Warren Buffett On Apple, Airlines, Trump & Berkshire's Cash Pile | February 27, 2017

Warren Buffett is with us in Omaha this morning at Nebraska Furniture Mart. Warren, it's been 10 years since we've been doing the Ask Warren show, where you've allowed us to go out and bring viewer questions along with us. We want to thank you. You for that and for taking the time to be with us once again this morning. It's always been fun. It's always been fun. We have a lot of questions that Joe was referring to this morning, but why don't we start talking about the letter? uh, the letter that was just published on Saturday morning, many people had the opportunity to read it, how many are these? 53 for you now, 52 years have passed in letters, well, I don't know, more than 50 have passed, I remember it well, yes. yeah, maybe 53, yeah, okay, so in this letter you start with a message that is a familiar message to you, the American dynamism, how powerful this country is, it's incredible, it's a very common message to you, but is there? one reason you decided to put it so high on the chart this year well, I usually put it pretty high on the chart because it is the dominant theme that has run through my life since I bought my first shares in the spring of 1942, when I was 11 years old and it overwhelms everything else over time, I mean we have setbacks in the economy and we even had a panic in 2008 and we had a war during that period that when we started we were actually losing the war in the spring of 1942, but this country always comes back and it wins and it's amazing when you think about it, what happened in 240 years, which is less than three of my lifetimes, and just look at this place, I mean, there was nothing here in 240 years.

Years ago and civilization had gone on, you know, for centuries and centuries and centuries with people making very little progress in their lives and then America showed the way and we haven't lost the secret sauce in terms of what is the message that you want to receive? . to people, I mean, when we look at the markets at levels as high as Joe was alluding to, there are a lot of skeptics and a lot of people say, wait, it's too late to get in, I missed it. We've already passed 20,000. Now I have to wait for the setback, what would you say to someone like that?

Well, I would say that they don't know and I don't know, and if there is a game that is very good to participate in. For the rest of your life, the idea of ​​staying out of it because you think you know when to come in is a terrible mistake. I don't know anyone in the weather markets over the years, a lot of people thought they could do it, but if you were buying a farm and you decided that the farms would be worth more money in 10, 20, 30 years and that would be a productive asset, go out and buy it unless it was at an absurd price and actually the best thing with stocks is to buy them consistently over time, you want to spread the risk when it comes to the specific companies in which It's found by owning a diversified group and diversifying over time by buying this month next month year after year after year after I uh, but you're making a terrible mistake if you sit out a game that you think is going to being very good with timing because you think you can pick a better time to enter, although you've had times where you thought the stock was incredibly cheap, like in 2008 2009, when you talked about it, even on our show, you thought there was times when stocks were very overvalued and you said, forget it, don't do it, are we close to an inflection point right now?

The best you can tell is that it's been I've been talking this way for quite a while since the fall of 2008. I was actually a little early on that, but I don't think you can time it and we're not in bubble territory or anything. like that now. If interest rates were seven or eight percent, then these prices would seem exceptionally high, but you have to measure, measure everything against interest rates basically and interest rates act as a similar gravity on valuation, so when interest rates were 15 in 1982 lowered the value of any asset, so what's the point of buying a farm with a four percent return if you can get 15 percent from the governments, but if you compare interest rates, stocks are actually cheap compared to historical valuations, but the risk is always that interest rates go up a lot and that drives stocks down, but I would say this if year 10 stays at 2 30 and would be there for 10 years, you would really regret not buying shares now Joe, this sounds perfect.

Skipping ahead to what I was just saying, where I was looking at what's happening with interest rates, I think it's as much as we talk about economic nationalism, it's still global and I don't know when the rest of the world is going to head in one direction. . It's just that you know the money is going to come here for our bonuses and as long as that happens, I guess we'll stay low, you know, I was thinking about something else, Becky, and I don't want to take this too far, but with Warren, I was wondering what happens to us with the United States and I wonder if that is so different from the historical way that countries have prevailed in Warren and I wonder if eventually we can't assume that it will always be this dynamic or was it the constitution and the way they established things?

Those guys were so smart or that's the people we have. Is it that we've brought so many people from all over the world who came from places where you know? They didn't want to be and they came to this great place here and I mean, have we genetically selected people who are self-starters and work hard? I don't know, are you clear what it is, if there is any? If you don't, I don't know who, you've had a lot of time to think about it when you're not old, but you've had a lot of time to consider these things, hey, if you go back to 1790.

Joe, there were four million people or so in the United States, of whom seven hundred thousand were slaves. There were 900 million people around the world, so at that time we had half of one percent of the world's population and it was a friendly country in terms of the soil and the minerals and the temperature and all that, but there were other places friendly around the world and then why did these four million people do something that 900 million people had not been able to do? before, where progress had been very slow and I would say it was a qualification, it was a combination of none of these perfect, but I think the market system was absolutely essential to it, it was not a planned economy and I would say that, uh , that. uh the rule of law was important, it was never perfect, but much more than in many places, I would say equal opportunity was a factor.

