CNBC's Becky Quick interviews Warren Buffett (2/25/19)Feb 27, 2020
Berkshire Hathaway Chairman and CEO Warren Buffett joined us just after writing his annual letter to shareholders and Warren, this is important, this is something that the investment community looks forward to and considers a must read because you spend a lot of time writing. too much to yourself you start writing the letter well this one i started very early very early because i had a section in mind it turned out to be the last section but when i talked about the american story window i probably wrote that at the end of the summer and and then i work on different sections but it takes a long time. so because at the top, the opening of every chart in the past up to this point has been the Berkshires percentage change in book value as the measure he thought was most important this time, he sort of pulled it out and He said it's not the most important metric anymore for a couple of reasons, one is that Berkshire has changed so markedly, but he also thinks it's not going to be how they measure things going forward, no, it's not the most relevant number. at least over time, not in a one-year period, but basically its market value because we've become overwhelmingly an operating company and we expect to become even more than a company that actually owned a lot of stocks and bonds so actually I talked about how in previous reports I wouldn't have wanted to quit in a year where I was beaten to the punch by the quitter who was adopting one that made me look good, so I actually included them both in it and it was a good year to make the transition and you said it's different I've always had the image that I'm talking to my sisters I have two sisters both are Berkshires almost all of their investment they are smart I'm not active in busi ness so they're not reading about it every days, but I'm pretending they've been out for a year and I'm telling them about their investment and then this year because we may be buying back shares.
I tried to get the vision that they were talking to me about whether they should sell their shares and I was explaining to them exactly how I would see it if I were in their shoes, so there's Doris and birdie at the beginning and then I take it off at the end, but I'm talking with them and I'm trying to talk to them in a way that if you know they're pretty much entirely in Berkshire and if they were thinking of selling something, here's what I'd like them to know before they make a decision to make that used a new description to think about it this time which was the idea of having five groves being maybe a lumber company and having five groves that Berkshires actually invested in broke down and looked at each of them on a case by case basis being the bus no insurance nesses that Berkshire owns another which is the stock pool which has the latest insurance companies but also has treasuries and cash which has and what am I oh and then neg leisures that he owns part of not just the five groves that's pretty interesting how did you come up with the idea of just the gross because it's something that someone who isn't that into business can quite easily understand well berkshire , you know, like dozens and dozens and dozens of companies and what do analysts see? you know they want to go out and find out you know how many boxes of valentines we sold you know in our candy company and you can totally get lost in terms of looking at the force trying to look at each tree because some of the trees are blooming some of them are deteriorating and some Some of them are huge and important and some of them are more or less twigs so I thought I'd group the assets in a way that's logical and where you can figure out what valuation I might place on that particular Grove and I think that's much better. have to try to describe 80 or 90 businesses with 300 but close to 300 90,000 employees I mean we're in one of the businesses right now and this is a very interesting business but we have Jordans in Boston, we have a star in Houston, yeah we have RC Willey and review everyone and tell them about the last open story and it's much better to watch it in groups because they make sensible groups until then this is the show to Ask Warren and we've gotten a lot of questions from viewers, some from Berkshire shareholders, some from people who are just longtime observers.
I would like to pose a question that comes from Marcelo P Lima. o Lima writes in and I think this comes from Twitter mr. Buffett in his letter, you note that some of the Berkshires trees are diseased and unlikely to be around for a decade. Which ones do you have in mind and how do we prevent healthy trees from joining them? the ones that have major problems just from a morale standpoint, but people would still run them and yet we have companies that are both up and down and it would be very difficult and and the ones that are, as I call them, diseases, they're a very, very small part of our profits, you don't gain anything analytically and you'd have a hundred people going to work today feeling like you know damn well we better give up or something like that, so I don't like to name them specifically, although you could probably figure something out by looking at our list of companies, there are some companies that are simply in the wrong industry. t his country, I mean, it was a hot industry, you know, when I was young and we don't do it anymore, uh, we saw a lot of it here in our store, so no, I wouldn't like it if I was working in the company. accent and my bosses, they're on the wane, name some of the great redwoods they consider essential for growth, although I think you said the energy of Berkshire Hathaway and the Burlington Northern Santa Fe Railroad or the largest redwoods found in the girl yeah they're big again and they both set after-tax profit records last year combined they make about eight billion dollars after taxes and eight billion a lot of money for us that's a third of our operating profit that we made 24 a big fraction of the operating profit last year twenty four billion and those two companies alone got a now Berkshire Hathaway Energy also has several companies but the BNSF railroad is just a big railroad let's talk about that operating profit number which was twenty four point eight billion dollars, but under GAAP he's now targeting four thousand million dollars and that's because of an accounting change that came into play this time it was a twenty point six billion dollar paper lost on his investment holdings which now counts from the huge number of securities he owned and then also the three billion dollars at Kraft, he goes out of his way to emphasize again that he doesn't think people should look at these meetings even though you're reporting them that way, gosh we say the same thing, well that's the final profit gap of twenty four eat eight billion also our gap earnings but their operating earnings and I think we had something.
I was out of the tailwind on that, but but there. they were forty-one percent higher than any year we've ever had in operating profit but beyond that we've got this great stock portfolio and also the right kratides for dinner but the main thing was the stock portfolio and we've made a lot of money in stocks over time, but there have been years where we have lost money i i tell shareholders that we expect to make money in stocks over time we have no idea what will happen in the years it will be up or down and then they changed the rule last year so that unrealized gains or losses are recognized through the revenue gap which hadn't been true for dozens and dozens and dozens of years before so that changed our numbers , but that's why I explained that's why I tell Doris and Bertie that what happened in the county during a I used to point out that this time it was a decrease of more than twenty billion dollars, hab I would think of quarters where you'll see a big rally and you don't think people should pay attention to the rally, or these are fluctuating numbers, no, they should pay attention to how we do over ten years in the stocks that we own, but really, the the way the rule works now you know every minute it registers its nieces at market price and we are buying shares that in some cases we will hold for ten twenty and even more years and those companies are holding onto earnings they are reducing the number of shares they have a lot of things at their favor and I would.
You know, I've had a lot of money, we had 173 billion shares here and I love having them and they'll make us money over time, but I have no idea what they'll do in the next year or two. talk about some other questions that have come in from viewers just regarding Berkshire, well here we are Eric Lafont wrote and said Warren, how have you structured Greggable and G Jane's compensation now that they oversee dozens of different businesses that you pointed out? who thinks the business is much better run now that goes to our vice president each running their own set of companies yes our rep will be out very soon that shows what they got i think unless there is some quirk from the calendar or something like that, they will.
They each got 18 million dollars last year and the base salary is a high percentage of that and then the bonus is discretionary with me but they're doing a fabulous job and it says discretionary just based on maybe the only one you'll read about are the proxies, there is another question that comes up regarding Greg and the G which says this is from the rational walk a leading question on Monday given that Abel and Jane are not only responsible for running those businesses but also the VP shouldn't they be on stage with Charlie at the annual meeting?
Many of us would like to hear from them. answer any questions that arise. I know we are there. It won't be that many years that the tool is our button and they will be on stage when we reorganize the format and rewrite the format. He is rearranging Charlotte to som. e degree, but and it is logical, it is logical for them and I hope that many questions will be sent to them at the annual meeting, well, because we will feed a man. that's exactly right, but there's a rule for public companies that you can deduct only a million dollars less for compensation, unless the excess is tied to some formula for everyone to pay, you know you may be running the super company of all the time and they tend to increase the base salary to be a million or two million and then they call the rest something that qualifies under the IRS where they get the deduction for every company to kill you and they and their employment counselors know and everything to that you have all these salaries, but they have something that makes it very easy to make a lot more money and that money is deductible, while I don't think what we overpaid, I think over a million, is deductible. ble, but I mean it would be a joke, so we're paying them good money.
I think that is not deductible. they blacked out or just 10 or 20 years ago and immediately we all, oh, we just had this revelation that now that you're really only worth a base salary is a small amount, you know, and they came to me to design something like this. it's just kidding I mean we're not going to pay a million bucks here and big responsibilities so you'll see you'll see a little bit different situation I think the bonus I give them I think was 16 base and two. I think the two from Moto are probably dr. Sol 619 on the east coast and you're already making friends well done let's move on to another question from the audience this is coming from Brian Chan he asks how Ted and Todd are doing since they got together about eight years ago admins of money that were there. have Ted Weschler and Todd Combs have outperformed the index Charlie said recently that most money managers add no value compared to a final yes II the early years each of them came at a slightly different time as maybe a year to a year and a half or something like that at different times and they were way ahead of the index and paid them compensation now they paid them so they came in thirds so they could make up two thirds if they missed the second year and so on, in Overall they're a little bit behind the S&P each by about the same margin for the same amount of time for the whole period for the whole period and all of Perry's a little bit different for both of them now managing over 13 billion each have done , they've done better than me, so that's a yardstick.
