Warren Buffett on Heinz Deal: “We’ve Got a Great Business”

Warren Buffett on Heinz Deal: “We’ve Got a Great Business”

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Good, morning everyone and welcome to a special edition of squawk BOTS here on CNBC, I'm, Becky Quick and this morning I am in a suburb of Omaha Nebraska called, La Vista Joe fernand is back at CNBC headquarters, on the East Coast our, special, guest this morning is, Berkshire, Hathaway chairman, and CEO Warren, Buffett we are coming to you this morning from the warehouse of Oriental, Trading Berkshire. Bought this catalog, based seller of arts and crafts last November, we've been soliciting. Your questions, for mr. Buffett over the last several days and as always she didn't disappoint you have emailed tweeted, Facebook and shared your thoughts on LinkedIn mr.. Buffett is ready to answer many, many questions as many as we can get to but before we get to that Joe is going to give us a quick rundown of the morning's top headlines and Joe good morning hey. Becca. I know. The sequester, is hitting everybody hard it but this, is your new set out there with the boxes, and the. Usually. We can splurge a little bit more this, is affecting, everyone I think. It. Is but, this. Was a purchased, Berkshire never gave any numbers on this but it was reported, that this was a purchase of about half a billion dollars, it was what we thought was the company's most recent axle was acquisition, when we were planning and trying to figure out where we were going to do the show this time around yeah of course he surprised, us with another purchase since then but. Yet when we were met when we were planning on this when we were putting everything together this was what, we thought was his most recent acquisition I was thinking about that sequester I mean Buffett could, could take care of it himself if he really well you know he really wanted to write I mean it is he does, he have his check, does, he have his checkbook with him I mean Warren. Why let this happen just just you know loosen. Up loosen up the pocketbook. I've. Never been known for that yet, again. Our special guest today is Warren, Buffett and Warren thank you very much for joining us this morning we really appreciate it thanks, for having me again we are here at Oriental, Trading and we come out as we have every year I believe for this, is the sixth or seventh year we've been doing this to come out and talk to you after, you put out your annual letter to shareholders you did that on Friday people have gotten a chance to take a look at that and come up with a lot of questions that we have for you but, why don't we start off how, you started, your animal report this year you said it was a disappointing, year for you even though the value of the company increased by over twenty four billion dollars it's kind of hard to match that all up yeah. If. It's. Gonna be a disappointing year I like the fact we've made 24, billion but the I've. Regularly, measured the. Performance. Of Berkshire, by the, change in Book value versus. The S&P, 500. With, dividends added, back I mean you, can you. Can buy a, an.

Index, Fund a very. Low-cost index fund and get, those results so unless, we're delivering, something better than those results, over the years we aren't doing anything and. It's. True now that our the, real value of Berkshire is considerably, greater than, Book value but, year. To year but. Value is not a bad tracking, measure of how our intrinsic business, value is and. So. Some. Years we well, generally, speaking if this. If the SP has a big up year we're, going to fall short because, there are a hundred percent in stocks we're. A third in stocks and and and then we tax, affect our gain so we, take thirty five percent off those gains as they. Occur so, we we. Would expect to beat the, ESP. In a social year or a down year we expect them to beat us in an up here but. Our job is to beat them over time the, S&P, was up by just over 16 percent last year Berkshire, shares, were the Book value who was up by over 14 percent. For. For. Me to be rounding, there, is. That a reflection you think of I mean this has now been four years running, that Berkshire. Has underperformed the SP, on that is that a reflection of the massive gains that we've seen in the stock market or do you think this is a reflection of how big Berkshire has gotten at this both both, but. It's. It's. Been a three out of four we had one sector yeah and and of course we, still we still never had a five-year period when we fall in short we've had 43, consecutive five-year, periods, where we won but but. If the if the market is up in, this. Year. Any. Significant. Amount then. Our five-year record will get, broken. But. It's it's it's a function of the fact that. For years and. But, it is a function of size to, what. You've been doing along the way over the last several years is making bigger and bigger acquisitions, as part of all this you said you were disappointed in 2012. You didn't make a major acquisition but you followed up very rapidly with, the recent announcement of the Heinz acquisition.

How. Do how, do you get to these acquisitions why does Heinz make sense, well. Makes, sense because we've, got a business, we like and we've got a partner we like and, we've, got a price, that I barely like. But. We've got it we've got a great. Business and. And. That that's the most important, thing yeah then we have these terrific. Partners Georgie Paolo the bond I've known for a dozen years. You. Couldn't you can't find better business people and they, are they will do the work we. Are a financing, partner and. You, know we hope the Heinz 100 years from now I mean if. You own great brands, and you take care of them they're, terrific assets, we, have a question that came in and we've been soliciting, questions this is question number 62. We've, had questions that have been coming in all along and this comes from someone, named Wilco, shinsen. Dorf he says as an investor, I think Berkshire was a better value than Heinz question. Is would, it have been better for Berkshire, to buy back its own stock at current prices than, to buy Heinz at a 20%, premium, to its market value whoa. Buying. Buying, Berkshire, up to 120, percent of book we, feel we're making significant, money in. Other words we feel the value of Berkshire, is well over a hundred and twenty percent a book how. Much nobody knows. We. Can't get chances to buy twelve billion dollars worth of, berkshire. We had that one piece from a state, that was 1.2, billion but that's a big piece but. One doesn't preclude the other. We. Could buy Heinz and we could buy our stock if it was in that hundred and twenty percent range. The. Surest way to buy make money is to. Buy your own dollar bills for 80 cents or 90 cents now it's. Not precise, what that dollar bill is I mean whether our stock is worth 138. Percent or 130 fibers on a book or some number I don't know I just know it's worth more than honored % but, you, know if somebody walks in here I don't have to know whether they weigh 300, pounds or 350, pounds know that they're fat you know I mean, you don't have to be precise on these numbers and. We. Did if we get chances to buy our stock at a hundred twenty percent of book or less we will be buying but, if we get a chance to buy another high yeah. We. Will do that too one does not preclude the other okay. Why. Don't we talk a little bit about the sequester Joe was just talking about it this is the first business day back since the sequester, took place I flew over the weekend then I was a little worried you'd be facing long lines as you got out it wasn't the case how, big of a deal is the sequester, and what do you think eventually should happen well. I I, think. You could go on for quite a while. The. Sequester, in effect. Reduces. The amount of stimulus to the economy I mean. They. Talk about stimulus, and they say well this is a stimulus, bill you know and they vote 800 million or something I ate our billion and say well this is stimulus, stimulus. Is when, the government operates, at a significant, deficit that is, stimulus, by changes. Definition. We're. Operating at, a trillion, dollar deficit.

