest rise of extreme weather events changed, the calculus faced, by Ajit, Jain and reinsurance and I know you talked to G just about every day yeah it's. Interesting I think the public has the. Impression. That, because. There, had been so much talk, about climate that. Events. Of the last ten years from. An insurance standpoint. And climate have been unusual the, answers they haven't I mean we. You. Read about these events but you were reading about events 30 or 40 or 50 years ago and and we've. Been remarkably. Free. Of hurricanes, in, the United States in the last five, years so. If you were writing hurricane, insurance but it's been all profit. I've been more some. War tornados, than normal but it's. Not had any effect, in terms so far. The. Effects, of climate change. If. Any have not affected our. They. Have not affected the insurance market they haven't so that's. Not something at all that you guys have changed your calculus I've made no difference I. Calculate. The probabilities. In terms, of catastrophes. No. Differently than a few years ago. I. Think. It's been 3,000, days since it's something like a category, two hit hit land far that's the longest in history for, for a hurricane and you, mentioned tornadoes last year it was actually well below I don't know about if he add up all the recent years but I watched, you after, after. You know Al Gore's the year it was a horrible, year but the one that he said we're gonna have it's, gonna be repeated, year after year the one where he had we, went through the whole Greek alphabet, and started again with with hurricane yeah, I watched, you you knew you knew you knew you knew you knew and and and you knew that that was gonna be an opportunity, to raise premiums and then not really have any events over the pin and, it played out exactly like you. Thought I don't know how you do it, I love, apocalyptic. Predictions, on, it because it you're right it probably, does affect race and the truth is that writing. Us. Hurricane, insurance, has been very. Profitable in the last five or six years and now the rates have come down very significantly so. We, aren't writing much if. Anything in the US our biggest, single, cat. Risk would be earthquakes. And, yeah. But what do you think of the the perception, right now I mean, it's I think it's from from the mainstream media but we are under the impression that adverse, weather events. Are, happening. Every, couple of days and, that it's never been like this before in, history for, some reason that's that's what people tell me and it's you know it's nice to be able to include them all into one thing you know when you conclude droughts, floods, too. Much snow too little, snow when you can include it all into one big thing it makes. It look you know like you're pretty smart. It. Hasn't been true so far Joe, yeah all right, you. Know. It's. Called. Blah blah but it was cold all about 50 years of the only thing that the.

Great Lakes have I think they're almost totally. Frozen over I don't know if we've ever seen that I think we got one more to go or something so that's a little weird yeah, all right well we don't insure against that you. Know Jim Cramer's Jim Cramer's been watching this morning as well Warren and he writes in a question - he, says that in your shareholders, letter you always speak so positively, about fabulous, ways to transport, goods do you think that Keystone should, be approved I know we talked a little bit about this earlier but I didn't really put you on the line do you think Keystone should be oh yes, you would vote yesterday Keystone, he, always wonders, about creation, of jobs too so energy, and job creation is really pipelines, and energy Renaissance is what Jim's pointing out well yeah but I don't believe in in the. Keystone pipeline because, of the jobs you make building and I mean you couldn't, you can build anything increase jobs. But. I believe it I, just, believe it's a useful pipeline, okay. Great we're gonna continue this conversation again. Joe we've got Warren Buffett here he's with us for the rest of the program I, can't think of a better day to have. Warren Buffett sitting right next to us Warren, Buffett the chairman and CEO of Berkshire Hathaway to, talk about what's happening and Warren, I know, you are a long-term investor, but when people wake up and look at the futures and see down 150. Because of what's happening in Ukraine and, questions, about the, economy I suppose at this point and whether what happens there spreads here what, do you tell them well. I tell them I when, I got up this morning I actually looked at a stock in on. The computer in the, trades in London. That, we're buying and it's down and I felt good what, was the shock. It. Was an English. You. Look at this I mean would you have done that anyway whether, or not the futures were down would you still be buying well, I had. A price limit on it and we were buying it on on Friday, but. It's cheaper, this, morning and that's good news so, you buy more.