I brought it up because if I don't, someone else will have done an incredible amount of work in terms of acquisitions as well, and Todd, and in particular at our medical business, they know that whatever Berkshire of us did in a deal with Lee Enterprises in terms of managing our newspapers. Ted handles all of that. it's both of them but they both interview in all sorts of ways to Berkshire but it's been a tough time beating the SP and that's the deal we have with them and they have a little deficiency transfer to I mean they had some Claud back before, they made quite a bit of money for a few years, a substantial sum from Claud back because of the three year back deal and thennow they have a little carry forward another question that came in have they done better than me Tony Dickinson writes about what changes we should expect from Geico with the transition from Tony very well to Bill Roberts and how they approach leadership differently if they are two peas in a pod by that I mean they've worked together so long they're so compatible they have the same feelings about Geico I mean no one can do IKOS magic Tony's feelings about the guy go but there's just no change I was at a Geico meeting that they had maybe 40 of their top executives and they all introduced themselves and gave the list of how long they've been with Geico.
I think the shortest time any of those people said was nineteen year old girls. It's Warren himself. We are sitting with you for the first time since. Last week's news that Kraft Heinz put out there was so much news that it's hard to even summarize it, but they made profits that didn't meet expectations they said it won't get any better in 2019 by the way they revealed that an SEC investigation is underway In accounting they recorded the value of the brands at just over fifteen billion dollars. Did any of this news surprise you? What do you think of what happened? week or ten days ago about something like the SEC investigation and I'm not on the board I'm not on the board and I talked to Greg and Greg had been talking to the head of the audit committee a lot and he's a great guy Jack Pope, but the jotting I do my own jotting in my head so I wasn't surprised by that, although accounting firms view jotting a little differently than I do, but I wouldn't argue with him about it. and I can give you some calculations that would corroborate it.
I have been observing. I was wrong on a couple of counts with Kraft Heinz, but I think we talked in the slider lunch hour about packaged goods brands losing some ground to retailers six months ago. slippage, but packaged goods companies are always in a fight with retailers. My family had a grocery store for a hundred years and we didn't have a lot of bargaining power, but really strong brands and can go head-to-head. agree with Walmart or Costco or whoever but the weaker brands tend to lose now what's interesting about Kraft Heinz is that it's still a wonderful business in the sense that it uses about $7 billion of tangible assets and made six billion million before taxes in es--so in the assets needed to run the business 7 billion make about 6 billion after depreciation before taxes, but we and some predecessors, but mainly us, paid a hundred billion more than the tangible assets so for us you have to earn in 107 and not just the seven billion that business employees and we don't have a way to be wonderful we had a way to implement another seven billion and six billion but it's not there so i think i think when you go head to head with a walmart or a costco or maybe an amazon very soon and you have a modestly good brad maybe a shovel bra of the trends a little against or something you know you have a weaker bargaining hand than it did ten years ago the really classic situation is this all Becky Hines started in 1869 so they have all that time to develop various products particularly catch them things like that the craft part is a little murkier but it goes back to CW Post i n 1895 those companies brought all kinds of brands all kinds you know them you had them as a kid you didn't have a mouse something they have distributed worldwide through tens and hundreds of thousands of outlets have had hundreds of millions of attempts spent a fortune on advertising and their sales are now twenty-six billion Costco introduced the Kirkland brand in 1992 ago twenty seven years and that brand made thirty nine million last year while all the craft and ice brands made twenty seven twenty six or seven billion so here there's a hundred more years tons of advertising built into people's habits and everything else, and now Kirkland, a private label band, comes along and with just seven hundred and fifty outlets does 50 percent more business than all the leathers artisanal brands and own brands are going strong, it varies by country in the world, but it's bigger and it's going to continue to grow, okay?
A couple of questions about this, firstly, does that mean you overpaid? Well, we overpaid. We do not overpay for crafts. I mean a firm price we buy. G yeah but 3G we had the shareholders and then we overpaid for the craft and we wrote down 15 billion of that and who knows then that's the way CPAs work the markets actually brought it down more than that and and probably very correctly I mean what you have to remember say you know how the stock you don't know it's yours you pay ten dollars for the share it goes to eight you think it comes back to 10 I'll sell it to you it doesn't go up to 20 you say I can get sell half of them take all my money all that stuff is crazy but in the business if we paid seven billion for Crafton, which is all it takes to run the business, we would still make the same amount as if we paid the hundred one billion three million shares the business doesn't make more just because you pay more for it and we don't just after buying handicrafts everyone starts speculating on the things we buy so the prices of everything go up and then p Let's make big premiums for it and misjudge.
I hear what you say about private label brands and competition from places like a private label brand that Costco offers, but what about the habits that only Millennials change? How much is it because younger consumers don't want the brands that their parents and grandparents do, there are some changes in habits, but if you think about it, people don't really change their habits that much if you try to think about the brands of thousands of Billion dollar brands have been created in food and private label, there are very few billion dollar brands. that's being created and so the pivot partner and yogurt probably knows but doesn't really see that that hasn't been a huge change the physical volume hasn't changed much although the price ability has been changed and that's huge, we had an analyst last week on Friday talking about what she perceived to be the problems with Kraft Heinz and she said she thinks they're under-investing in the business. bone and that's how you make this profitable but she thinks brands have been underinvested would you agree with that? she saw a lot of innovation in indifferent products and saw them advertised to some degree. of things, but how many things work if you look at Kellogg and General Mills and go up and down like coke.
I mean, how many new products really get big. % of catch your brand has higher percentages in o There are other parts of the world and it's a very very strong brand some of the cream cheeses are a strong brand but other brands are weaker and you're right certainly in certain categories, maybe in a kool-aid or jelly or something. I know they go back 75 years or so and there are some secular trends like that, but that's not the key. I mean, they brought costs down, not on an innovation or product quality or anything, they just put it out as DNA basically now.
They may have made a mistake in terms of work. I shouldn't say that we may have made a mistake in terms of trying to push some of the retailers hard and finding out that we weren't as strong as we thought. they were we go to one of the questions from viewers because we get a lot of questions related to that Kraft Heinz the t5 number of this someone named JC Dominguez wrote is this the type of incident at the time when you buy more Heinz or pull the plug oh we do Don't pull the plug, I'm sure we've never sold a part of Kraft Heinz and if we did sell or buy it should be reported within two days so we can't do anything significant. but it's not it's not our our weird style it's the partners with 3G in it and so we have exactly the amount of shares that we had before and they don't think I should never say never at 88 someone else might do but I can tell you that I have absolutely no intention of selling I have absolutely no intention of buying why wouldn't you if you're still in business and it's 30% cheaper today why wouldn't you buy more because it isn't worth as much as you have 1.2 billion shares, that's 42 billion for equity and we owe 30 30 or 31 billion, so the whole company sells for seventy-one or two billion dollars and as I mentioned, it's about six billion operating income now for six four six billion would you pay much more than 72 where it doesn't look like it? it's going to be going up for a while maybe even good they said it's going to go down in 2019 you know there's other things I think you get more for your money and better prospects not that I consider the prospects of Kraft Heinz it's terrible , maybe I would buy the bet one way or another, I think people leave more of our products this year than last year, but if you see better places to spread the money, why not sell it well?
Hey, we can't as practice. It matters moving tens of billions of dollars easily, but beyond that, well, I mean, if we're dealing with a million dollars or ten million dollars, would I have a position? and Ted and Todd can get around reasonably well with thirteen but that's going to be hard with a hundred and seventy three building what you are you know you can dance like an elephant not like a guy on Dancing with the Stars but we always have a Safe that winner Joe last year is true the favorites were eliminated early but we split the $100,000 consolation prize to whoever does the best now that it was split eight ways last year but last year we had five people come within a game and only the last few games to win the million dollar prize now if they had won the million they would have had to split it if all five had won it but there is a million dollar prize and we will do it again this year and we limited ourselves to the employees of I know from Berkshire but my close personal friends who have a brick it doesn't matter I got you in last year and you didn't no no we weren't doing other things in the It's that I'm depending on let's do it again this year used with a Creighton versus Xavier thing because they both have kind of losing records there, they're not doing that great, even though Creighton is just Georgetown and yesterday Xavier just beat Villanova.
I don't know if you saw it's pretty cool so let's do something in there and go look there's a netjet card I can think of that I don't know what the payments are let's go to bed but let's see who goes further and gets another brick exactly if i'm like i guess i guess 36 i got 30 seconds on the show vs a netjet membership for you is i'll tell you what i'll do i'll let you name the bet and i'll let you name the bets and we'll go from there Wow this is the honor Joe system you know yeah okay let's do it you're speaking his language yeah but you know he's very slick and very smart like he sent me a netjet card it had my name on it was absolutely useless he was like a you know , was like me. use it as a luggage tag it was worthless yes you said you said net jack cards you didn't say it had to work that's a starter card that's the starter card you guys have big checkered stuff for you guys i got big stuff to talk to you about .