Roughly. This. The, sequester. Reduces, that a little bit raising. The taxes at the start of the year reduces that somewhat but we're we're still operating at a deficit, that a six percent of GDP, and by, Keynes's, definition, in the, fourth year of a recovery that's. A pretty fair amount of stimulus so it, it's, just it has the effect of reducing stimulus. But it sounds like you think that's a good thing at this point well I think well, I think at some point reducing, stimulus is good and I don't think a. 6%. Stimulus. In the. Fourth year third, to fourth year of recovery that. Is recovering, I think. That's still giving the economy quite a quite a juice so, you're, not worried about the, sequester, and about this pulling back in the economy because there have been a lot of scare. Tactics out there there have been a lot of people who have said this is the end of days if we get to this point you don't think that's the case we're going to bring down spending, and we're going to bring up revenue and, we may get there in fits and starts and, everybody, may scream each time we do it but. The deficit is going to come down and it needs, to come down and it will come down and and. We. May be doing it in a meat axe way, in. This particular, move we, did it in kind of a meat axe way in terms of the revenues going up but at, the start of the year when we increased. The. Payroll tax by a couple percent that just that hit all across the board you know on poor people and and. People. The modern means it, was a lot of money it, was a roughly, an equal amount to the sequester incidentally. So. We cut, the stimulus, from, these two factors, but it's still, 6%, of GDP and and, if. You ask me three or four years ago whether. Having running, deficits of, 6% after, a recovery, that's been going on for three years was, appropriate. I would I would say that that that's a fair amount of stimulus so isn't, is getting, there in a meat axe way better than not getting there at all. That's. A good question. It. Probably leads. You to getting there at all. It may have to use the meat axe first and then people kind. Of look at their handiwork and say we. Have to do better than this, but. You. Know we still are talking about spending three, point six trillion and taking. In two point six trillion and that's, a lot of stimulus. Okay, Joe I know you have some questions as well oh yeah I mean I bet just when. Warren talks about where, we are and if we are recovering I mean you'd have to extrapolate. What you said to Ben Bernanke, and the Fed I guess to Warren, I mean it awfully.

Stimulative. At, the Federal Reserve and. I guess I would just read him with tuning the lines of what you said I guess. You'd wonder whether they, need to be quite as free. And easy right now -. Yeah. It's an interesting thing Joe because, out. We're, running will say very. Roughly a trillion dollar. Deficit. And Fed. Is buying roughly. A trillion dollars worth of, and. Not necessarily, government, bonds but mortgages, but but government issued paper or government, that's regarded, as government paper and. So. In effect they are picking, up our. Deficit, and creating. Bank reserves with the money and you, might say. You. Look at that and you say well this is wonderful you, might, say why don't you have him by three. Point six trillion of government, paper every year and and then there wouldn't be any necessary you. Enough have any taxes, and the. Treasury, would be running a or the Fed would be running a huge profit, then they're running about eighty billion a year now but now they'd have this wonderful, carry. You. Know that three trillion of assets that, they have are. Financed, about it although over a trillion by, currency. In circulation well, that doesn't cost them anything except, the cost of the paper and then, they've got a couple trillion or close to it a bank reserves which cost him a quarter of a percent so, basically you. Know I'm. Jealous of the Fed I'd like to have a machine like that myself but they they, they, it, doesn't cost them anything so if they can do a trillion this way why not do three three, and a half trillion and then we wouldn't have to have any time being all CSIS for anybody picking, up on this. But. It's. It's. It's something that can't go on and. If. It was this easy you know we were doing it centuries, ago and. I've. Got enormous, respect, for Chairman, Bernanke I think what eat it in the fall of 2008. Save. This country. But. I think. It'll be interesting when they get. To the unwinding, stage of a balance. Sheet it's usually a lot easier to buy things than to sell things I thought that my own job. The. I just had one follow up on the on. The sequester, I don't, whether you agree, with me on this or not Warren but I guess. The worst thing is that we feel like we've done something and. We may be less, willing, to do more and we didn't do anything about you. Know the lion's share of what we're spending all our money on this. Came out of the discretionary side, it. Did nothing for the mandatory side so those, huge issues, in in the demographics. Of our population. And though all those things are still there and it's only 2.3, percent of, the total but. If you take it as 2.3 of the discretionary, it actually is a pretty big cut for discretionary, and it doesn't, even get - it doesn't even get to the core of our problem so it's you, know in that way it's it's, kind of it, misses the mark it may cause some some. Unnecessary, you know furloughs. And pain and and it doesn't even help our situation. No. It's it's a very dumb way of. Attacking. A very serious, problem. The. Problem is particularly, serious if, you think about it. You. Have people. On both sides. Rushing. To television, cameras, on Sundays and other days to. Lock, in positions, to say I won't do anything but this and if. You had a negotiation. At a labor negotiation. And, you had a number of managers, people. On management side going. On television saying I won't budge an inch from this and then you had a whole bunch of people from labor going on saying I won't budge an inch from.

That. Does not set. The. Stage for, negotiation. Then on top of that if you, have somebody negotiating. For management say me and one labor, union. Leader out there and, I. Negotiate. With him finally, we get in private, instead of on television and then, he. Can't go back to his membership and get his position ratified. It's. A terrible, it's, just a you. Couldn't negotiate under, more. Difficult, conditions, and I think there's strong. Evidence that one. Or even, perhaps both parties, but certainly one party is. In a position where. You can't make a deal in private that you know is going to get ratified. By. The membership I mean they can't control their base yeah well, and they don't speak for it yeah and if you if you're, negotiating with somebody and you don't know whether they're speaking for their base you've, got a problem even in negotiating for businesses. I always feel I'm going to disadvantage, because when I say well we'll pay ten billion dollars we'll pay 10 million dollars but, the other fellow says I got to go back to my directors, and I got to get opinions from, investment. Bankers and everything so there's, it there's. An imbalance of commitment. And who. Wants to lay out their best offer. If you, if the other fellow when he says yes doesn't really mean yes I the. Real key, to making a deal is to, have two people who can absolute, we speak for their constituencies. And who when they say. Something you can count on them delivering and and as, you start moving away from that and we've moved away from that enormous lis, television. Accentuates. They're just, speaking. Out accentuates, if somebody says you know I won't give a dime on taxes and and then. Their. Constituencies. Here at those are the people who vote in the next primary so now that there they get locked into positions, but, if you'd gone back to the the, Continental, Congress they. They they they negotiated. In private, and they were not out there staking. Positions, and saying I will do this or I will do that and I. Think it was I don't think I'm not sure we'd have a constitution, if, we'd had a, bunch, of television cameras, out on the side and a whole bunch of people that couldn't speak for their constituencies, I mean you you have the same players. In place that, that probably lost trust, in each other after 2011, is there a way to get it back have you ever seen a situation where things have gotten out of control but those same, activists.