When. People start to think well this could be the beginning of something really bad it could be even a world war 3 situation, it could be a return to the Cold War does. Any, of that ever go through your mind well it, do you tell me all of that's going to happen I will. Still be buying the stock, you're. Going to invest your money in something over time the, one thing you could be quite sure of is if we went into some very major, or the, value of money would go down I mean, that's. Happened, in virtually every war that I'd bet is that I'm aware of so. The. Last thing you'd want to do is hold money during a war and you might want, to want to farm you might want on the apartment house you might want on, securities. But I mean, during during World War two you know the stock market advanced, and. You. Start Marik's going to dance over time American. Businesses are gonna be worth more money now dollars are going to be worth less so. That money won't buy you quite as much but, you're gonna, be a lot better off. Owning. Productive, assets, over. The next 50 years that. You will be owning pieces. Of paper or I'm throwing bitcoins. You. Know I've been meaning to ask you your opinion on Bitcoin what do you think of it, I. It's. Not a currency, I mean it, it. Does, not meet the test of a currency and I. Wouldn't. Be surprised if it's not around in 10 or 20 years why does it not meet the definition of a currency because. People. Say well I'll show you goods and bitcoins, but they change the price of those every time the price of the dollar changes, in relations but their pricing off the dollar they, could say well I'll sell it to you in barrels of oil but. If they check every time the price of oil changes they change the number of barrels you have to have you that's not your, oil it's not the currency yeah but that you one does that too and people still look at that as a potential currency, which one do you want the Chinese you want yeah well it is a currency but but it. Is not a it. Is not a, it. Is not a. Durable. Means of exchange it's not a store of value it's, and. You said yourself you wouldn't be surprised if it's not around in ten years I would not be surprised I don't know that but but. It's. Interesting to me I mean, it it's been a speculative. A very, speculative. You. Know kind of Buck Rogers type thing and, people. Buy and sell them, because. They hope they go up or down just like they did with tulip bulbs a long time ago well, the Ukraine the situation in the Ukraine you have said you're not that worried about but in the letter, to shareholders you did lay out something that's been on the horizon, that you are concerned about and that's what's happening with pension, funds the promises, that have been made, question came in from s Disher saying what impact, will unfunded. Government pension and benefits have on economic, health in ten to twenty years well.

The. Government pensions aren't, the problem the private pensions are the, government. Government. Has the power to tax it. Has the power to print money. We. Are not in a dangerous. US. Fiscal, situation. We at some, we. Have to quit having our our. Debt, grow as a percentage, of GDP, it made sense that what happened during when. Things, were terrible five years ago but, we. Can have a. Deficit. Which, creates, more, debt but not at a rate that this grows, faster than GDP growth so if GDP, is going to grow at 2% in. In. Real terms but, that but. The. Fed. Has a policy, they're sort of shooting for 2% inflation on, top of that that would mean like four percent in terms of nominal GDP and, you, literally could have. Debt. Grow at four percent and it would maintain the same relationship. To nominal, GDP, as it does now we're not a you. Know the, trend is wrong. There. Is a danger, if that goes on although a lot of countries have gone far beyond where we've gone but I don't like seeing it go up as a percentage of GDP, but this, this country is in wonderful shape if. You say that government pensions, aren't the problem because the government has the tower to pat to the power to tax what what do you say to somebody who has a private. Pension should, they be worried about it should they think that they're still going to get they've got a private pension for corporations, it's it's protected by the Pension, Benefit Guaranty for. That. Has come into play in in. Many pension. Plans but but, the, state, municipal. Pension. Plans, well. The one right here in Omaha is in terrible shape and, almost. A lot of resources, and it's a healthy community and all that I mean we can work our way out of it but but. People. Both. Who, have made the promises, and the electorate, general generally. Have not understood what they were doing when they were making pension, promises, and and. There's. A long tail to the. The problem so it doesn't catch up for a while but, it's inexorable, over time and we are starting. To reap the problems, that were sold, decades. Ago in pension plans and there you're, gonna be reading a lot. More about them of course in Detroit they're gonna have to scale back the, promises, what do you think about the decision in Detroit where at this point it looks like everyone's. Going to take a haircut but the bondholders, are going to take a much bigger, haircut, in fact that prompted a question from Gary Gambino, who writes in our muni, bond safe giving your concern about the public pensions well some, unity bonds are safe and some are just like some corporate bonds are safe and some are the. It. Depends, on the debt paying capacity, of the of the entity that owns your money and and. If. You take the Omaha. Public Power district, which it runs the electric operation. Here those, bonds are safe, you know they they they've got enough. That. Paying capacity. They can take care of things but if you take a city, like Stockton California or, something there they just they.