I'm worried. I mean, I think you think markets are expensive and worn out. it means you don't like to say that and you say in the long run it will be fine but you have a lot of metrics that you're looking at like GDP market cap or GNP that's what looks expensive there I mean there are things that look expensive and you're having trouble finding them so you know you have to be honest with us about it or is it really exposing it Joe if it depends on the interest rates that we've talked about before if you say long term 3% bonds will prevail over the next 30 years stock is unbelievably cheap okay because even you know i mentioned kraft heinz makes six billion on seven billion intangibles yeah even if you pay seventy billion and have six billion on thats better than having 70 billion out and three percent government interest rates covering everything and if there was a way to short the 30 year bonds and own the S&P for 30 years it would give you huge pr odds that the SP is going to be 30 year bonds now that we've had this period of long term extended wall rates not just here but around the world and now it looks like we're not going to raise it very fast so we can to be in a new world the world Japan entered in 1990 and yes Seoul stocks will be very cheap when we look back but you know this hasn't been the story of the United States having these continuous low interest rates, so there is no if I if there was an option today for a 10 year purchase of a bond atten years whatever or 10 years or buy the S&P 500 and hold it for 10 years would buy the S&P in a second well which brings us to a question a viewer wrote in this is t67 pH pants says from the annual report in the 13th f it appears Berkshire was the least active and public markets in the quarter when shares were cheapest also made fewer buybacks in the fourth quarter when cheaper Berkshire was off the gas in the fourth quarter a conscious dec ission and based on what you just said, we've got all these signs that it looked like the Fed wasn't going to raise rates in the fourth quarter, so why wasn't that a buy signal for you?
Well, I thought I talked to her about in the fourth quarters just like they did in the third, second and first quarters, but sometimes we have other things on our minds: that can use a lot of money and sometimes it works and sometimes it doesn't, but what does that mean? we kept your cash in case there was a deal we had at least one possible deal that was very big and so we like the stock in the fourth quarter but i like it i would like to buy an even better business is what i said in the annual report that we expect to be buyers than buyers of stocks and this year we have not been net buyers I should point out that I mean markets go up pretty straight I still think stocks are more attractive but I have trouble buying them every day it depends on the deal you just made mentioning is that potentially still on the books No, so I don't think it's not a deal here in the United States on this planet so you went out of your way in the letter to say that you plan to buy the companies outright are more expensive, even if you don't think stocks are too expensive, ask yourself that they are, and in this stock thing, you now have a company. also but you also have private equity and if I don't know how if private equity is flexible because they can call their partners for more money and all that but let's assume they would have a trillion available now that they use a lot of leverage they they call themselves private equity but they're really private debt to a large extent but that trillion could buy up to say three trillion assets if leveraged with two trillion debt well the total stock market is something like 30 billion. and and if and If you take the top five companies, you take out six other companies, you take out four if I can afford a trillion of that, so you're at something where the buying power of private equity plus the normal buying power of companies that they want to go in there. it's just a lot of competition when you start looking around, do you think private equity companies are overpaying for this or may they be rather concerned or not?
I mean they obviously want to make the best deals they can but they're in a game that's a lot more competitive than it was for them if you go back to the 1970s when you know when leveraged buyouts started, which is the same thing they're doing. now, but the name lost its appeal there at some point but the offers you could make then are vastly more attractive than the offers you could make now. Let me ask you one more question that was asked by a viewer. You have answered this but there may be a little more to the answer this is t-84 for the control room nick writes why there was no big acquisition for berkshire during the 4th quarter 2008 sell off do you anticipate a much bigger drop in the market or I guess maybe it was timing maybe it was so fast yeah well in 2008 for example we were going for Constellation Energy we ended up buying the shares and making some money but that was part of a deal when constellation fell apart was in the fall of 2008 i was watching the tape dave sokol was watching what was going on and we actually called at the same time and he was on a plane with greg to baltimore yeah that day and we contracted to buy it so we were ready to buy that and we tried other things and we put but we were into marketable securities big time at the time as you know we spent I think we spent 16 billion dollars in three weeks where was when where no one else was spending a d when was it between september 15 and october 7 or 8 and then we already had another three billion committed to dow that weren't going to be withdrawn until later so we spent our stack of cash pretty
quickyou actually have a huge pile of cash right now though twelve billion dollars yeah we are and that doesn't even count the other twenty billion and cash like no that does count I mean but the hundred and ten or something like that counts to twenty and you know I'll never get to twenty anyway but we have a lot of cash and we'd love to use it but we're a private equity firm that's going to borrow six or seven times as much they call Eva da, which I don't know.
Don't use it as a metric they are going to pay more than us and like I said we pay too much for God if you pay too much for something it doesn't suit you by making more money to make you look good learn. what he makes and if we would have paid if we paid ten billion less for crap that would be d Don't learn the same money you know basically this question coming in this is control room F Seven writes Doug Wilford in Warren when you meet with bad news in a holding company, say Kraft Heinz, can you share the sequence of criteria you use to determine? if stocks are for sale and you buy or about to sell what you really care about like what's in what's behind a drop well the stock market isn't there to instruct me it's there to serve me as well that if it comes if there is bad news in the low stock the question is in me I have this is if the long-term valuation changed and you know that there was good certainly there was bad news in Geico they were not bought for example but there was bad news in American Express when i bought it originally in the sixties it was the best investment the partners ever made so what you like is bad news about a fundamentally good business and then you have to make sure the business is still fundamentally good but not bad bad news on the go Good business, we're better off because Apple stock is down significantly from where it was four or five months ago, so if it stays there, Apple probably won't, but they have said they are going to go down to cash neutral which they could do. either buyouts or dividends or buybacks i guess it will be mostly buys there's about a hundred and thirty billion dollars away from cash neutral now if the stock was 200 i'd buy six hundred and fifty million shares if it's a you know 150 buys close to nine hundred million of shares, yes, we are much better, you know if it is at a lower price when they are buying back shares, our partners are selling us and there is nothing cheaper than the worst. that can happen from our point of view with apples if they sell by the thirty or something because we don't like to buy it that well at that kind of prices the camels yeah well i was back at geico ten days ago when the camel was running w well yeah you should earn some kind of crazy you know crazy or advertise me you just you know turn that into you know people need to do that if I mean Geico what the hell is a Geico It's a Martin government, you know, and it wouldn't have gone anywhere, but you ramped up all that ad spending and look at it now, so I mean they really owe you the entire ad industry.
I am the work. Yeah, I'm so glad you remember I was the one who came up with the idea for a Geico, the gecko, I mean those lizard people, Geico, it seemed, but the Geico people, weird, remember they all think it was their idea and I remember that little guy came out and said why don't we try to get it? credit where we talk a little bit about what joe was talking about and joe stay there because i know you want to ask about b and d that could influence this the trade talks with china yeah how important is that what have you seen in their companies in their investments well I see that mo Monthly reports from companies come true and a good number don't know about insurance at all obviously but a good number of the rates have had some impact one of which has 10% errors and some of them say if it was 25. % There would be some major adjustments, some of them have been swallowed up by suppliers in China and some of them we parted with, but it pushes prices up.
I mean no question about it but it hasn't had a huge effect at 10% a number of them told me at 25% I mean the world changes and you get a lot more money for your product or you get a different layer you do something, are you relieved to know that the deadline has been extended and delayed? that second of March not everything will go to 25% well I'm relieved that there's so much chance for common sense to prevail it's bad for China it's bad for us if we head into some kind of trade war and and and and you know what negotiations are difficult and something like this ISM is great to deal with both countries and to some extent you are playing a game of chicken and because it hurts both countries and I generally think that when two very smart countries have something very important at stake they will end up taking rational decisions, I mean, I've been thinking that way with the Russians since you've known about the nuke.
Even though you have all kinds of stresses and people usually figure out what's best for them and best for both, China, America is working on something. that's all both parties can live with. Did you think there was a valid reason to extend these negotiations by saying hey, hey, wait a second, we're not getting a fair deal, well I guess we haven't been getting a fair deal? to a certain extent, but I think we can sustain, I mean, to a certain degree, the United States can do things that no other country can do, so I think there are smaller countries, for example, if they want to run trade surpluses with us, I want say in it and it strengthens their economy, it doesn't hurt us that much I mean, I think we have a role to play in the world that way, but I also don't think we can be Uncle Sam Jo, you've got some breaking news, yeah, off general electric breaking up for many of us who realized GE had so much money invested in biopharmaceuticals the General Electric company is selling their biopharmaceutical business to Danaher interesting thing Danaher 421 point four billion dollars and 21 billion of that will be in cash says ge will use the proceeds to reduce leverage strengthen its balance sheet expects the deal to close during the fourth quarter of this year and a lot of you know there's a lot of comments about how you know to deal with how this is in line with your plan to reduce the strength of the leverage on the balance sheet and all the other Danaher deal stuff in the meantime you see the deal add 45 to 50 cents to adjusted earnings per share in the first full year and instead of us talking about t this Becky me or you I guess we should get Warren's comments on the effects of these moves let's do just that and I want to mention this is something
warrenwe have questions from viewers about two random igE control rooms t 102 brian savage rhoda and mr.