Those Same people in charge could. Get back to a position, of trusting each other well the way that you'd get a deal made as if. Obama, and Boehner and. Presumably. Reid-mcconnell to but but if. If they could actually go into a room you, know go up the Camp David you know whoever maybe and, hammer. Something out with the knowledge that, once. They hammered it out they could deliver their constituency, that's, the way deals are made whether it's in labor negotiations. Whether it's whether, it's buying companies, or it, it, just isn't made by dealing with people who can't speak for their constituency, okay. Warren. If you'll bear with us for a moment we're gonna slip, in a quick break here, Becky. You, we have viewer, questions. You, have I know, how you operate and you've, got probably. 14. Hours worth of questions for, your three hours so I know I know that you don't need me but I am. Ready. When you are I have so many things I even want you know I even want to ask Buffett about Herbalife, I swear I mean there's so many things I want to ask you know what you. Would not be the only one Joe we actually got some some, other viewers, who wrote in questions about that too yeah cuz it's a big brand name it's a big brand name. And you know he loves brand names involved, or kind of very. Vocal, about where they're taking down with this since. We brought it up what. Are you weighing. In. Herbalife but, both Carl, Icahn and, and Bill Ackman are members of The Giving Pledge so I, would. Like to see both of them making a lot of money because they're gonna give at least half of it away to charity, so. You, wouldn't say one way or the other have you ever read through Herbalife's, filings, or had anything I haven't, no all, right I understand, you want to be politic, and stay out of this. So. Instead why don't we jump right back into another controversial, subject, you were just talking about Bernanke. And what you thought about what the feds been doing recently Joe, just mentioned in his headlines that Bernanke. Has warned, about the risks of pulling back too soon how that could damage the economy and I want to go back to something he just told us in the last break he said I think. It will be interesting when, they get to the unwinding stage of the Fed's balance sheet when, you say interesting, what. Do you mean and I say that because you called 2008. Interesting, yeah. It's. Very easy to buy you've. Got you've got the Treasury issuing securities like, crazy and you just you, just stop them up you know if you buy 85 billion a month and you. Just, credit bank reserves. The. Fed has about. Trillion. Won or something, like that of. Currency. And circulation you could just put more currency in circulation but. Basically. You credit, bank reserves so that if. You're going to have three trillion of assets you, need to create. A trillion, eight or a trillion item, bank, reserves and they pile up and the banks get a quarter of a percent on it and they don't like it because they're losing money but, they don't have good places to put out a lot of money now now, when you start selling, you. Know you at, that point you. You start chopping up reserves. And. That's. A that's a much different action, than buying. You. Saw just the whiff, about. I don't know two or three weeks ago though though just a whiff of the fact they might start. Tightening up and stock. Market, all. Over, the world. Everybody. That manages money is waiting. To, catch the signal. That the Fed, will reverse. Course. And. You. Know there there's, I think they're on a hair-trigger so, I think, the Fed will try, to give little signals, here at all of that but in the end there are the HOF a lot of people don't want to get out of out, of a, lot of assets if, they think the Fed is going to tighten a lot and. We've. Never quite had in my listen, to my knowledge we've, never had the degree, of. Disgorgement. That. Might be called for down, the line and and. Who. Knows how it will play out. It'll. Be noticeable. Be. Very noticeable have, you done anything differently, at Berkshire, to prepare for that no I it's interesting, Becky. Nobody, believes this but. Charlie Munger and I have, been buying stocks, and businesses, for 50 years in that. Entire time, we've. Never had a discussion, of, macroeconomic. Factors in making a decision as to whether to buy or sell a business buy.

A Business service buy or sell securities, we, just, it. Just doesn't get into it our. Consideration. And if I were buying a farm I would not be thinking about what the Fed was going to do if I were buying apartment, house if I were buying a business outright, I wouldn't so when I buy a piece of a wonderful business say coca-cola or American Express it. Is not a matter of consideration, so Charlie and I will talk about the business we, will not get into discussions, about the fatter or government. Earn but that may also be because you run books are so conservatively. I mean you are constantly, making sure you have a huge. Amount of cash on hand in case the. Hundred-year problem comes exactly so I mean you've already guaranteed. Against us anyway yes well we don't we. Don't know what hundred your problems going to come can come tomorrow come 100 years now we, want to be prepared for it so we always are going to deal from strength but. In terms of making the decision as to whether to buy Oriental. Trading today, or pass whether, to buy Heinz today, or say, well would you we do not get into macroeconomic. Discussions, at all everybody, thinks we do they think we sit there and decide what emerging, countries are going to be better so that, just doesn't get into that just. To differentiate from what you do versus what everybody else to does that, may not enter your, conversation. Ever because, you've already guarded against it it's, yeah. And because we think the important, thing is to be in the right business at the right price price. Is, all-important, and if, you read Chery headlines, and you're willing to pay a much higher price you're. Making a mistake and if you read depressing, headlines and you say I won't buy at any price you're making a mistake that's why I wrote that op-ed. And in, 2008. Price. Takes. Care of the, future and and. Mushy. Read terrible, headlines for six. Months or a year or whatever is I refer, in the annual report I bought my first stock, in the, spring of 1942. When we were losing the war in the Pacific but. I bought a very cheap stock and I, felt. We were gonna win the war eventually you know but I didn't I if. I'd waited three. Months as my sister pointed out to me I could have bought a watch. The. Question the real question is whether I got a lot for my money and, whether I've got the staying power to wait till things change, all right I know you don't look at the macro issues I know you don't pay attention normally. To where the. Stock prices are but you did write that op-ed, back when you thought stock prices were very low when you look at where the indices, are now which, is right near all-time highs, does. It make you nervous does. It make you less likely to go out and say buy buy buy in terms of the stocks that you're adding to your portfolio I. Anything. I bought at 80 I don't like as well as 100 but but if you ask me whether stocks are cheaper than other, forms. Of investment. In, my, view the answer is yes we are buying stocks, now, because, but we're buying them not because we expect them to go up we're, buying them because we think we're getting good value for them. All. Right Joe I know you have question too I had. A quick follow-up. Becky. Since we got such a non-answer. About. Herbalife. So. I. Miss, there is an expert, on, Herbalife. His name is Herbie Greenberg and he.