I would say that immigration selected people who, to some extent, selected people who were ambitious and and. I really wanted a new life, but if I had to choose one thing, I would say that the market system was the overwhelming factor that contributed to it. Life is strange too because I think it's strange that Adam Smith wrote that book in 1776. Exactly, it's not a coincidence that when you are able to own an idea and you have a judicial system that supports your ownership of patent law and then you can commercialize it, I think maybe that was it, I think intellectual property and property rights and things like that because before that, after 10,000 years of spinning our wheels, nobody what was the average GDP per person and then, of Suddenly, when you could own an idea and market it, it suddenly exploded. gdp as in several times unlocks human potential joe, i mean you know we are no smarter now than we were 240 years ago and we certainly don't work harder but once you start unlocking human potential the sky is the limit and this it's just getting started, you know, there are moments in Warren when you hear experts or other people say, look, things are at risk right now, our American way of life, our system is threatened and I've heard this from everywhere in Different moments.

Was there ever a time when you thought that was the case? No, and you say you've heard it all the time and from everywhere. I've been listening to it my whole life, and in the spring of 1942, it was. I was 11 years old and the dow was about a hundred and we were losing the war in the Pacific at that time it was early, shortly after Pearl Harbor and there was no doubt in this country where we were eventually going to win. bad and people said well let's wait until things are clear let's wait until we start winning the war there's always a reason to wait and I've heard it all my life you know when I left school the dow had never been above 200 There was never a year where the dow was not below 200 during the year, even in 1929 when it hit 381 the low was below 200, there has never been a year, but what do you know, but that It was a big issue at that time and then yeah, you know, we ran into price controls, we ran into oil crises, whatever, all kinds of things and those are deviations, so my whole life I've been listening , you know, maybe there is a better time to invest. you know, or things are more unpredictable now, they're always unpredictable.

I can't predict what will happen tomorrow. I mean, anything could happen tomorrow. We have had October 19, 1987, 22 in one day, so I can predict what will happen. 10 or 20 years in general, but I have no idea what will happen tomorrow and the important thing is whether you have these wonderful assets available to own and which ones you own, that is, whether you save money. you can buy bonds, you can buy a farm, you can buy an apartment building or you can buy a part of an American business and if you buy a 10-year bond you are now paying more than 40 times the earnings for something whose earnings cannot grow and you know , you compare that to buying stocks of good businesses, I don't think there's any comparison, but that doesn't mean the stock market can't go down 20 tomorrow, I mean, you never know what's going to happen tomorrow, but you do know what. it's going to last 10 or 20 years and people say 20,000 is high, well I remember when it got to 200 and it was supposedly high, the drop, I mean the drop in your life, you know you're going to see a drop.

That's certainly close to a hundred thousand, and that doesn't require any miracles, it just requires that the American system continue to function more or less as it has. You know you had made some headlines when you said a month or two ago that you had spent about $12 billion on stocks since the election, have you continued to spend since then? Well, I'm not sure exactly when I said it, but we certainly have bought in two groups, I'm adding them up now, we spent 14 with We probably spent since a little before the election, maybe because we were maybe 20 billion, even 20 billion of dollars.

You're just counting the billions in your head as you sit here doing this. I was, yeah, yeah, I quit when I hit 20. and why now is there a reason for this or is it just that you look at the individual stocks that you wanted to own and you bought them? I absolutely look at individual stocks, it has nothing to do with the federal reserve, it has nothing to do with elections. like it has, it would have something to do with interest rates if they did something extraordinary, it hasn't because they haven't, they haven't changed much, but there were just a couple of things I wanted to do and and we had the money and I I like to invest and I would prefer to have that 20 billion in these companies and I don't see it as stocks, I see it as businesses, they are just small parts of businesses and I would prefer to have that than to have the money in treasury bills, which is my alternative.

I have no problem with the decision. What are the businesses? Should I assume it's Apple and the

airlines

based on what we do? I've seen it, I think it's a good assumption, but $20 billion is more than what they've told us based on the A13F filings more than what they show as of December 31st because we've spent a lot of money since December 31st. December in what it is It's more Apple, more

airlines

, since we won't buy it now and it's a different price than I would buy now, but we buy a lot more Apple after you're in the holdings where Apple was already fifth. the third largest, 59 million or something, yeah, sorry, I'm looking at the report right now to take that page, yeah, it was already their fifth largest holding as of Dec. 34-31, at $7 billion, is it? how much more? did you buy seven billion?

We could change our mind tomorrow and all that, but we haven't bought any

apple

s in the last pot since the earnings report came out because it shot up a little bit at that time, but we would have one of the office mates has about 10 million shares and I have for the Berkshire account about 123 million, so we have about 133 million shares. One of the guys is Todd or Ted. Yes, would you mind saying that I will never identify which does which? Then one of them bought. and then as a result you bought an additional one of them that had 10 million shares and then I bought another 123 million shares or something like that because because I liked it, you know you've always said that you're not a technology investor and now when you start looking at profits through participations, seminar, investmentin tech, wait, they can't sustain this higher retention, they can't see it, that's the vast untapped market out there, I mean 86 year old guys who don't have it.