Buffett, given the recent turmoil with GE, do you think Larry Culp is the right man for the job and if he could give you advice what would you tell him he should do? Given your current funds, well, I think you should sell the medical operation for twenty-one point four billion by dinner. I mean it has had sounds. I think GE should be leveraged. I'm sure they owe more money than they showed president and and they should sell assets to some extent not in a forced sale at all so this is not a forced sale price so I applaud what they just announced and i met larry at a great record dinner and we're a big ge customer we're a big ge supplier you know i've had some connection to the company for four decades and they called us in 2008 when they needed money and i think i think all americans he's cheering for GE, but I'm certainly one of those he's cheering for, have you been called more recently?
Well I've talked to them off and on over the last year or two but and but I've said the same thing pretty much that's what I'm saying right here Joe you have other questions on this front not so much as to that I have a lot of things obviously that we want to talk about, I guess Warren probably knows GE pretty well, do I? I'd like a little more color in his comments about G. He probably doesn't want to do that. What do you want with your expression? I haven't seen your 10k yet I mean I want to get your 10k as soon as I can't and it might probably be available right now and that's the document you have to read about 50% of you I don't think I thought Laura, yes, apart from that, yes, but they know that it is is is is is selling the capital selling for around one hundred 100 million dollars trillion dollars and and and then they actually have a preferred problem which is five or six thousand millions of people whoThey don't even know about it and then they have to know something over a hundred billion in debt I'm consolidating the capital but I think that's the way to look at it and they have it they have a couple of very good businesses but they were over leveraged and they have to reduce leverage and clearly they're doing it I mean you could write you could write a check for that war if you really liked it that's true but you won't be okay there's a question that came from a viewer and I asked this because we're talking about GE and it's a of many companies that is looking at potentially unfunded pension liabilities down the road this is the control room t54 Brian Bannon paths and how you see unfunded pension liabilities in the United States will affect our economy over the next 10 years, Well, if you're talking about the corporate sector, unfunded liabilities have been going down because all the new companies don't go for ben plans. divine benefit so you know if you take the four or five largest companies in the United States they don't have divine benefit plans we've bought a number of older companies so we have a fair number of companies with defined benefit plans , we wouldn't start any divine benefits plan, but that's about it, it's not, it's not a big deal in corporate America.
I mean you have a Sears and the Pension Benefit Guaranty corners but but it's a lot less of a problem than it was ten years ago or 20 years ago in the public sector you know it's a mess and you know some of what's interesting to me when they talk about these pr problems, you know, in New York and Amazon, all that kind of stuff, you know, if I moved to a state that had a big unfunded pension plan, I'd be faced with liabilities because I mean, who knows if they are going to get the corporate. income tax or my employees, you know, with personal income tax or what, but that liability is not going to be, you can't send it overseas like this and those are big numbers, really big numbers and they can get, you can delay a long time I mean maybe they're pushing you a little bit but the politicians are the ones who haven't really attacked in a lot of states and when you see what they would have to do I wonder to myself why do I care that I have to sit there for 30 or 40 years because I will be here during the life of the pension plan and they will come after the corporations.
I will come after the individuals, they have to raise a lot of money. I mean when you say the states that come to mind haven't looked at the stats in a while would be Illinois and New Jersey at the top of the list like I say I pray you buy Damon let's talk about Amazon's decision to say forget it to a second venue in New York City, we were with Charlie Munger that day and it was February 14th. Just a week and a half ago we were with Charlie Munger the day the announcement came out and Charlie made some pretty strong comments about it.
He said he thinks it's crazy that states like California and others are basically driving out the rich. What do you think? about that good. I heard Charlie about it and he says, hey, they don't have kids, they don't and a lot of our charities tend to give them things that are around them and they don't use the services almost as much relative to their taxes that they pay like the average person and they say they use the hospital no no me obviously well the state like Florida that has no income tax attracts a lot of rich people and in Texas you know when people wrote move there the f act that there is no income tax is a real factor and, I don't know about those two Tuesdays specifically, I have a feeling your retirement plan is in pretty good shape compared to old industrial states, you get legacy liabilities when you move Nebraska is in pretty good shape for a long time , we've been really against the state having any debt now they get involved with leasing sometimes well we're talking about a state vs state yeah now you're talking I'm on something new. tax plans that are being recommended in Congress or by specific senators or congressmen that are similar to some of those policies that we've seen in the states. fifty million dollars to OSI Alexandria agrees Jie Cortez with his plan to tax everything over ten million dollars at a rate of seventy percent Bernie Sanders with his estate tax going up to seventy-seven percent if it is enact those policies o Nationally, do you see the same type of exchange where people might leave the United States?
What do you think about these plans? Well, that's an interesting question. time change where they lived every two billion families around the world the only time they will have the chance to make the change but they will be transported for free to whatever country they want to go with their family and have citizenship what do they do ? i think it's going to happen tomorrow that people are in the united states a lot of people are going to come to the united states very few people are going to leave north korea might have a little bit of a decline in population i mean the point is i mean this It's an amazing country and it's true that right now we're raising three point three trillion dollars and spending probably four points weird I'm in debt for a deficit of about a trillion in a very good year in the cycle I mean what are you a prosperity and that's five percent of GDP and that's probably more than a shot you could actually take a two to three percent deficit and not have the debt to GDP ratio growing five years and prosperous we're in a ride like that we know can reduce spending, can increase taxes, but I would say that the rich are definitely taxed less than the general population, that was almost a dodge of the question.
I mean, if these policies drive rich people out, sure if you have your choice of where to go, everyone would want to come to the United States, but would rich people do that if we changed our tax structure? Well, I think most people who have rich people marked as rich drop their case. leave before the feds pick it up yet and i don't think you offered to most rich people if they were sane anyway and said if you stay we're going to take half your net worth and if you leave you can take it all with you and your eight I am eight years old like me.
I am leaving the United States. You know I could move. South Dakota has no state income taxes. Wyoming has no savings, so we have two states, the border. income tax if i want it's just across the river i had no income i wouldn't move i made it now i think people want to come here america than anywhere else and they would come would come if the deficit was a trillion or a point two trillion Warren, you're making the decision to leave all your money to the private sector in terms of charities and because Think, can I take on?
Do you think maybe it would be better spent there than by the government? Isn't it possible that it's just not the right idea to look at what's already inflated? You know what some people would think a bloated entity did? tackling the spending side of things or more e maybe you should reconsider if you think the government is so good at spending money, well why leave it all to the private sector? if you do, it was philanthropic Lee. I have about four options. Joe. I mean, let's say I have eighty billion dollars. incur taxes of, you know, twenty billion dollars in spending so the government gets twenty if it wanted to spend it as much as it could I don't know what the hell I'd spend it on I can I can give it all to my wife for sure and there's no tax that I can give you She could give twenty thousand dollars to four million people each and there would be no pot. twenty thousand could could do it there is no tax one thing you could do the wealth tax is wealth tax.