Messages, That he. Warned. You owned a multi-level. Marketing company. Called pampered, chef, did. You know that, well. Does. Not make money by selling to the to, the people who represent us right but it's a multi-level, mean is there a problem with with the whole ocean I mean, I guess they're all different but. You have some experience, at least with that business model or something similar right not, exactly well actually, yeah. No I I. Think I, think where you look for problems is whether you actually make your money by loading up the. Salesperson, whether they make any sales or not but yeah Wall Street has multi levels I mean you have sales. Managers. Who get a portion, of the Commission's on the on the on these. Sales, representatives, that work beneath them you have that the mutual fund industry yeah you have tiered layers of supervision, where people get overrides, on those below that yeah that life insurance the. Real question is whether you have it so that that, if you just sell the guy a kid of something and and. He never makes another sale whether that's satisfactory, for the business that you've made your money on selling the kid well. It's out the, accounting, yeah and it sounds like you're saying that's what you're saying that pampered, chef is different than Herbalife and Herbalife, might sell, a bunch of stuff to people that never sell it to anyone I don't. Know whether that's the I know it is not the case at pampered chef I do not know what the situation, is at Herbalife I've read, assertions, about that but I really don't know what takes place at drip okay all right all, right, so you don't know enough to because, it did sound like you were almost calling it a pyramid scheme - yeah I never read their 10k and I've never I've never asked, anybody that's, in our direct selling operation, what their techniques. You know. Icahn, can crush Ackman, but you could crush icon, I mean if you just want to get into it I mean, that. Money I, can't can you know there's. Not enough ACMA don't have enough to withstand this, but I think you could do the same night I mean if you jump in here Warren, this could be you know this could be fun no she. Always shall, we split the profit or loss Joe I've. Already, tried to get you know like what about your set now I'm getting a bottle of ketchup as the latest say and I'm waiting for it by the way, yeah. Just, be. Patient. If. You're good you may get ketchup yeah yeah guys, we're, gonna slip in another quick break Warren, Buffett is with us all morning long, Warren. We, did receive a lot of questions this year related to Berkshire and, just.

Some Of the things that are going on there let me start with one that comes from Jay chef. He asks you've been critical of LBOs and, private equity in the past leveraged, buyouts and private equity in the past yet, you are partnering with 3G and leveraging, Hines does this indicate a change in your view on LBOs, and on private equity yeah, this is a a partnership. That's buying a business, to keep and. Our. Partners, like the, idea of some leverage in it, we. Don't like leverage. As much so in effect our preferred stock is providing, some leverage to their common so. Instead of having loads, of debt providing. The leverage, we. Have our preferred stock which is equity and carries. No threat to the capital structure but, is not a private equity deal that this is this is a business to own Berkshire. Will own a Heinz a hundred years from now and and there's, no thought, on. Berkshires part of solving, a share there may be a few people in the. Triple gene group that, decide that they want to sell at some point. And. If they do I hope we get a chance to buy more of it but but, Heinz is forever as far as we're concerned in. Your letter you pointed out that the preferred shares have, more than just the the higher yield, that they're bringing in I mean that this is also something that brings, you warrants to buy more of the stock yeah, we get we have a 9%, preferred, an. Eight billion dollar issue we. Have a. Call. Price on that preferred and eventually it'll get called and that, provides some extra yield, because the callers at a premium. Probably. Provides another point a year and then. On top of that we get. 5%. Of the fully diluted, common. Basically. For nothing for buying the preferred it's, it's a deal that it's, a very fair preferred, but, it does create extra, leverage for. Our partners, 3G, meaning. They only have to put up four billion, for their half, the equity and they get more play if kinds. Works out as we expect. They. Will get a return, higher on that common that we get on the preferred but we'll do very well on the preferred and by, having that preferred in there we. Minimize, the amount of debt leveraged so this is not something. That's that's. Where, there's debt to the to, the ceiling, on it several people had written in about how this is different than your usual acquisition. By partnering, up with someone normally you look at a business where you want to keep the management, that's there and you, look at that and it's a long time at in why do this what's region, well, 3G, I've. Known George Apollo lemon. For. A dozen years I know as associates, I think. They may be the best managers, in the world so, and. Instantly, they're getting no extra, ride, from. Managing it so. There's. A three percent carve out for management. If, they meet certain, certain. Performance. Targets but I. Would. Love to have that group manage any business that we have and, so, they are the managing partners were the financing, partners, and. To. Me it's a dream I mean we we, get terrific, management, with them management. I couldn't buy and, they. Get somebody that can finance it with a phone call which, makes it very easy from their standpoint is the 3%, of annual. Net income or something no it's it's, the, ability. To buy three percent of the common. If, certain. Performance. Levels don't happen okay let's, get to another question this one is from Jeff Verdun he writes in with the recent purchase of Heinz are you worried that Berkshire will ever become too diversified. And will end up having to sell off companies like other former diversified, companies including, coca-cola and General Electric because, they strayed, too far off of their core business. They. Strayed too far off of their course we. We. Have managers that are running their core businesses that the railroad we have matt rose that is his core business that we, have great able but the energy business that is this core business so we have, before. This deal. We had eight different companies, each, of which would be a fortune 500 company if, owned separately and they, have fortune 500, type management's, and those, people are managing the businesses they want to manage that's, the same situation we're going to have at Heinz, so. We, we. Couldn't run. Berkshire. From the top that, it's not designed that way it's designed to have a group of businesses that are run by people that. Love them and then know how to run them and, it's it's, their goal in life run those businesses, their goal is not to run Berkshire their goal is to run the railroad or whatever it may be so, it's, an ideal situation, I just stay out of the way okay, let's get to another question this one comes in from Bill breech who writes in regarding, the unusual, Heinz options, activity prior, to the announcement of the acquisition, can, mr. Buffett describe berkshires procedures, to try and prevent premature, leaks, of insider, information regarding.