They. Borrowed, too much money but. In the situation in Detroit it, looks, at this point like the, municipal. Bond holders are going to take a much bigger haircut, than those in the pensions they're not quite. A. Relative. The pain inflicted my, guess is the pensions our problems, are going to take the, pension, holders are going to feel. Absolutely. I mean if somebody's getting fifteen. Hundred dollars a month and it's cut to seven hundred and fifty dollars a month that is huge yeah. The. Bondholders are going to take a big cut, the. Debt just got way way way way. Out of proportion to the to, the taxable. Base and the problem with the city or a state is. That if the math, gets. Kind of overwhelmingly, bad you, you said a cycle. In motion where people even go someplace else that doesn't have the trouble and so. It's they're. Probably the problems I had in municipal. Finance alright we're going to continue this conversation, in. Just about 15, minutes we'll be introducing our viewers to the three T's at, Berkshire Hathaway, investment. Managers Ted Weschler Todd combs and financial, assistant, to Warren Buffett Tracy, Britt cool these. Are the three T's that Warren has talked about extensively, and, there's an awful lot of public, interest in these three figures this is the first time that three of them will be sitting down together and, talking. On camera so we do have a lot coming up we're back with Warren Buffett in Omaha, and Warren. Let's talk a little bit about why. You chose the. Three T's how you came up with these three individuals well. When. I'm not around my job will be broken into two pieces one, is running, the business the CEO but then the investment end will be run by others. And. It. It. Became important, to bring on the. Right kind of investment, people, and. So. Charlie and I had talked about that we, well. The first time, we took a trip I think I had hundreds and hundreds and hundreds of applications, that I was reading on that trip to China. And. We. Found two. Terrific. Managers. And they're not only terrific in, terms, of their. Investment. Ability. Which. Has been proven over time been, proven to me but, they're, really the right kind of individuals, I mean they they want, to be with Berkshire they'll be with Brookshire. Forever, and and, that. The kind of fellows that even, one that Mary her daughter I mean basically we Charlie. And I care about that and and in. Tracy. I've. Tried with assistants once or twice in the past but. She. Came along and she's, just done a perfect job I mean there are all kinds of things in Berkshire that I should do that I don't want to do is honey I had those off to her and. The. Three of them have they've. Been worth a very, very substantial amount, to Berkshire it's it's, demonstrable. In terms, of the financial, performance of the two that manage investments but it's also been very clear in terms of Tracy performance, with the subsidiaries. That, have been turned over to her Todd. And Ted are each managing, about seven billion dollars, no seven. Billion dollars of they. Started out on a lower base was at or three billion dollars and you've built up more and more over time yeah even less than 3 billion originally, yeah so, what. Is it that you see in each of them that, made, you think that they. Think like you do when it comes to investment well I talked, to him somebody looked at what they'd done it isn't. Just an investment, record, that impresses me it's how that investment, record was. Achieved and, and. There. Are people are just in tuned with even kinds, of markets and then when the market changes, they never they, really can't adapt but. Todd. And Ted look at the investments, very much like I do I mean they they they look at stocks. Not as stocks they look at those pieces of businesses, and they evaluate business, they're really business, analysts, when you get right down to it and then they translate, that into investment, decisions, and.