However, you say that you are not a technology investor but you are buying shares of Apple, which is now Berkshire's fifth. Or maybe even bigger than that depending on how much you have invested since then, how much you have bought since the December 31. IBM is also its third largest holding. I would say that Apple, I mean, obviously, is very, very, involved in technology, but that's the way it is. it's very much a consumer product as well and I mean it has consumer aspects to it and one of the great investing books that I've promoted before is one that Phil Fisher wrote around 1960 on so-called common and uncommon stocks.

Provinces, had an effect on me. I went out to meet Phil Fischer after reading the book. I found him in this little office in San Francisco and I recommend any investor read that book that's still in print and he talks about something called "scuttlebutt." method and that made a big impression on me at the time and I used it a lot, which is basically just going out and finding out as much as you can about how people feel about the products that they say that's basically just asking questions and, uh, Apple attacks. I think I have a pretty sticky product and, uh, a hugely useful product for the people who use it, not that I do, Tim Cook is always teasing me about that, uh, but it's decision-based, but again it all comes together. reduces Apple's future purchasing power.

When you get down to it, I think Tim has done a fantastic job, I think he's been very smart about deploying capital and I don't know what's going on inside his research labs or anything like that, I do know what's going on. inside. His clients care because I spend a lot of time talking to them. Did you talk to Tim Cook about this? No, no, about this, no, about this. He would have seen our 13 f filing and he would have seen the previous one to know someone had surely owned some shares and then he would have seen the 13 f filing and I normally see him maybe twice a year I see him with Sun Valley and maybe another time, can I ?

I ask you, you said that's how many shares you have. You own 133,133 million, sorry, how many did you own as of December 31? That worked out to seven billion. I can not do this. I think we had. I think we had 59 million at the end of the year. We've more than doubled it since then, that's right and we, we, actually, it's amazing how much you can buy of some of these things that we had bought and that added up to the 70 million plus that we bought all of that at the time they reported their earnings so it was probably done in 20 business days here and their earnings were better than people expected and as a result the stock went up so I don't think they were much better than people expected I want That is, the company rose after earnings. report, yes they jumped and that's why we stopped buying, we'd probably want more but stocks tell you every quarter what they expect in sales and gross margins and they've been pretty accurate on that so I don't think Q4 be okay in the fourth fifth, I mean, if it's the December quarter, they're in a fiscal year, I don't think it was that big or it should have been that big of a surprise, but they have an extraordinary surprise.

Wow, there are always people trying to bring you down and the market system one of the things that it does is that if you have something good, you have a lot of people attacking you and you have some very smart ones. people who are chasing them you know we can talk more about this in a moment if you don't mind if we take a commercial break okay by the way for anyone who didn't think we were going to get the big news. very quickly you are already losing a lot Warren Buffett already tells us that he has been buying more shares since the beginning of the year since the last presentations of the 13th telling us that he bought more than double the amount of

apple

s that they had revealed at that time stay because they will never knows what's going to come out of his mouth we'll be back with more from Warren Buffett in a moment Warren Buffett already told us this morning some secrets that no one else knew until now Warren Buffett and Berkshire Hathaway had been In fact, he bought a lot of Apple stock at By the end of the year, according to SEC filings and annual report, it was Berkshire's fifth-largest holding at $7 billion in that maze of stocks.

He just told us that he had continued to buy those shares even up until earlier this year and right now he now owns $17 billion in Apple stock, giving him about two and a half percent of Apple's outstanding shares. um and it's now the second largest holding company after Wells Fargo uh for Berkshire Hathaway. Yes, it would be very close, but very close to Coca-Cola, yes, very close, neck and neck and with Coca-Cola, but it seems to surpass it at least where the price is at the moment. Warren, we were talking a little bit about how. You came to this decision and you know, I assumed you had people who would go out and do some of these channel checks for you and do some of these things, but you just mentioned to me that you've done some of the research. yourself here in this building well, yeah, I learned it from a fellow named Phil Fisher who wrote this great book on common stocks and unusual profits and he calls it the rumor method and Phil was an extraordinary guy and I first used it in 1963, when American Express had this big salad oil scandal and people were worried about putting the company out of business, so I went to restaurants and saw what people did with the American Express card and I went to banks to see what they were doing, traveler's checks and all and clearly American Express had lost some money from the scandal, but it hadn't affected their consumer franchise, so I ask people about the products all the time when I take my great-grandchildren to Dairy Queen, they bring friends, sometimes they all have an iPhone and you know, I ask them what they do with it and if they can live without it and when they change it, what are they going to do with it and of course I see that when I go to the market of furniture those people uh have this incredible rigidity with the product, I mean, if they bring an iPhone and they buy a new iPhone, I mean, they have this quality that is incorporated into their lives now, that doesn't mean that something can't appear , it's going to cut it short, but the continuity of the product is huge and the degree to which their lives are centered around it is huge and it's a pretty nice franchise that, with a consumer product, hey Joe, you can relate to that. the stickiness of the product and being hooked on the Apple ecosphere in many different ways as well.