Prospective, Acquisitions. There have been a lot of questions about well we try to minimize who knows about it and and, but. You're always going to have, your. Lawyers know about it, our. Auditors, don't know about it we don't we don't consult them our. CFO is going to know about it my assistants, going to know about it so and. That's true, with the other parties. As well in this, particular case you had. For. Investment, banking firms you. Had two, commercial, bankers. And. You had people, at. Our place at 3G, and so, a lot, of people end up knowing that that's what about it that's why I like to push these things through as fast as possible, and obviously I, will, guarantee you that that, person that bought it on Wednesday bought those options I mean, that is that is inside trading I mean they're gonna nail that and. They should. We. Were doing great up till that point if you looked at the Heinz stock. Behavior, it did, not outperform, the market or anything I thought we were gonna get there and. Even. On that Wednesday the day before we announced, the stock I believe was actually down but. That options trading clearly reflected. Somebody that knew something and be, very interesting to see who it is we've. Never had a big problem, we had you know we had the situation in Lubrizol. But, that was that was a different sort of situation, we've, never had anybody. At. Berkshire, that all, the deals we've had that has, been involved in insider trading you, know very quickly on that point let me bring in another question, from a viewer this is from Harvey Cohen it's number 13 control room he, asked, what was the total legal, bill to close the Sokol affair well that's, a good question and I can't tell him the answer but it is, more than I would like. Because. We had our own legal bills we had his legal bills and and, it's not totally done yet in terms Leo Mills but if. I had to guess and, I'm really guessing here I just. I would, I would guess. Maybe. Four. Million dollars or something like that have, you spoken with Dave Sokol since the affair that's, what Dave's, uncle for couple years. Joe. I know you had some questions too yeah, I did I was just watching Warren with that answer I mean four. Million is, you. Know is not a lot obviously for buffer for Warren not a lot of money but I saw, the pain on, his faith is four million dollars to him he says, he has mentioned I mean. Again. For, $400,000. What he's like I can just see him just it, Warren. It so we're getting closer you're getting closer Joe keep. Going. The. In the past you have made the point that it's better to buy a great business, for a fair price than, a fair. Business for, for a great price and I know that Heinz probably, fits into that, again. But you know Warren Heinz Benner, when, was a family, 1870. Or said 1869. 88. 1869. Yeah they went broke and then that, company but the successor, that was fine. In a great business for a long, long. Time and I don't know about your price I guess you probably paid a fair price but I'm, just wondering you, know it, sooner or later you have so much money at Berkshire that you have to deploy and, you find companies, like Heinz but you could have made this acquisition any time in the last twenty, or thirty years and probably gotten a fair price I think, that your Brazilian your, partner, definitely. Made, a big difference here, yeah. He did he does you know there's no question about that no we would not have done the deal if we hadn't have been in partnership with Georgie, Paulo and. It made sense just in terms of being. A global a brand that you can just leverage globally, and he's the guy that can leverage, a glow so it does it makes it make sense that way to me okay I got it not because it doesn't seem that profound, to me to buy a cat you know to buy a brand, name ketchup. There's I can give you an like probably 10 or 15 you might as well buy Twinkies, too while, you're at it get in the the option bidding for that too but you, know just as far as a brand name company, at a fair price there's, you know you got a whole shopping list. Yeah. They're not there's not too many that are big but but you're right there's a you know wait well we've owned coca-cola but we've only own 9% of. It now for I don't know what 25. Years or so yeah, but, you're, right we would not have we would not have done this we. Would not have done, this at, this price without. Being partners with Georgie polym all right can you will, you throw Bloomberg, under the bus once and for all you mentioned coke again I mean for that ridiculous. I mean you. Can't even order a pizza with, a party, and get get a coke in in a two-liter bottle, I mean it's just if that, is not a you, know a nanny, state run amok if you won't say that from me I'm I, don't know if I'm going to ask any more questions, well.

There's To it there's 200, calories, in that's, 16-ounce. Bottle. That, he will tolerate but he doesn't want to tolerate more than 200 calories I I I. Have seen certain people, on name but public, officials, who, have eaten. More than 200, calories of dessert, at. One time without having to order a second, serving. The. Real question you, know I get, 8 27, or 28 hundred calories, a day and I've been picking those 27, or 800, all my life and it seems to work reasonably, well and and. If. I'd eaten broccoli, all my life you know I'd probably be in some mental institution. Salt. Annie loves salt and he flies around you know with a big carbon. Footprint, and it just it just looks like let them eat cake it, looks like I'm here you know I like. A king and I'm listening abide subject why, yeah, I'm a king and my subjects, have to live differently than I live because they're too stupid to make their own decisions, it galls. Me warm I think. I I think, you should pick 20 whatever whatever your bat metabolism, rate is and you should pick 2700, or 2800, calorie right and you ought to have them yeah, and how we filet efficiently I didn't, wanted. 2800. Calories worth of McNuggets, if I want that they are twenties. Our. Ice, cream I do that some, days I just go through a whole gallon. Alright, what are you eating for breakfast well here yeah I'm having a cherry coke is it there and there are about 200 calories in this but but. If I got some Oreo cookies here what the size is that bottle or what size is that bottle Warren. This. Bottle looks like 16 ounces I know, it's bigger. You. Can't have that put that back. You can you know where you can have it me and Marley's, but you can't have that in Manhattan. Yeah. Well we can have it no more. Gonna. Jump right back in with Warren Buffett the chairman and CEO of Berkshire Hathaway Warren. We've talked about a lot of things this morning but we have not gotten your take on the economy right now we'd. Like to talk to you about this because your businesses, give you a really, good idea about what's happening about across a broad sector, of the economy so. You laid out some of these things in, the annual report but. Why don't you talk to us about the. Powerhouse 5 these are the five divisions of the company outside, of the insurance Holdings that. Are. Are. The big big big E's in terms of what they bring in and Burlington Northern Santa Fe probably, that's the biggest by, far and, and, it's the car loadings were, up in, January car, loadings are up in February but our. Car loadings have been behaving somewhat, better than the other three. Big, railroads so car. Loadings. For. The four largest railroads, have. Been fairly, flat they've been they've been up in the intermodal they've. Been down in the traditional. Coal. Continues. To be down. In. Our. Case coal was pretty flat. But. I. Think. You'll see a small increase in car loadings this year, and. I, think I think, Burlington. Is going to do quite, well on it because we're well situated, in respect, to where. Oil has been found so, we are carrying more and more oil we're carrying about 10% of all the oil that's moving, in the. Lower 48, continental, United. States that's kind of unbelievable 10%. Of everything, produced, in the lower 48 yeah and and we've, got seven. Unit trains a day and a unit train is, about a hundred cars and. There's. Six or seven hundred barrels, per car, and. We, have seven of those a day moving but that number of unit trains is going to increase, as. Production comes on further, in the Bakken particularly. Rail. Rail has turned out to be a very good way of moving. Oil in this economy, because there's. Such differences, in. What. Oil is worth it given refineries, and. Oil, is obviously, far more, rail. Is far more flexible than, pipeline. In terms of moving oil around you. Know you bring, that up and I'm looking quickly to try and find some of the questions that came in from our viewers but the whole idea that rail is more efficient, that's. Something a lot of our viewers kind, of caught on to and keyed in and wondered what your thoughts are on the, XL pipeline and if you were opposed, to it because you'd, like to see more traveling, on Burlington, Northern on your own railroad no the Keystone. Pipeline or yeah, it's coming that'll, be bringing. A heavy oil down from, Canada, and and there's, plenty of places for pipelines and and we're, not anti pipeline at all but. The oil producers, are. Going to figure out what is in their best interest there's these huge differences. And what crude is worth in different place and and.