They. Both have a fundamental, soundness to them but. They're also, it's. A combination of soundness and brilliance and and and you want both and. They think, about things that haven't happened yet in. Terms of problems or not not, in terms of dreaming about great projects, that that, are. Pie in the sky but they've they're. Always thinking about the downside, and. That. They make sure, billions, of dollars already that we wouldn't have otherwise made, and they'll make us many billions, more. Tracey, has gone into a variety, of situations. Usually. The smaller companies, that that were one reason around that we needed something done sometimes. A management change and and. He's. Done a lot better job than I could, do and, she's. Done such a good job that when. When. One woman took over Johns Manville a year or two ago she, asked the Tracy be made the chairman of the board of that the chair of the board and our, of. Our subsidiaries really, is just an overseer, from, Berkshire, standpoint they represent, the shareholder, in a sense and and so. She's taken on four. Of those and she'll take on more as time goes along and she, also will be a great. Repository of, knowledge. About, all these companies for my successor, you, know let's talk about some of the succession, notes that you made and, the annual, report in the annual letter you you always do talk about this not, only with the shareholders but with the board you say that the, board something struck me this time around where you said that. You the board knows who your choices would be if there was an immediate need for an a successor, when it comes to the CEO position but you said that those, people were either working, at Berkshire right now or were available to Berkshire and and, that made me question you're looking outside the company but no. The successor, will be from within, the company all the candidates. Are now all of the candidate have been over the years and and and the. Successor, will come from inside Berkshire we've got you. Know we have so many businesses, we got a shot at evaluating. A lot of talent and and there is a lot of talent there and, and some. Of them would. Have the talent to run the place overall. Others. Wouldn't they're, more specialists, in their own business but particularly, then when combined, with Todd. And Ted who bring an investment, perspective which, is useful in acquisitions, analyzing, acquisitions, I think. We're as well equipped for. The. Next century is anybody you, mentioned both Todd and Ted so I assume. You look at the potential CIO part, of your job the the investment part of your job is something that more than one person could take on is you're still. Going to have a look those, two good analytic doesn't preclude a third person but I'm not looking for one and, also. When it comes to who the successor, as CEO might be I've asked you in the past would it be a woman and you said none of the candidates at that time not at present not, at present no I mean that doesn't rule it out I hope I last. Long enough so we. There. Know, the top candidates, now are men and those. Candidates, is that been a list, that's changed, over the last year, doesn't change very much no, it's it's very slow to change. Yeah. They, shouldn't, be on the list of if it's quite changeable. Ok. Let's, talk about some other issues that, people have written in about as well in, fact. Concerning. Todd and tip we got a letter that came in from, Bora caustic, who writes in the letter you mentioned Todd and Ted created, significant, values in matters, unrelated. To portfolio, activities, can you give some examples well in.

You Know making, an acquisition. Related. To media, general. Where. We acquired a bunch of newspapers, and also made an investment in the company. That. Did all that in terms of working and the rest cap bankruptcy. Did. That he wasn't getting paid for these at all I mean this is extraneous, work, we, just recently completed the. Deals in the last week or so where we exchanged our Phillips 66, stock for. A combination. Of cash plus a specialty, chemical operation. You. Know that, was that was that was Todd I'm. I. May. Have. Partially. Conceived of the idea but, I just, turned it over to him and and those. Sort of things might, not have gotten done if I had to do it myself, and. There's. Some threshold, at which to, say to heck with it and and having. Them has been, invaluable on that I mean that we're talking, things. That are worth hundreds and millions of dollars in addition to the billions of dollars they made us on the on portfolio you've, talked a lot about their compensation, both. Of them were managing their own hedge, funds before and the compensation structure, and Berkshire is very different than the two in 20 you would get if you were a hedge fund manager that's right if they if, they had last. Year they started with about five billion each if, they put it under the mattress, under. The standard hedge fund arrangement. They. Each would have made about a hundred million dollars, I mean that shows you how nutty the arrangement, is but they would have literally made a hundred million dollars by sticking out of the mattress if they put it in an index, fund they. Have gotten, the two in twenty they, they each would have made over three hundred million dollars all they had to do was buy the Vanguard, index fund they each would make over three hundred million dollars they. Also would have gotten more favorable tax treatment on it than they got by getting a salary from off from, from Berkshire, so imagine I mean, you can retire, forever on, three hundred million dollars so one year you're going to put money in an index fund so it it just shows that the, huge. Amounts you get by asset, gathering, rather than asset managing, I made that even. Though a great. Many hedge funds in recent years have, not delivered high, performance, they've delivered high fees but, our arrangement. Is that, they get a a, salary. And then, they get which. Most, hedge fund guys would look like nothing and. Then they get paid. On the excess, they, get 10% of the excess over the S&P performance, but it's done over a three-year staggered. Period so it they can't have just one up here and then another down here or something of the sort so, that's. The same arrangement I had with Lew Simpson a Geico for 30 years so only. If they do better than I can do by sticking the money in an S&P fund do they get paid to dive of performance, and, it seems to me that's quite logical. But it's not something that that. The hedge fund community is out there pushing harder for

2019-02-04 01:06

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