I mean, in theory, you are taxed on estate on estate. You can now donate to charity fifty percent in cash, 30 percent in appreciated stock, and have it deducted from your income from here. Yes, they essentially allow you to deduct everything. the gifts of wealth at death so you can have it might have a limitation that you can only get 50 percent of the philanthropy and treating it the same is actually like you are giving away income during your lifetime there is a a lot of things that can be done with tax law I mean taxes and I think one way or another when the Forbes 400 has gone from 93 billion to 2.7 trillion since 1982 the market system as we specialize we will get more and plus more for top people if we were in the 1800s and we all worked on farms you would probably be worth a little more than me because you would work harder and be stronger but the top person who farms would be worth one and a half to maybe two times what th The person below was not, but as we specialize more and more, the guy who is the best at knocking out another guy who is 200 pounds is worth thirty million dollars a pe read now its worth thirty million dollars to fight because someone invented tv and Cablevision as we specialize the rich will get even richer and the question is how to take care of the guy who is a wonderful citizen and fatherhood may have died normally or something like that and but you just don't have market skills and I think the Earned Income Tax Credit is the best way to address that question and that probably means more taxes, it should mean more taxes for guys like me and no matter how you do it I'm fine with what we've talked about. a lot of things so far but we haven't gotten your opinion on the economy up to this point there was just a report out from the Federal Reserve on Friday that suggested GDP for 2018 will probably be slightly below 3% what do you think the economy you are doing right now just based on your deals based on the receipts you see, the companies you keep track of which you have a major stock purchase right now just based on the monthly statements I get and some cases I got other data in between but overall things are a little bit better I mean the rate of improvement has slowed down but it certainly hasn't flattened out now that might change next month and the Home building has been disappointing but most of our businesses that I was in I've seen other numbers in retail that are strong and you know including Walmart but I would say our s retail numbers in January aren't strong, but January is a quirky month and that can be greatly affected by the weather, although any retailer will always like weather stuff. now i'm good now things look good when you say it's a little better that's relative to winning what's your comparison? well i'm saying if it played out as i see in january in february for the full year i think we'd probably go over our twenty four point eight billion but that would depend on insurance earnings because going away from their earnings they just report running , yeah, yeah, so I know business looks decent, it's not galloping forward. and the tariffs, having a small effect of ten percent, went to twenty-five, things would change a lot and I do see some more inflationary things, but no, I don't see anything alarming me at this moment, what inflation today if they told me GDP would drop this year, if it still we were doing the same thing, it's more or less the inflationary signs that you see at this point, well, just when I get the reports from the companies, they say that the costs of raw materials are increasing. and now the oil crash helps us I mean that's the basis of a lot of Rominger costs but overall there's more cautious pressure you mentioned housing has been weaker how you've seen construction of houses, why?
Do you think it's puzzling because you know that before 2008, you knew we were doing well? I mean, an obvious answer is to expect home formations to go down a lot in a recession and we had a bad one, but you had this big homeowners meeting trend running so you know it's probably changed by five points. well, five percentage points when you're talking about 125 million households or six million houses, there are people living in rural units rather than houses, so that setup has really changed and I would have thought it would have gone backwards as the people will get jobs back and all but single family home construction I really think has been pretty weak compared to what you would expect after ten years of really covering it with a stock market is now up to four quadruple from the lows and unemployment at 3.7 percent people are just making different decisions j-pal the chair of the Federal Reserve is ready to testify before Congress or North Tuesday and Wednesday of this week based on what he said about weakness and housing based on part of the recession he saw.
Does he think he made the right move by pointing to alast quarter much more moderate? Don't doubt it at all, I think he's an excellent choice for the chairman of the Federal Reserve, I was actually at Treasury in 1991 when Solomon was in trouble and I saw him make a lot of very good decisions for the United States government, it's Un is a smart man and he is very sensible because he understands both business and economics and I don't think you can have a better president so I will never doubt that you haven't I know you don't invest much decisions based on what the boss says the Federal Reserve or anyone else, but what would you be interested in hearing from him this week?
I just don't want to say no the effect that the investments are in knowing how much money we're going to spend on the railroad this year and energy or whatever we're plowing we always always spend more than our depreciation and we know the country is going to gain a lot of progress over time and we don't think we're smart enough to go in and out as to when the time is is a couple of questions that came up from viewers when it comes to the economy one is the control room t19 Rashad Khan asks Do you think 10-year yields are likely to rise from current levels over the longer term? panic the I'm amazed that rates all over the world or what they are this is not classical economics having trillions and trillions of dollars still in negative interest rates with the world really very well I don't know I you know I I don't get it no i think economists really get it i mean they have to explain it somehow but that's the really quick thing the real question for stock investors is are these rates more or less a new normal and the people who thought the Japanese race in 1990 could not stay where they were. to be suicide for people who sure do have spawns and so on and we live in a world that was not described in classical economics do you think it is due to the experimentation of central banks around the world? well i think central banks did what they had to do after 2089 and act i think europe was a little late in doing something Draghi finally said we will do whatever it takes the only one who can say that in central banks and I think the central bank was very well behaved well post the recession you mentioned twice this morning how could we potentially be in a situation like Japan where these interest rates are staying at these incredibly low levels it will work better for we that for Japan well the answer is I just don't know but Japan also has a declining population and no energy resources and I'm a different case than Japan we're here at the Nebraska Furniture Mart today and I know you've talked a little bit before we came on the show this morning just about Rose Blumpkin who founded Nebraska Furniture Mart you mention immigration so I thought maybe now it would be a good time to talk about her coming here in 1917 yes she came here on a ship from Yokohama and she landed in Seattle and I have the ship's manifest and her hair and I have her entry papers and she and she couldn't talk a word of english the red cross took her to fort dodge iowa where her husband was she spent two years there she couldn't learn the language there so they decided to come to omaha where there were some russian jews and they would feel that at least they had some kind of home and she sold used clothing and various things had four kids and about 15 years later she had saved two nty five hundred dollars and you are in what became the largest home furnishings store in the country except now we have one more big in texas but in the bigger 50 something market she took $2,500 and turned it into the biggest home furnishing store and the bottom line is she couldn't read or write and i got a contract here we signed this it is what got I wrote this in 1983 it's the 30's yeah it's really just a page I mean this is a signature page here and that's his signature at the top as you can see it's just a scroll and we didn't get an audit we didn't look property records to see, i just said mrs.
B owes some money and she says no and that was it at that point we bought we rearranged things within the family something like that in effect about 80 percent and worth $60 million on a 100 percent basis cent but we had but we shook hands and I felt like she had the Bank of England on the other side and then she kept working until she was 103. If any of my managers are listening, that's kind of the yardstick we use now. in retirement and she was a wonderful wonderful woman and when she never went to school a day in her life and when the family sat down to dinner they sang God America before they ate it you know that's an amazing story we're in the annual letter this year she read about the american tailwind yeah great as i point out there i am this march 11 in a couple of weeks italy 77 years since i bought my first share and i paid one hundred and fourteen dollars and 75 cents for three shares of service preferred from the city but if you had bou If you had been a pension fund and you had put a million dollars into the sp500 at that point and reinvested it over a lifetime of moderate investment that million would have turned into 5.3 billion you have gotten For every dollar you invested you have exceeded. five grand without ever reading a headline an annual report you never know accounting you just had to believe in america and you didn't have to pick the right stocks you just picked america and if that's not the tailwind it's more like a hurricane, I mean, is business America has done incredibly well and America has done incredibly well and you know I go back and point out that there were 277-year periods before that and that brings us back to the inauguration of George Washington and there was Nothing Here Then Now, you have a hundred and eight trillion dollars of family wealth in the United States, you know, we have something that works and that framework was not that we were working harder, it was not that we were more smart, but we had a framework that unleashed human potential and just think about those 377 year periods, one of which I experienced and you couldn't help but all you had to do was to believe in America and you became very, very you. you didn't have to read the papers yeah nothing you didn't have to pick a stock that did for the last 77 years but there's a question that came up in t29 this is from scott baker with so many people in the sp index funds huh? is it still like that? market neutral and the best investment vehicle for most people yeah i think it's the best investment because most people don't know how to pick stocks and most of the time i don't know how to pick stocks i mean which is not an easy game and by definition people are going to average i mean take everyone and add up and if half of them are paying big fees and skipping and paying commission for burgers the other half have to do better and no, it is as I have said that they mix and my widow will get I have instructed the trustee but ninety percent and in an S&P 500 index fund and ten percent of the governments just to feel safe, but he has not there has been a better bet than the United States, nothing like that, a question arose from this: f20 Ahmad abu huraira said who said what strong, a sustained shift to the left and fiscal and economic policy ripped the tailwind from American companies advancing an yeah well my dad thought you knew communism was coming in the thirties very anti Roosevelt like all my life I've been listening to half the country say if the other person favored by the other half wins things will go fuck it so i pointed out in my discussion i've lived under 15 presidents 14 of them i've invested under i didn't invest under hoover i was a youngster but seven were republicans seven were democrats i'm serious after the last election and in 2016, most of my friends were pro hillary and they thought you know, sell stars, you know you dig a crazy cave, you know and you. they don't want to take a political view on investing and most people put it through a political prism they just can't keep their politics out of this they can keep their religion out of politics they just have to look through those lenses and if d if you have done that if you have been a staunch republican or a staunch democrat for these 77 years you would have missed out on a big part of a party what about now that the holidays are changing?
Donald Trump wasn't a typical Republican and Bernie Sanders now looks like he's leading the way in some of these polls he wasn't even a Democrat until recently he's a lifelong socialist who rallied with the Democrats well he was a candidate interesting in 2016 because I know he was close and I would say 90% of the people who voted for him hadn't heard of him two years before that's really unusual and it gives hope to all people when you look at what he did senator, what are you doing? look at what Trump did with a lot of people look at the merit I would say it could be me so Sanders the big draw I think he had was he came yeah unusual authenticity I mean everybody wants to look authentic and they are authentic from a certain way, but they do. move as the polls come in and your advisors when you listen to bernie you get the feeling she was saying exactly what she believed now you may agree with her or not but that is a very attractive feature and the academy may not be enough to lead anybody to victory but it's not it makes people notice you they really know to a degree if you believe what you say when you're on the stump and Bernie really hated billionaires and and and campaign for that saying I want to say he was talking about Athena Klee and he's still talking whatever I mean I absolutely give him that Do you agree with his policies?