With. Rail you're, more flexible in that right incidentally oil moves faster. On trains and a dozen pipelines, that may be a little counterintuitive but, and, it certainly moves, in a more flexible manner, so I think if you talk to the oil producers, that. They're quite happy with, the rail service are getting and we've spent a lot of money on, infrastructure. To make, sure that in. Terms of loading and all of that sort of thing that it's, done very efficiently but, just to, clarify what you said a moment ago you are not anti pipeline you are not answering Keystone, the Keystone, XL I. Can't. Imagine you. Know I'm, not an environmentalist. In terms of knowing what but it just seems to me there's, an awful lot of pipelines in this country and there hasn't been a lot of damage done and the. The, heavy crude up there the tar sands it's gonna move someplace so III do, not have any objection to the Keystone, pipeline all right beyond what you're watching in terms of the railcar loadings, and what's been happening what's, your general sense of the economy based on what you see from housing, based on what, you see from manufacturing, based on what you see from retailing well, housing, is is. Getting better I mean our brick business is better our carpet business is better I I. Was. Just talking to people at USG wallboard, business is better now, this is from a very low base and, it's. And it's it's not galloping, back but it's moving back and and what we see with our real estate brokerage firms is it houses are moving, so. We're. We, continue, to. Have a slow recovery that. Started, in the fall, of 2009. I mean it's it's it's three-and-a-half years old now it continues, to be slow and certain. Parts, come. On faster, than others but. It. Hasn't taken off but, it hasn't stopped either you, know we spoke with Sam Zell recently, and talked with him about it and he's in an interesting perspective because he's been putting money into rental. Properties, and thinks that in, some ways this, resurgence. In housing may have been overplayed by the media a bit that when he really looks at it he still believes rentals are a great place to be for some time to come and he is investing. In that manner is. There a way that both. Sides of this coin can be correcting they can both be correct no no no you have, had this situation where. Five. Years ago 69%. Of people were in single-family homes than this drop down to 65 so a fraction, I believe so, the. Rental. Properties have gotten a disproportionate. Amount of the new household, formation in, terms of people, going into them but, you're. Seeing it in single-family homes now and and I still. Think for. Your viewers anybody, that's going knows where they're going to live for the next ten or so, years and finds the house that they like I think, they should buy it today and I think they should mortgage, it out for 30 years today I think they will do very well so that, has not changed there, there are several people who wrote in questions about that we'll get to some of those a little bit later this morning, if, you look at the other areas, Ascar, Marmon, again, some of the big businesses that you've been following what are you seeing in terms of manufacturing let's say on a worldwide, basis, which is what his car does well worldwide, the, United States is doing better than many.

Parts Of the world so. If you look at his car which sells the. Manufacturers, all over the world the. United States is one of the stronger places. For. In this car and and. United. States it's not galloping, at all but, we are making progress that. My bet and and. Everybody'd. Love to see it faster but. It's not going into reverse and I do not think the sequester, will cause it to go into reverse mid-american. Energy, I mean you've you talked to us back in 2008, 2009, when you really saw the downturn, it was energy usage energy, demand was down where. Do things stand right now admit Americans and what nine nine, of the different states names ten states yeah yeah, we're I think maybe. Second and that in terms of number States electricity. Uses not come back like you might think, I mean there's. No resurgence. In. The use of electricity. From. This is a slow recovery is, that from the consumer, or from it's, from. The kids you you would think, with. The growth of population, and, all of that that you'd, be seeing a little bit better trend income a lot hours for for, residential, than you have but, residential. And. Commercial, and, none of it's been that vibrant. Okay. So you're. Talking about a. Returning, economy, not, generally, stronger and does different, than you think Ben Bernanke's view of the economy is well I think that's why he's doing what he's doing I think he's seeing the same thing and he, feels it's his job to juice it a little and and. He's. He's. Doing it I. Think. He would feel I shouldn't. Speak for him I think he would feel that absent, his juice, we. Would be might be dead in the water would you agree with him I think, there's some chance he's right on that yeah no I think. Very. Cheap, money makes. Things happen it makes asset a higher and one asset values are higher people do have a greater propensity to spend so if there's the second-order, effects, and third order effects but, no I think Bernanke, has. Sort of carried the load, himself. During, this period and. There's. No question, that stocks, that are higher, because. Interest rates are essentially, zero than they would be otherwise. There's. No question, that there's even more activity, on buying companies. Because. You can borrow money so cheap junk bonds are ridiculously, cheap so. He's. Having an effect but, even, though you agree, potentially. With his assessment of the economy and even though you think that he is probably holding. Up the lion's share of all this you, don't necessarily think, that he should continue expanding, the Fed's balance sheet, well. He's. Expanding, his balance sheet right now right but, I. Would. Say that there are. Everybody. That's involved in, managing money is. Waiting, for the moment when, they think that he's going to go in the other direction and, so. I'm. Sure, he's going to try to do various things to, sort of ease that in and be a little a, little, confusing, maybe as to whether he has done it but, there. Are all kinds of people with portfolios. Not Berkshire but they're all kinds of people with portfolios. Who. Will. Take a signal from him that. He's going to go the other direction as a signal, to them to, do a lot of things with bonds, and stocks and then. You could see a big a big. Reaction you saw this you know you saw this the other day when they. Sort of coughed a little bit the FOMC, minutes yeah. Couple. Hundred points, if. It. Will be a very interesting day, when, it's becomes crystal clear that, the. Fed has reversed direction. We're, gonna have more from Warren in just a little bit but. Let's get back warned, to some of the questions we've gotten from our viewers there were again a lot of questions that come in and probably the, types of questions we try and put them into categories what. We've gotten over the years more than any other type of question, are those that fall into the investing category, because people really, want to know your views, on the stock market your views on what stocks you're looking at we, just mentioned in the headlines about the HSBC CEO. Saying, that the bank is facing a really challenging operating, environment, in 2012. And one, of our viewers David Perkins wrote in and he wants to know if you could please comment on the banks specifically, those trading, below tangible. Book value like, Bank of Bank, of America and, Citigroup, what's it going to take for these large banks to get above Book value like, their peers at Wells. Fargo, USB. And JP Morgan well a bank that a bank, that earns one one, point three or one point four percent on assets. Is going. To end up selling above. Tangible. Book value if. It's earning six, tenths of a percent or five tenths of a percent on assets it's not going to sell both book, value is not key to, valuing, banks earnings, are key to valley valuing, banks and and.