I think it's funny that Warren doesn't have one, but it's strange because you're walking around with the Encyclopedia Britannica on your back. but it's the size of this little thing and anytime, anywhere you need to search for anything, I mean you could be in danger and if people didn't see that you were looking at your iPhone, you'll get every question right and I can listen to every song, every song that's ever been recorded and, uh, you know, I used to live in Los Angeles and I was afraid to leave the freeways because I had no idea I'd get lost.

I would sit in that traffic for about 11 hours so you knew you had to go five miles all of a sudden with this, you just hit it and I have all the surface streets, all the strip. It's so strange that it's so life changing, but What you do know is that you don't buy worn out stocks for 10 20 50, you normally like to buy stocks that over time double and triple, so you're completely saying that this 700 company billion dollars is going to be 1.3 trillion. then it will be 2 billion, right, it's 700, okay, today you say it, I'm here, okay, but Joe, you're not worried about the law of large numbers because it's over, it's the most valuable company in the world right now. something like 720 billion, so you have no problem thinking that it will be the first company to surpass $1 trillion in market cap and I mean, sooner or later it's going to have to happen, obviously I'm not going to make it.

Any predictions about that Joe, but what I do know is that when I take a dozen kids, like they do on Sundays, to Dairy Queen, they all hold their apple and can barely talk to me except if I'm ordering ice cream. or something like that and then I ask them how they live their lives and rigidity really is something, I mean, they build their lives around it, just like you described, and the interesting thing is when they come in, when they come in they get a new one, uh, they go to get, overwhelmingly they get the same product, I mean, they have their pictures, I mean, yeah, I know you can, you can make some changes and all that, but they love it, right?

What I mean is that you understand what I mean by the law of large numbers. It will be a billion-dollar business event. It only has to go up 40 from where it is now, so I don't think you would buy it. If you thought it was going to top out at 800 800 billion, well, or they could have Joe, which you know, they bought shares pretty aggressively, yeah, so they could, yeah, you could have a lot less shares outstanding at some point and still have them. very good per share, they bought about four percent of the company last year and they've been pretty aggressive on that, so I guess they have about five and a quarter billion shares now, but I guess it's that within ten years will have substantially less, let me ask you a question, what would you bet on which company will walk away with a trillion dollars first, Apple or Berkshire Hathaway?

Oh, I bet on Apple just because they have a stronger force. position and if Tim wants to buy change it anyway you know I have an 800 number for him I can't believe you're poor while we're on the subject joe no I was just thinking that's yours your guys wouldn't you say which one you know I mean what? did you really have to do that? Warren, I mean, would you say he had? Well, I've built a great position, I have, what did he have, Becky, how much? Do you have like 10 minutes 10 million shares 10 million shares yeah, I like it, really, I mean, I love it, I have, I have 10, 10 million shares and you go, yeah, I like it too, I have 133, I mean that's just that's the cold war and just, you know what I mean, I mean, it was your idea, it's your idea, you had ten and you thought you felt good about yourself and you bought another 123 million on top of it.

He, seriously, he understands, he gets. go first joe it felt good yeah they're going to invite me see if

warren

buffett

takes your ideas and follows you man I think that would make you feel really good about that right okay let's talk about something else I've been buying a lot and those are the airlines that we found out, at least at the end of the year, how much I owned in each of them and they were pretty significant bets for the top four which would be American Delta uh United Continental. and to the southwest, at the end of the year we were reporting that they had stakes of about seven to eight and a half percent for some of these airlines.

One of the colleagues in the office essentially has one of those positions. While he was building that position, he owned a couple of others just because he wanted to invest the money and then he was going to change, but one of them has uh. He has the American Airlines position and I have the other three. Those positions, as you mentioned, we are pretty close to 10, we don't want to go over 10 in practically any action, that complicates the life force, we do it occasionally, but but. but it's a big decision now whether to go over why it makes it complicated for people who aren't familiar with the rules about what you can and can't do once you're back, once you get past 10 you're subject to what they They call the short swing rule, so if you buy and sell a stock that you own more than 10 of in six months, you actually have to give any profit to the company if you sell and then buy or buy and then sell and they They take the lowest purchase price and the highest sale price.

It's been on the books for a long time and it can just complicate things, plus you have to post what you do every two days or so after you do it, which you don't. the case when you are below 10 when you file quarterly reports, so we don't go above 10 very often and with the airlines, the four that you named are buying back their shares now at Wells Fargo we go above 10 simply because the company we buy back their shares , we don't buy any shares, well, you can't for a financial company, you're not allowed to buy more than 10 percent unless you want to become a bank holding company, yes, there are more laws about that, in any case, the airlines, uh, if we own nine percent, we might find that we have nine and a half or something because of buybacks, so we will stay below 10 in all likelihood and that's where we are now and, as I say, a colleague is the owner.