Well, I agree with certain things that make him angry. I don't like campaign finance laws and so do I. I think the inequality gap has widened and will continue to widen unless something is done about it, but I also think the most important thing is to have more golden eggs to distribute, so I don't want to do anything to it. the golden goose didn't lay it and we've had the golden goose lay more and more golden eggs there it's unbelievable in this country so we have something that works in terms of the market system in terms of produce many of the goods and services that people want the question is what happens to the person is he a decent citizen who has no market skills and we can figure out that a rich family can manage if they have six children and one of them is not so good in the market it's just good all the other personal qualities take care of them and we have sixty thousand dollars of GDP per capita in the United States which is six times what it was when I was born in real terms so we can take care of people and close but not fuck the market system well bernie looks mild compared to some of the candidates running to the left of him well there is someone who wrote this is t13 ted waller this is probably based a in a play from some conversations we had with Jamie Dimon but he says, do you still consider yourself a Democrat if you look?
I'm not a card-carrying Democrat, but never have been. I voted for a fair number of republics. I'm getting money for the Republicans. once because they want me to take care of finances in Nebraska, he said, but the question is for the question, Warner, you are a card-carrying Democrat. by virtue or something like that, I mean, I think they have different views on things and I think by the time they get into politics, they kind of mark their positions, even though they move them in a period like this when they think this. it can help to be more to the left you see people Please those kind of funds have a new vision all of a sudden because they saw how it worked for Bernie but no.
I will vote for more Democrats than I have in the last 30 years. I voted for more Democrats than I voted for. Republicans I was president of the Young Republican Club in 1948 at the University of Pennsylvania. I ran for delegate to the Republican National Convention in the 1960s. The only office I've ever run for. When we just went out with Charlie Munger, he said no. I don't think much of too many politicians, but he liked what Mike Bloomberg did in New York City. What do you think of Bloomberg as a potential candidate? What do you think of Howard Schultz as a possible third party candidate?
I want to answer most of his questions, but I'm illegal. Mike Bloomberg would announce tomorrow that he is a candidate. I would say that I am poor and I think that he would be. some things but I think he knows how to handle things. I think he has the right goals for America. He understands people. Understands. You understand the market system and you understand the problems of people who are not a good fit in the market. He says no. He wouldn't have a problem. being for him me Howard Schultz if he was suddenly run as an independent and if he was run as an independent I think it would take votes away from any Democrat, includingBloomberg a favor as a candidate so I think it would be a real mistake on his part to run and I think generally third party candidates are going to hurt one side or the other and are more likely to hurt the side they actually favor because they are closer to that opinion and therefore alienate more people who would otherwise go second best with that opinion, so I hope no third party candidate gets in the polls. a significant amount of them I mean there's always going to be a couple of people that come forward but I think third party candidates are good really people will just want to look at some of the properties some of the changes that checked in and Get your say on why first Apple cut three million shares to two hundred and forty nine point five million Apple shares and that caught a lot of people off guard, they were wondering if he wasn't selling to another fellow. in the office one of us was about six or seven million years old he had it before me and he works with a limited amount of money a third of a billion or so so if you want to buy something you need to sell something I want buy something.
I have cash to do it so he sold about three million shares I think he cut them in half roughly to buy to buy something else and I never sold a share so this wasn't even a conversation you had with him I guess this is a business thing yes I mean I don't get consulted Sometimes I learn at the end well I do at the end of the month I look and see how their portfolio compares to the previous month and say what they have done this raised a lot of questions from the viewers and let's go to one t14 jedi marcus wrote if you loved it which means apple is undervalued by over two hundred and trillion dollar valuation at over two hundred and trillion dollar valuation why would you sell any this last trimester?
You have a I already told you that you didn't say yes, by the way, I've never paid two hundred fern shares for an apple. Would you start shopping at a sixty or something? Why not? I think our average cost is a hundred and forty one or something like that, okay. was a question rick saffir also asked as this is t90 he said do you plan on adding to your apple position throughout 2019 and i also want to mention a tweet from jim cramer he tweeted on feb 5th apple dont trade as if Berkshire would buy again. I talked to Cramer about it and he said look I don't know anything it's just all of a sudden stocks really rallied it's almost like you're interested in lower levels in a number of stocks that we all know there are some where you really we can't go above 10 percent and in general I don't like to go above 10 percent because it complicates life quite a bit and with the banks it actually throws us into the bank holding company so there are stocks that I would buy that we or I'm nine at a fraction of a percent and I may actually be selling a little bit because they're buying back their shares and I don't want to drift above ten percent, but Apple I don't see myself selling the lower the better.
Like, obviously, I mean Apple is not one of those 10% stocks, doesn't it own about 5% of the stock or shot? So is this a situation where you've been quietly buying since it went way down in late December? I didn't really go back to where it could have gone briefly very briefly but but we're cheaper we'd be buying it now we're not buying it there was another question that came up this is Umar's t91 say bear Zubair who said Apple slowed down stock purchases and share repurchases from about $20 billion in the third quarter to about $8 billion in the fourth quarter just as the stock price dropped about 30 percent; in fact apple repurchased zero shares in dec 2018 when the stock was at a 52 week low what are your thoughts on slowing down the apple repurchase are good and apple has said publicly that it exists and they have repeated it that your goal is to reach what they call a neutral cash position or your debt is approximately equal to cash.
I think that would take a hundred and thirty. a billion or so get there but of course they could do some acquisitions, on the other hand they're earning a lot more than their dividends so mentally that number goes up. I tell myself that it is very likely that many things can change. this with them and the lower the price the better it gets but then they should be at four billion shares probably and maybe three years from now and also our 5% would become something over six percent at that point and I like that perspective and then we could buy some ourselves who knows depends on the price but they will buy a lot more shares if it's cheaper than if it's higher and and and you know it's just simple math we're better off if in the next three years apple is cheap er you loaded up on finance in the fourth quarter, added to your stake some JP Morgan Bank of America Bank of New York PNC and US Bank Corp and six years of core holdings.
I think our banks right now, why so much emphasis on finance? very good investments it seems that the prices are based on my thinking and they are there they are good they are cheaper than other businesses that are also good businesses by some margin and a couple of those we own the nine at a fraction of a percent and I don't like it go nine nine because that means in that quarter I might have to sell something so I try to give myself a year or two years of buybacks but Bank of America has been particularly aggressive in buying a site so Brian Moynihan has he did a good job winning that company over since he took over i mean everything he was the most underrated bank executive in the country and it's everything he said he would do he has done it and exceeded it and said stuffy goals all the time to to him himself and he's been smart about buying back shares JP Morgan is a relatively new stake he had 35 million in the third quarter and was a new stake brings it up to 50 million dollars ares or 50 points 1 million shares I must say that in the fourth quarter is that your purchase because for a long time you had it in your own portfolio why I still have a little but that goes back years and years and years yes then why JP Morgan now well the other question is why are we just dumb for not buying I wasn't buying it sure but it's a very well run bank and the banks can find a bank like JP Morgan that makes maybe 15% maybe 17%, even in that tangible as an ingenious business in turns 15 or 16 or 17 percent. in that tangible principal which is amazing in the world of 3% bonds i mean just imagine you had an escrow account with JP Morgan and they made a mistake and they gave you 15% and they couldn't redeem it what would you sell that account because you wouldn't sell it for 100 cents on the dollar you wouldn't sell it for 200 cents on the dollar when they even sell it for 300 cents on the dollar you have an FDIC-insured instrument that would now be at 300 cents on the dollar if it was 15 percent on principal , you would earn 5% which is much better than treasuries now if on top of that your deposit would allow you to let your interest compound to a certain point now that instrument is worth much more because if you have an instrument that could compound at 15% over 10 years and use the added capital which is worth much more than three times the tangible capital than current interest rates much more so a lot can happen to change that equation and banks e like every other American just about everyone else Business America got a big head start last year with the new tax law.
I mean corporations benefited a lot, including Berkshire, including banks that can be taken away, but on the other hand, the FDIC has now gotten a response. The initial FDIC charges on the big banks ended here recently because the FDIC has a hundred billion dollars now that all the money has come from the banks the US government is funded by the government is guaranteed by the government what the FDIC was started I think January 1, 1934 and I think one time he temporarily borrowed but he doesn't have a dime of government money in that money and now they have got a hundred billion in there and the banks are much better off because that fund takes care of the bank here and there that went bust by the way last year there was no bank in the United States no FDIC bank went bust that's the first time in a long time let me add one more question before we take a break.