You, Earn on assets, now it. Translates. To Book value because, to, some extent because, you're required to hold a certain amount of tangible, equity compared. To the assets you have but you've got banks. Like Wells Fargo, and USB that. Earn very high returns, on assets, and, they sell at, a good. Price to tangible, book you've, got other banks. Like. Maybe the two, you mentioned that our earning lower returns, on. Tangible. Assets, and they're going to sell they're. Gonna sell more book, james. Are are neots guys this is 103 I'm throwing you a curve ball on this he wrote it and he wanted to know what do you think of Bank of America does, the stock still have room to run you, notice that you picked that stock a couple years ago with the preferred that you got it yeah well I. We. Have warrants that run for nine years we're, gonna we're gonna hold the warrants till, the end of that period eight and a half years and. You. Know we expect Bank of America and eight years, to be worth significant. More than it is now I have no idea whether it's going to go up or down tomorrow, or next, week or next month or next year but. They. Are making progress in, getting. Rid of a lot of things that they shouldn't have been in they're making progress on cleaning up mortgage problems from the past most. Of which came from country with their acquisition, of countrywide there. They're doing the right things and I've got a terrific low-cost. Deposit. Base so over time they. Will do well but no. One knows whether that stock is in my view knows whether it's gonna go up down or sideways in the next six months so we just don't try to pick do, that sort of thing okay let me ask you about, another stock, this is one that we got a lot of variations, in this question it comes from Matt coca of, Muskegon. Michigan and, Matt I hope you're I'm pronouncing your last name right but he writes in if you could give any advice to Tim, Cook of Apple and its shareholders what, would it be should they give more in terms of a dividend CH and they split the stock as Apple now a long term growth stock that you would consider purchasing, at its current level yeah I don't know any Apple stock and I haven't I did. Talk to Steve Jobs a few years ago about what they did with the cash as we've talked about earlier but the. Best thing you can do where the businesses run it well and, if you run it well it. The. Stock behaves fine over, time you, know Berkshire, has gone from. $15. A share to 150,000. Now there's been times when it's four, times when it's going down 50%, and there's been all kinds of times when people have criticized. Doing this thing or that thing but, basically we've just focused on running the business and if you're running you've never had to deal with a hostile, activist, investor like David Einhorn who's going out after Apple right now well I would ignore him and I mean I would, I would run the business in, such. A manner as to create, the most value, over. The next five or ten years and. You. Know I you can't you can't run a business to try and run the stock up every day but. If you're looking at Apple I mean it has faced some massive, fluctuations tech, stocks tend to, be a lot more volatile than, some other stocks including Berkshire shares, there's, gone down 50% though four times, Wow yeah four, times in its history it's gone down 50% and. At that point again just focus on. Yeah. If you've got money you buy it and and and and you you, just keep working on building the value but four times and I heard from people of those times. That said you know why don't you do this or that you know and usually pay a dividend, they think it would might go up because of that wouldn't, going down actually. No. We, just kept focusing, on building value and and. I think apples done a pretty good job of building value they they may have too much cash around it's not one of the reason they have that cash around is because two-thirds of it hasn't been taxed yet and they. Don't want to bring it in because they don't want to pay the tax. You. Know that. When. When when Steve called me that was it was a few years ago you know I said, is your stock cheap and he said yes, and I said if you got more cash than he and he said a little bit you. Buy in your stock but he didn't do it but, okay, you just said what, you told Steve, Jobs a couple years ago and you just said yourself when, Berkshire went down if you have cash, buy the stock, so you're basically suggesting. A stock buybacks, yep if you don't have uses for the money in the business yeah. Now, we're, always looking to buy businesses so. But. But we when, our stock went from.