The American and I own the other three, okay, let me read you a couple of things in the past, you've said things like I have an 800 number that I can call if I feel the need tobuy shares of an airline, my name. It's Warren and I'm Aralic and then they talked me out of it. You also said that if a capitalist had been present in Kitty Hawk in the early 1900's, he should have shot Orville Wright, he would have saved money for his progeny. That is not true. He saved her a lot of money if you look at the last 30 years, you can look it up on the Internet.

I think there have been almost 100 airline bankruptcies. I mean, that's a lot, so it's true that the airlines had a bad first century, I mean, they're kind of like the Chicago Cups. You know, everyone has a bad century now and they got that century out of the way, I hope, but it's been a disaster for capital, I mean, it's glamorous. You can always get the guys to put up some money for an airline, and you can go on the Internet and see hundreds of them that failed back then and all the ones that are operating now, you know, with the exception. southwest, I mean, they've been through bankruptcy and I bought one called U.S Air that was my previous investment in the evening and in the late 1980s, Ed Collady, who was the CEO, came here and we had dinner in the garage and he I said 358 million dollars. and it was gone almost before we finished dinner, I mean, us air airline had some favorite routes, but the southwest was attacking them over time and I tried to sell those shares at 50 cents on the dollar as preferred shares, luckily I couldn't.

Do it and then they had this problem, so we actually made quite a bit of money. I mean, we're actually one for one in the airlines, but not because we were smart and then went bankrupt twice after U.S Air did. It is now part of American Air. So why are you buying again now if you were so sure this was a horrible deal? What has changed is a very difficult business because the marginal cost of a seat is practically nothing, you have these huge fixed costs and yet more staff is practically costless, so you are very tempted to sell that last seat too much. cheap and if you sell elastic too cheap it becomes the first seed somehow, it has this dynamic and unless the airlines operate at a capacity of probably 80 plus, what kills you is when they really have too many planes around, I mean, they do what everyone else does if they have too many planes around, they just go down to marginal cost and marginal costs make you go away.

He eventually broke into the airline business. The hope is that they keep orders in a reasonable ratio to potential demand and they've been operating in the 80s for a while lately, but it's a business you can always screw up, you know? charlie munger was his vice president partner at

berkshire

hathaway was speaking at the newspaper meeting just a couple of weeks ago and he talked about how you guys are in the airlines right now and then he said, you know, I just went ahead and bought a I bought a ticket to Europe. for four or five hundred dollars and I thought: What are we doing in this business?

Charlie agrees with this decision. Well, Charlie usually accompanies me, I mean, he can say, well, this is good, you know. I've never heard you propose a prize for a worse idea or something, but when Charlie tells me that, I know he agrees with me, so we get along very well, you know he agrees with both decisions, uh and but . He, as I would say and correctly, is not like the old days, but I've been hearing that for a long time and it's true, Joe. I thought if you're going to go bray, I was just thinking about the irony of it, so he loves it.

Apple and he doesn't have an iPhone, I don't know anything about it and he loves airlines, but he hasn't been on a commercial flight since the Wright Brothers. I don't think you know anything at all about what you're running away from. When was the last time you were in a Buffett trade fight? Tell me, well, we'll save it for after the show to say it's been over 30 years. My family mentions the same thing to me, so I've been hearing this before. was the onboard movie that just came out Casablanca was actually the birth of the nation, okay, I just thought about that, obviously you don't need to use these things to have an investment opinion, but it's surprising, it's surprising, it's very Today is more interesting and I am enjoying it.

I haven't left and I'll stay here, but I'm all alone. You have to realize that I started in textiles and department stores, so some of this stuff is fine with me. A comparative basis, you know, Warren, I can think of, though, if you're accumulating such a significant stake in all the major players, is that anything that's like monopolistic behavior, is there any concern in thinking that you would say something to him? to the airlines to do? They make sure they are not competing on price in the same way, which would prevent anyone from worrying about it.

Yes, I have never met the CEOs of any of the four heirlooms. I may have met one at the Texas Business Hall of Fame stuff just shaking his hand, I mean Herb Keller was there for sure but now I have no communication with them and index funds own a significant percentage of each one and that, and we'll see. How does it turn out? I mean, if the orders they have now don't seem excessive, I mean they usually take options and can delay deliveries etc., but it can be brutal and I mean, as long as you have, you'll have a lower cost.

Airlines have new companies that can attack them and historically pricing has been a very difficult game. I like the fact that they used a lot of

cash

to buy back shares, most of them also had these huge pass-through taxes, so they had a lot of

cash

coming in for a while, they've depleted the fours overall, but the idea of What you are buying something is that a huge loss of transport taxes is not the best sign in the world to enter a wonderful business. but they bought a lot of shares, I like that and we will see how they do.

We bought them at lower prices and we won't buy them now and I don't want anyone to run out and buy airlines, but a passive investor oh yeah, totally fine folks, we'll have a lot more from our special guest Warren Buffett when we come back after a short break. Welcome back to Squawk Box. We're in Omaha, Nebraska this morning with Berkshire Hathaway Chairman and CEO Warren Buffett. and Warren, thank you again for taking the time to discuss many of these issues with us. We have some questions from viewers and I'd like to start with one right now.