Oracle, that was a share that suddenly appeared in the third quarter that Berkshire had $2.1 trillion, $2.1 trillion in Oracle stock at the end of the third quarter. it hit 0 at the end of the fourth quarter which is really unusual to see a tech company sneak into Berkshire properties like that and it's even more unusual to see it wiped out so quickly that you did and Larry Ellison is not a job fantastic with oracle i mean i have followed from a reading point of view but i thought i didn't understand the business and then i started buying. I felt that I actually changed my mind in terms of understanding and not in terms of evaluation.
I think I mean Oracle is big business now, but I don't particularly think so after my experience with IBM. I don't think I understand exactly where the cloud is going. Microsoft isn't doing that well so I just don't know why I don't know where that game was going leading up to f4 which is a question from a viewer named Mark Hall who said with IBM coming back how do you feel about leaving oh we left much higher rent prices than this I'm not hitting right but the noble markets are back and the brand is at a high level. that's been in it, you know, forever, I mean, when we met here 10 years ago, the DA, the S&P was at 666 and within a day or two of when we met and you know people thought the United States I was broke and you know they were afraid of the United States and what happened a quadruple in ten years how many quadruples do you have in your life? you're a company that has never actually looked for deals like that what do you think of companies that get special deals from the states? well I've actually helped Nebraska several times when someone's governor asked me to call a company, oh and they all do. when you're already here and you're employing thousands of people and they want to give special incentives to someone who hasn't given you and in some cases to be your competitor.
I mean you know amazon amazon is going to be competing a lot in new york anyway but i mean amazon is going to negatively affect men's business a lot of companies in every state including new york understood that as jeff bezos says , you know your gross margin is my opportunity, does that mean you think New York was right to reject the deal or doubt the doubt? deal they had, yeah, that's what happened, they both made it down the aisle, you know, and then the dowry was changed in a sense. I don't know all the details, but and you're in a difficult position if you're a company and you're negotiating with public officials because public officials can't really necessarily have the last word, whereas the company if the CEO says you've got a deal, you have a deal and on the public side you know there's a city council that has to ratify a major or something so it's uneven that way now our experience in New York and Buffalo has been fantastic I mean Geico went there , we have 3,000 people and the communities help them and Governor Cuomo, I mean overall he's been very very very good for us but I think if you're going to have a bad marriage it's better to find out before you're declared man and wife they said after you still both of you are a little hurt by the fact that it was there i mean it makes people think twice before making a deal that the community can get mad at with you one way or another or the politicians can't deliver and from an Amazon point of view I mean they heard something too but it didn't mean it wasn't a great way for either but it's not an advantage things fall apart, so you really, as much as possible, want to have some sort of thing sealed up sooner, but it needs manpower. the public side i know jeff bezos very well actually you're working with him and him and jamie dimon on this health care initiative between the three companies can you give us an update on where things are right now?
Well, we have an excellent partner. in a total Guan D running it, it's a long-term process, I mean, and when we get past it, not only should we have better medical care, I think we have a lot of great things about our medical system, but it's costing us now the 18% of GDP down to 5% and it's a tapeworm and if every other cost in America had gone from 5% to 18%, federal taxes have been pretty constant around 18% for 40 or 50 years. 5 to 18 now double count there because Medicare is,but we have to stop the cause situation but what we hope to find is something that will not only do a better job for our employees but also make them feel better about it. and stop the rising rate, you know that every point you chew of GDP comes, comes out of something comes from someone else and the only honor cents from her in the dollarokay, but it's very long term.
I mean, it's and and and and we'll do something. The odds, you know. I'm serious. people who participate and feel great about it. I mean the people who get the 3.4 troy, you know, the hospitals are not unhappy. PBMs aren't happy going crazy. they're getting the three point four billion they're not yelling change change change what are your thoughts on kraft heinz after all the current news and what is your biggest concern regarding the future of kraft heinz well we have some very very strong brands in Kraft Heinz and as I noted earlier the company makes about six billion dollars before taxes but after depreciation not after amortization after depreciation makes six billion on seven billion tangible assets it's a terrific business in terms of return rn on tangible assets I mean this is a great deal we're sitting here at the first year mark but Richards is way higher on shit he's way higher than JPMorgan it's a lot to go up and Going down the list, there are very few companies that are earning 6 billion on 7 billion tangible assets, but we pay a hundred billion more than tangible assets ibles on purchase and overpaid on a final craft. has come true we have a lot of money but we were paying a lot of money so we had very little retained earnings to reduce debt so our debt of 30.1 billion is higher than what we originally projected to the ratings agencies and and so on and we have to bring it down and it goes down very slowly I mean unless you sell property I mean even if you cut the dividend from 250 to 160 that's a billion a year but at 31 billion yohko the direction correct but there's a lot there's there's rea Debt will go down A lot of people wrote and had questions about your partnership with 3G 3G we're your partners in the Heinz deal and then with the addition of Kraft we're also going to t61 this is from James Shanahan mr.
Buffett, how would you characterize the relationship with 3G today? Would you still consider additional agreements with 3G? an absolutely outstanding human being and and and but a year ago he pointed out that the game had changed when it came to brands not giving a talk at some forbes event or somewhere and that was a full year and six months ago I told them no, I think the brands said they're not such packaged products, they're not as good a business as they were, the really strong brands are, but you know, we've learned that in recent years as the struggle between the retailers and the brands have shifted to retail and that's why Kirtland is a big, very, very big brand Walmart is going more private label there are some big forces on the other side if you have a good enough brand you know you can you can you can also call your lawyer what costco launched coke a few years ago did they bring them back do you see it ever change or do you think the game is going to be this way weighted towards retail except for the biggest brands certain This is particularly seen with the addition of Amazon to the image.
I mean, when you have Amazon and Walmart fighting, it's a bit like the elephant fight and I mean the mice get trampled and I don't. I don't see, I certainly don't see the retailer's position weakening. I mean you have all the tea going in and stronger. Me alone and you have a Walmart. It's not a very very very good job. the top 10 retailers from the past and every decade oh yeah to remind you that you know it's hard to stay on top and but now you have to bury a lot of other players to put players too strong that I have put their foot down and to some extent it will boost your own brands in terms of the 3G partnership if the situation has changed according to both Georgi Lehman Jojo Paula Lehmann and for you if the brands are not as strong as they used to be and as you have said in the past , it's gotten a lot more expensive to try and look at any of these other consumer packaged goods companies and potentially buy them, does that mean the whole 3G formula has changed?
It's really hard? to make it work if you can't go out and buy another company and then cut costs yeah well acquisition just doesn't work that well I mean for one thing prices went up and you know anything almost almost anything at a price can be good not everything anything at a certain price can't be bad i mean if you if you pay too much you pay too much and and and no that doesn't change and if you borrowed a fair amount along with it takes a while to convert rmii i don't see Well, we're not in a position to buy additional brands and I don't think it makes sense as we've seen prices change and the competitive position has changed a bit.
I still like that. I really like the businesses we have. I'll be happy to be at Kraft Heinz five years from now or ten years from now. I'm certainly happy to be George Apollo's partner. brand fight over who would be playing the other seeing what happened to kraft heinz stock on friday after all the news broke after the market closed on thursday i mean stock is down 30% and I think for Berkshire alone that was a loss of about four billion dollars on top of their share of three billion dollars of the fifteen billion dollars. I know you wrote the annual meeting or the annual letter on how there are days because you have such a huge portfolio 173 billion dollars in storage. ck there are days with market volatility that you see a swing of plus or minus four billion dollars or in a way i know you're like dr.
Spock, you don't have any emotions when it comes to dealing with market movements, but is there a part of you that feels a little dizzy when you see that you've lost four billion dollars in one day? i like business better what are they but overwhelmingly during the fourth quarter things were going down and they were buying their own stock so i'm actually making money that day without spending a dime and then secondly i can buy more . of some though a lot of my 10 percent bets are a problem but I mean there are certain stocks I would have kept buying except they were hitting 10 percent but no I mean if yes you paid X X dollars a pound by amber yesterday and you're leaving today and now it's 80% X maybe you have a little burger left here in the fridges i mean you pulled your hair out for daddy or you say oh my gosh you know this is fantastic the price is cheaper what else in the world Wouldn't you like to buy cheaper but you pay the day before?