Ninety. Thousand. Or thereabouts to forty or forty five thousand, I wrote. About it ten years ago to buy the stock and we, just didn't have any luck buying it but if you can buy dollar bills for 80 cents you, know that, it's a very good, thing to do unless you have some needs in the business, all. Right let's talk about another stock this is one of your big for investments, coca-cola and chris crowler writes, in why, do you not increase the cokes take the name is near eternity. And this, company seems to be a never-ending cash cow the only 9% of the shares outstanding yeah we owned two hundred four hundred million shares and and and we. Haven't bought or sold on any stock for twenty years. There. Are other things that I think are cheaper you, know we, bought Wells Fargo this year I think Wells Fargo is cheaper than Coke I may be wrong I think, they're both wonderful companies, but. And. Then now I'm giving some money to the two. Other managers, in fact I'm gonna make. News for you today last. Week I told them I was going to give another billion, each. You're talking about Todd and Todd and Ted I'm giving them. Yeah. Yeah. They're making me look bad so I. Want. To give another billions, or they don't talk about it how, big are their portfolios, right now well they're, just under five billion right now and they'll, be, six billion on March 31st want to give him the next billion let's, talk about what you said about Ted and Todd in the report you. Talked, a little bit about their, performance which she said outpaced. The espys performance. Last, year by, double digits for you right then right why, don't we bring up I think we have a full screen in the control, room that tells, exactly what you said in the report because it was pretty interesting the way you laid this out it. Says Todd, combs and Ted Weschler our new investment, managers have proved to be smart models of integrity, helpful. To Berkshire in many ways beyond portfolio, management and a, perfect, cultural, fit you. Go on to say that, each. Of them have outperformed. We hit the jackpot with these two in 2012. Each outperformed. The S&P 500 by double-digit, margins and, then a much, smaller, print again this is what you did in the annual report, they. Left. Me in the dust as well I can barely read it from I'm disappointed, that you can read it actually I, kept. Trying to make it smaller. They. Did, a terrific job and it's, sort of interesting because here, these two fellows are they ran hedge funds before but they want to work for Berkshire and. You. Know the standard arrangement in hedge funds is two-and-twenty, well. With, them managing, now six. Billion they'd get a hundred and twenty million dollars each just. For the two now. Look. At their expenses, we, have one woman Stacy. Got shot she takes care of three people there in terms of their clerical, self here in Omaha Ted. Has one assistant, in Charlottesville, Virginia todd, has two people working, in New York for channel checks and things like that believe, me you can cover that for a lot less than hundred and twenty million they, would have made last, year four, hundred plus million if under. The standard two-and-twenty arrangement, and they, would have gotten carried interest treatment, on it you know but instead they get a very. Decent payment. From us based on beating the SP, and it's. All ordinary income to them so it's, it's. An interesting example of how the chips fall in this business and they and they love they love working for Berkshire and they'll be working for Berkshire 20 years from now let, me ask you another question that came in this one came in on Twitter from at my. STC. RI such. Meistrich. I guess is how you say that. Who wants to know what's the likelihood of Berkshire adding another investment, manager to the two already on board it's it's quite unlikely because I'm so happy with the two I mean I'd rather just give them more money and I, know.

You. Know it's, like getting married I made it yeah you know more a month afterwards, you. Do ten, minutes before and. This. Has worked out terrifically, we've in fact there's a third there's Tracy. Who does not manage money but manages businesses, so we've got the three T's Ted Todd and Tracy and they're, all home runs and, they they're, not just smart, they. Are devoted to Berkshire, they like they. Like being part of it and and, don't. All be with us in my view 20 years ago and. They. Couldn't be better, one. Of the other changes you noted in the annual. Report was. That of the stocks that you break out and in the investment holdings there was a new one added to the list that was Direct TV right and you only put stocks on this list that you have over a billion dollars invested. In this is the first time that, someone. Besides you has. Invested, enough money to make it onto that list DirecTV. Was, the beginning again and that was because both Todd and Ted are putting money in this they both they both have put money in there I do not include, the. Pension fund monies they manage and there'd be another one on there if, that was included in fact there would be more DirecTV, because they had some of that intentions, to they. They. Concentrate, their investments. Just like I do one of them has I think only five stocks the, other may have 11 or 12 and they. Don't check them with me ahead of time I've I look, at some reports at the end of the month and so I know what they they buy or sell but they. We. Just make sure the things that where we'd have to file a 13 D or something that we make, sure that that's coordinated but other than that they. Have total, carte blanche they could put it all in one stock was, it just a coincidence that they both invested in DirecTV, they didn't check with each other first I think they're both smart. No. I don't think they check they. Don't balance it off. And. As, you know a small. Part of their compensation is, based on what the other fellow does so. They've got every, reason to be cooperative but, they do not they. Work quite independently, we, all go to lunch on Tuesday and and and. But. They. Each have their own oh just like I've got my own portfolio okay you tried to slip this thrill you mentioned that there would be another stock that would have made the list of over a billion dollars if you were looking at the pension for money they run as well what was that stock Nevada what, I'm sorry was de vida de, vida yeah yeah. Wow. Okay. A little bit as, well Warren, if you'll stand. By we're gonna slip in another quick break great okay and Joe will send it back over you what. Is that dialysis, stuff Warren. Yeah there's. Dialysis, right, mm-hmm. Who pays for lunch yeah I think I I think I think we actually own maybe thirteen percent of the company or something like that who's here which I just for, lunch on to those other guys pay don't there i I, know, I paid, for lunch yeah and Berkshire. Does not pay for lunch I pay out of my own pocket whoa, whoa. Can. They get an appetizer. It. Depends how they performed. What. More fun bah well. What. Is it about really, well it's just fun to call them cheap, really. Wealthy people and they and they like it they do it's like yeah they don't you know think, they they relish, it anyway more from Becky and Warren Buffett in just a moment good. Morning again everyone and welcome back to the special edition of squat box we are in LaVista Nebraska.

Which Is a suburb of Omaha and home to Warren Buffett's oriental, trading company, this is a company, that he acquired in the fourth quarter back in November, relatively. Quietly Berkshire, never put out a share or never put out a price for this acquisition, but it was reported, to be around. A half a billion dollars, this is a company that you probably know from catalogs, if you have kids at home this is company that does arts and crafts and again it is an Omaha company that has been here for a long time Warren. Buffett is our special guest this morning and we've been fielding a lot of your questions for him all morning long things that have been coming through and Warren, for the people who are just tuning in we talked in the 6 a.m. our 6 a.m. Eastern hour about, your, thoughts on the sequester, and where, we stand right now this is the first business day after the official. Sequester. Process people may have not noticed a lot of changes yet but there could become some, coming as soon as April 1st when things really kind of kicked down and your, opinion is the sequester, a good, idea. Well. It's. Probably a it's, a terrible way to go to, and in, terms, of cutting expenses but that doesn't mean the cutting expenses isn't a good, idea we've. Done two things this year to. Reduce. The deficit, which means reducing. Stimulus. We've had huge stimulus in this country we had a bill we called stimulus, but then anytime the government runs at a big deficit that is stimulus, Keynes would be prou

2019-01-22 20:40

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