This comes from Michael Khan, who wrote. I think this came on twitter, he says: have there been any stocks you bought that you changed your mind about and sold before they could show up on a 13f? Well, that probably happened at some point, but no, I don't remember it off the top of your head no, no, that would be quite unusual and of course it could be that one of the other two guys in the office could have done that, but I don't really remember that happening with any of Us, the reason I asked that question a moment ago is because Dow Chemical preferred stock they called preferred stock on December 30th and from what I read, it said which should have translated into approximately six percent of the company's outstanding shares. million shares, yeah, I didn't notice Dow Chemical on the 13f in these most recent filings, we timed our sales so that once they got over the conversion price, we timed our sales or tried to time them because 72 million shares would be a lot of shares. to get and we didn't want to own the common stock, we don't own common stock of any chemical company, so as the stock went up, we sold it more aggressively because we want to get 72 million shares a day, which was becoming more likely all the time than they would call it and they called it exactly what we thought they would call it and I think our last shares were sold the day before the day after the same day, I mean we timed it to expire. of 72 million shares when we received those shares and I was going to say that you didn't sell 72 million shares on December 30th.

We didn't do it, but you did. You had been timing those stocks the whole time exactly when it overtook them and it became we were in a very strong market and as the dow continued to go up we became more aggressive and towards the end we might have been selling a couple million shares per day when it hit 56 or some price so we were hoping to get out of this out of the ordinary by the time we got all the feedback and like I said it worked until the day we got lucky I mean we could have done it.

We ended up with 10 million shares, but obviously we were going to give up when we reached the amount they were going to give us, why don't you like Dow or other chemical stocks? Well, we've never owned a chemical stock, we own a chem, especially a chemical company, it will work out, but I don't remember a common chemical stock that we owned, we bought the dow preferred stock, I mean, because we wanted, we wanted a position preferred and we kept it, it's an interesting thing, we bought those shares in In July 2008, the preferred and they were going to acquire Roman Hawks and they needed some money for it and then the world fell apart in the fall and Dow wanted out of the contract, They sued Roman laws to get out. of the contract, but it was argued that they had to fulfill it, so we closed the deal to buy the preferred shares in April 2009, by which time the market had completely disintegrated, so by the time we closed the value of about 3 billion was probably worth " Its value is over 60 cents on the dollar, so we came up with 3 billion for something that was worth about a billion eight maybe at the time, which is one of the reasons why people offer us offers, they know we will be there at closing time.

I also showed up at the Wrigley closing with the Mars family which was on October 4th or something like that, but during that whole period we had these commitments and that kept me from doing anything. other things we could have done at that time for the fact that we had this three billion coming out the door, what did it end up making in the end? Well, we ended up making about a billion dollars, plus we had about eight and a half for it. cent, well, we had an eight and a half percent coupon during those years, so we made a billion even before the preferred dividend that was paid during all that time.

Yeah, we had $1 billion in capital gains very roughly and then we had $255 million a year in dividends for the time we had it. Wow, okay, I have some others. viewer questions that I'd like to get to and Joe, by the way, chime in if you want, but in the meantime, why don't we ask a question that came from Curtis Carson? He says: how many suits do you have? her closet at home, I bet my wife is less than five years old, most are over 10 years old, well, you would be right, except for the fact that I met a woman in Dalian, China, many years ago, Madame Lee and I got to this hotel in Dallas around eleven in the morning and immediately two guys jumped into the room a couple of minutes later I thought what was going on, they started sticking tape measures on me and everything and then they showed me a book with a couple of a bunch of samples and they said pick one The suit Madame Lee wants to give it to you and I had never heard of Adam Lee so I picked one that said "Pick another one" and then I met Madame Lee and she had started with a machine sewing 15 years before and used it more than that. and she employed 15,000 people and she was a wonderful woman, so she started sending me suits.

She was thinking about opening my men's clothing store for a while, but they all have to be my size, so I literally have, I certainly have, I probably have close. to 20, but they were all made by madame lee for me and I am very grateful to her. She came to the annual meeting once or twice and brought her family and made Charlie a suit that she made for Bill Gates. I think Walter Scott because you guys can't afford any of your own suits, well not if we don't have to buy them and Joe also had a question here.

The old expression warned that they know if they have money many times. You can make money during the financial crisis, when people would love to have Berkshire, some kind of sponsorship, I don't know, or at least if you invest in it, you don't think they're going to close, so you don't even have to like a chemical company I mean, if they're going to give you 10, you just get to that point and the only thing you think about is whether they're going to be able to meet those dividends. payments, you don't have to like financials or you don't have to like the growth prospects of that company.

I mean anyone in a two percent world if they can get the 10 percent they know they're going to get? It's kind of a no-brainer for you, isn't it? It's a fixed income decision, soinsurance. Part of that must be appointments as Secretary of State, what do you think of Rex Tillerson in that position? Well, I don't know any of the appointments well, but I certainly think Rex Tillerson makes a lot of sense. I mean, you have an absolutely exceptional person and, by the way, I would say. This is also because there is a lot of this in politics.