That is if you're going to keep buying it. That is the very logical way of looking at things rationally. Hey, Joe has a question for Joe, mr. Spock Mr. Dr. Spock is that crazy god dr. Spock wouldn't come swinging, he's the baby boy. I finally said something that caught his attention. Nerd. In fact, I wanted to ask them. Spock with my saying that it was I don't know what it was I don't know if you let children cry forever I think you need it anyway No no way you can't think I was crazy traveling Freud too and this I'll agree anyway, a Unless you can quickly ask about those 60 minutes and some philosophical questions Warren, so the basic point of this article yesterday on electric cars was that at least the way I read it is in this country, I think. we're starting to feel like maybe the subsidies Tesla gets isn't really a good way to do things necessarily and in China they seem to go the other way where they're going to subsidize this is almost a state owned company how much are they subsidizing electric vehicles as a result, the thrust of the article was that by 2025 they're going to be making a couple million 3 4 million electric vehicles we're going to be stuck below 1/2 million is that what we should be doing here in your opinion or is there a reason by why you're invested there in EVs instead of here I mean the way to do it should be fully subsidizing here in the US or or market forces allocate better capital the markets are better overall so I mean they know me I'm in but that's not I don't mean all the time but they're safe but the markets are better I think I actually think electric cars I think that there will be a lot of people pushing electric cars and in the United States, although the subsidy will go away, I think. it disappears at 200k or something and dussel is catching up and so on but no i think electric cars are in the future of america and i think long before autonomous driving but listen i'm all for it of the Chinese doing what they're doing, I mean it and in terms of the planet and you know it's a good thing so I encourage them to do it.
I don't think we have to do it in the United States. how much you invested there you're not like here right oh when we bought BYD ten years ago and Charlie called me and told me to buy this and that's totally Charlie's position and it's well done and he keeps in touch with management all what I'm not something that I couldn't tell you within 20 percent what would be the price why he is I don't look at him so that's not his thing, okay, but it's just looking at him, you know the twist that I was getting from 60 minutes was you know that we don't we understand that you know certain industries that need full government assistance or almost know about subsidies?
They know ten times what they are right now to try to win at something that's not amazing for 60 minutes, but I was just wondering if you thought we'd be left behind if we don't have a concerted government effort to prop up the industry. I think there's a pretty conservative industry effort from what I've heard. I mean no, I think you'll see. much more electric and by the way. I mean, you know we have an interest in the Flying J pilot and therefore we have certain businesses that would be negatively affected by going all-electric, but III, I think we're going in that direction and I think you'll see the American companies.
Pretty aggressive in that field, okay, I've been listening the whole time, Becky, what do you mean by that? It's just that commonly I was listening, although I'm listening listening. I don't have anything else to do here about listening, so I was really listening. so i like you to know how much i love mixing up metaphors my favorite is like its a cake walk i call it you know or you know there are so many guests if you can mix it up but when they start working in march march joe start working on your march ballot Madness I offer a hundred billion to someone who gets a perfect rank It's happened once hasn't it?
We had one a few years ago that range not all you have to do is pass the first group to make a million lars bucks there's something nobody else makes a million grand three anyway but we had five of them two years ago , we had five of them make it to the last four games and four of them went out in one game and one went out in the other game but they split it up what are your thoughts just in terms of looking around trying to find business trying to find business pieces compared to when the game started? well it's harder for two reasons, one of which is peculiar, we just have a lot more money, so our universe of possible things to do narrows down from thousands and thousands of things you used to look at when you had small amounts of money to relatively little stuff nothing seems to defy logic I have more money so I have less stuff I can do it but it's only because ideally it's going to be a lot bigger than you know so no there's probably a hundred shares you know if we put in five billion dollars on something and it's 10% of the market capitalization that would be as much as it would be you're talking about 50 billion and over market capitalization and five billion is 1% of our Berkshires values so if it goes up 50% we make half the percentage and I'm basically in valuable for taxes 35 40 basis points after your problem yeah and then the second thing is, I mean obviously it took you out more competition than when we started on the 19th well really when I took Ben Graham's class in 1951 I mean everybody was my oyster because people weren't reading the manuals and you had to it's easier to get the data now for one , I mean the internet is so much easier and I used to mail any report and go to the Interstate Commerce Commission, the Public Utilities Commission, the Insurance Commission.
I went to all those offices. and I looked through the papers and now you know it takes five five seconds for someone to get the information. I will ask this very fleetingly since your position changed in Bitcoin. I know I want to say it's too bad, but bitcoin is nifty and blockchain. it's important, butBitcoin doesn't have any unique value at all, it doesn't produce anything, you look at it all day and the little bitcoins come out or something, it's it's it's it's it's basically a delusion so we've gone from rat poison squared to a delusion who knows where we'll be next year, but I'm so sorry that it happens because people are hopeful that something like this is going to happen. change their lives and there's something very nifty about figuring out how to have a limited supply and make it harder or more expensive to create them as you go all that kind of stuff but it doesn't work and this is being explained to me by people much smarter than me but they say blockchain doesn't depend i'm betting and JP Morgan is not about creating their own you know JPM and then it will be worth $1 i mean it equals dollar to dollar and i guess i think people don't want it, there are many questions that are like the new Bitcoin questions.
Forked Design LLC Do you think the hemp and marijuana industry is a viable industry to invest in? n Although there are still restrictions on how capital can be moved and used, we have many variations. It's an industry I don't know anything about you about. Think about college athletes and whether they should be paid and I ask this after seeing what happened to Xion Williamson, the Duke player whose Nike shoe blew up last week. I read all that debate and you are a long time observer college athletics well I say this if you were an athlete I think you probably should have a spectator you should be I mean you are I mean if you are really good you have enormous commercial value and and the design rules are designed to prevent you from taking advantage of that commercial value, you know, for a while, right, rich schools are going to win, Harvard may have a football resurgence.
Do you see any irrational human? the behavior of US investors or corporates right now that's kind of you and charlie are like corporate american police what do you see that you don't like right now? Well, there's always a certain number of people who do things that are designed to take advantage of others because the market is so big and there's always been people you know, maybe it's Bitcoin, maybe it's new problems, I mean, look at all that. , look at all the things that have been created around Bitcoin, I mean and there have been a lot of frauds and disappearances and all that kind of stuff that attracts charlatans basically because the money is so big.
I mean, if you've managed to make a fake thing and sell yo-yos or something like that, there's no real money in it, but when you get on Wall Street there's a lot of money and you can do it with little pieces of paper and they don't recover for a long time and A lot of people have a Madoff was the old example moment, but that's what's going to happen. get lucky pen and that's why we have an SEC and wiley has courts and but it will always go on it will always need vigilance there are a lot of new technology IPOs that are scheduled to hit the market this year I think what you thought about technology initial public offerings in 1999 and didn't want to be anywhere near them.
These are a bit different. Many of these actually have profits. You think of an Airbnb. You think of a Pinterest or something like that. things, no, yes, but the big ones have losses, and, and some report profits differently than I would report well. another side that has an interest in marking each stage even if it's fake sometimes they offer a price for the employees who already have the shares and stuff but then they have an artificial price so they can say this round was at a higher price It's that they are choosing the moment to sell to you.
I don't like it. I like it when I choose the moment to buy in a 2008 instead of them choosing the moment when they have decided that this is the moment in which we can collect my sale to We are going to make you a big favor and we'll let you buy so I've never been a big fan of IPOs and I am and the valuations are kind of amazing now in a few in particular by category that's the category of those where you think valuation is staggering is based on earnings so if a company has a public pair they will choose a figure of fifty billion dollars, okay?
What should you expect to earn in five years? making five billion before taxes, I mean, if you wait five years to get ten percent of your money and people don't sell them that way and there aren't many companies that have made five billion or more before taxes, there's a fair number but but but it's not that easy and particularly not that easy if you count what you're p Responding to employees and stock options all those kinds of questions came up this is t1 twelve by Todd Marshall says who makes the most in the card the card game bridge
buffettor gates well i probably play a hundred times as often as bill so thats probably the only game in the world where i would have a slight advantage with a very small fee advantage on the that we probably spent two full days working on it I would do better while you mention Bill Gates Melinda Gates has a book coming out on April 23rd I think it's one of the best books I've ever read From what It's about It's about women and it's about women all over the world It's about herself and it's told very candidly when the stories are fabulous and I read it the other day once again it's only two hundred and twenty or thirty pages They will be out on April 23.
I think it's going to be a great summer, that's great. I hope to see him. Another question that came up is t-55. reading g lives and careers and listening to
buffettand charlie munger who our grandkids recommend listen well i hope he stops being some kind of actuarial freak no there are a lot of interesting writers uh you know but i'll tell you the fundamentals don't get you will change. I'm not going to discover anything new about investing in the next 50 or 100 years, I mean, it's buying a business, you have to know how to value the business and you have to know something about how the markets work, but you don't buy a business unless you can value it. you have to learn to value businesses and know the ones that are within your circle of competence and the ones that are outside and that won't change and it really goes back to Lane to invest is to spend a dollar an hour dollar of purchasing power and get more in the future and try to find out how much you are willing to pay for that bird in the bush compared to the bird in your hand warning we want to thank you for the three hours you spent with us today we really appreciate your time thank you
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