Rex Tillerson is going to work for the United States in that job. I mean people who get upset because he was with Exxon Mobil or something or because he has a good amount of money. I have seen many people enter high levels of public service and I think the vast majority of them take very seriously that their employer is the United States, so I am not at all concerned about the fact that someone comes from the United States. Joined. oil industry or that they have a lot of money or something like that. I think most people rise to the occasion to some extent, not always, but to a certain extent, so I don't know, Tillerson.

They sat me down next. to him once at dinner, but you know he would be the kind of person I would choose. There are also people like Wilbur Ross, Steven Mnuchin, Gary Cohn, who are also in these cabinet-level positions. They're Wall Street guys. They're smart guys and, again, I would say those people I don't know well, but I know them and I know people who know them, and I would say they'll take the fact that they're in public service very seriously, I mean, You know, you may encounter an exception from time to time. Spiro Agnes hasn't come true very well or some in the past, but I think people take it seriously in terms of judging the economy, a lot of that is going to be done based on we've seen the stock market perform like Joe mentioned it up to this point, the next thing people are waiting to see what happens is tax reform, before that happens, they are going to look to Obamacare for a repeal of that.

All of these things will weigh on the economy. What is your overall view of the direction we are heading in now? I think just on a probability basis, not specific to any given administration. I think the odds of any administration ending up better are very high. four years with the economy better, four years later than today, you know, I mean, but I would say that, but what about the details of what's been proposed in terms of potential border adjustment taxes in terms of immigration policies in terms of regulatory rollbacks? these things yes, I would still say that I think the economy will be better in four years even though I don't agree with some of the specific policies, but I don't agree with the policies of most administrations of some policies, The border adjustment tax, I mean, is an import. tax and an import tax is a sales tax what you are looking at we are in the Nebraska furniture market this store that is in several buildings makes more than 400 million dollars a year 75 percent of what you see is important I mean, if we pay an import tax on it, uh, our customers are going to pay because it's a sales tax and, in this case, it's a sales tax on items that aren't yachts or anything like that, they're things. that the average person buys, so it would be a big sales tax, I think, I think, I think the president initially said maybe it was too confusing or too complicated or something like that.

I guess Republicans, you know, don't get an opportunity like this where they control both chambers and the presidency very often. I don't want to do things, I mean, McConnell will want to do things and Ryan will want to do things and I guess they will find that doing something really comprehensive will be too difficult and they will want to do something. do you remember you remember russell long by chance i know the russell russ building along with hughie long's son and he was the head of the finance committee he's a senator he actually owned shares in

berkshire

hathaway and I only knew him a little bit he's the guy who coined that line, you know, don't tax me, don't tax me that guy behind the tree, you know, and and, if you're going to be income neutral without the craziest dynamic score in the world, if you're going to be quick, don't be neutral, it will get very, very difficult, you will have everyone there saying to tax the guy behind the tree and I think they will end up going with something that is not as dramatic as they would like to do because they just don't do it.

I don't want to spend time and political capital doing it, but people realize that if you can run the whole place, you might as well do it then and look at the first term you know from the last one of the Obama administration. and you use capital and you use time and very soon they're thinking about the midterm elections and everything, so I have a feeling that when the Treasury secretary says we're trying to have this by August or something like that, you're not going to go . Getting a true type 1986 revision or a type 1954 in general or a type 1969 in general in that type of time period, which means that you think something is passed with lower rates but not a border adjustment tax or something that does not We have tried well, I think.

I don't think it's very complex because I think as soon as you try to do a revenue trudeau and you change a big segment, you're going to have all the lobbyists in the world there saying that's not reforming you. I know my idea is reform, but that's your idea, so who knows. I mean, you've got some master legislators, McConnell and Ryan who will run things to get as much of what they'd like to pass as possible, but I think so. If you try for speed and complexity, I think complexity will give way to speed, but I don't know any more about this than your viewers.

You know you mentioned that the border adjustment tax would be something that is a tax on consumers, I can certainly see that happening, but there are also American manufacturers that say we are not competing on a level playing field. We are the only one of the 35 OECD countries that does not have some type of border adjustment. of a tub or something like that and as a result it is hurting us and we cannot create jobs here as quickly and that has been an issue that has been very important to the president. Is there another way to solve it?

Well, I wrote a Fortune Article from a long time ago about import certificates. It's too long to describe here, but there are several approaches and I actually have one I like, but it would take a long time to explain, but I understand there is an article out today. by marty feldstein I may be wrong about how the dollar would adjust up enough that you could actually buy these things cheaper. That's the idea that, in theory, over time the dollar would adjust, but it's never been tried. I wouldn't bet. that, on the one hand, that kills exports, so free trade is wonderful for the world and for the United States, but its benefits are distributed among 320 million people.

You buy your bananas cheaper because we don't try to produce them in the United States, but in the United States. Free trade sanctions are terrible for specific industries, and as an investor, I may make a dumb decision by owning a shoe company, but if I own a good insurance company, I can diversify the problems and eliminate them. If you are a 55 year old steelworker you can't diversify your talents, I mean you would if steel, textiles or shoes were subject to the total, everything is moved overseas, so you want to have free trade, but you also have They have to take care of people who, through no fault of their own, have spent their lives learning a profession and you can talk about recycling and all that, but it is simply not practical and let's take Berkshire Hathaway as an example.

We started with 2,000 employees in New Bedford Mass manufacturing textiles and that business was doomed to fail and we had workers there who really had no alternatives at 50 years old or a good number of them just spoke Portuguese they didn't have any opportunities and a rich country that is prospering because of free trade and as the world is prospering They should keep free trade as much as possible, but they should also take care of the people who become roadkill. You know, when an industry has apparently been a problem. I mean, if you look at the election, it was a big referendum on that, for sure and both.

Democrats and Republicans are moving away from the idea of ​​free trade depending on the free trade that we have seen as free trade up to this point. Some of them will say this is not free trade, but what happens now? I have to take care of those people and if I was someone who had spent 25 years in shoes or textiles or whatever and someone came up to me and said this is great for the world and it's great for those guys. in the 400 forks but it's a shame because you lose your job and that means we can buy our shoes a little cheaper, underwear a little cheaper or steal a little cheaper abroad.

I would say that wealthy society should find a way to take care of those people. Okay, we'll continue this conversation in a moment. Our guest host again this morning is Warren Buffett and he's been talking to us for an hour and a half right now about things that have been going on and Mr. Buffett, I can't believe it's been an hour and a half and we haven't gotten to great news and that would be the agreement with Unilever. I guess it was just over a week ago that we first heard about this. agreement that craft heinz and 3g would be putting together um agreement came out on Friday some news about the shares of many of the other suitors who would not were not being considered stocks like mondelez and campbell fell um shares of kraft heinz m and um sword of Unilever um for on Monday all that had died down what what happened what happened I can tell you what happened uh uh most of what I can tell you I can tell you for sure and then on the other side a couple of things I have to make inferences, but Alex Bering he was president of Kraft Heinz and part of the 3G operation with George Apollo and they and I agreed to make a friendly offer for Unilever if they were open to it and Alex Behring.

I went to London, I don't know how long ago, maybe four weeks ago or whenever it would have been and met with their CEO and had a conversation and he raised the idea of ​​possibly making an offer at the end of the conversation and he didn't understand it yeah , he didn't get a no, he had a perfectly polite conversation and and and and uh the CEO actually uh greg abel from berkshire met him 20 years ago, I mean, we had nothing but good reports on him, we felt good about it, Alex came back and He said that he had not been expelled and that we would also want to move on, so he went to see him again and maybe two weeks later he had a letter that was a summary of an agreement that I thought if I received a neutral response I would give it, but if I had a negative feeling would not do so and he approached and felt that he had received a neutral response and that is why he gave him the letter.

Now I might mention it, it reminds me of that old story about the difference. between a diplomat and a lady, I don't know if you've ever heard that or not, but hey, if a diplomat says yes, he means maybe, if he says maybe, he means no, if he says no, he's not a diplomat. and if a lady says no. she means maybe and if she says maybe she means yes and if she says yes she's not a lady so he probably got a maybe and he didn't know if it was coming from the diplomat essentially, I mean that's what people understands frequently.

Don't know. I don't work in acquisitions that way. I just walk in and say if you want me to make an offer I'll make you one, if you don't want me to make it again I won't make one and I'll tell you a price if I do, but usually there's a lot more to a mating dance than that, so You understand this, I'll take it to the board and all that, and you're dealing with different types of people, some people are from different cultures. They're more educated than others and so on, so Alex took it as a maybe and gave him this letter outlining a deal for Unilever and saying he was going to the board.

It became very evident that Unilever did it. I don't want this offer based on press reports from a few days on one hand, it was somehow leaked on a Wednesday before Friday when, and so on Saturday, I received after that Friday, I received calls stating that the offer was not Welcome and I said. welcome and george apollo said the same thing i mean it's not welcome no offer i mean it was only meant to be presented if so if there was a possibility now it was never intended as a non zero hostile offer and on the other hand it may be interpreted that way and you know I can't, I can't argue about that.

If people say we don't like the price, it's usually a maybe, I mean, and that's what was said in this case. Well, that was said the first time, it wasn't said the second time because, uh, when a Unilever representative called me on Saturday, uh, I just said, "You know, I mean, is this considered hostile?" unfriendly, you don't have to worry about it, there is no offer, but if it is simply because you are negotiating, which people usually dowhen he takes it to the meeting and says, well, it's not enough money and all that, and then you know.

I'm not a negotiator, but the 3g people might be more like that, so once the three of us knew that it was considered hostile, we had no intention of doing one and I think I think the Unilever people. I understand that now it is a case what you are saying that the CEO of Unilever is extremely polite and well, it may be, it may be, it may be polite, I mean, it may be, it may be differences in culture, even in the way in which people express themselves. I mean, Alex's second language is English. I mean, I've seen misunderstandings before and that's one of the reasons I like to do it the way I do it.

I mean when I went to Precision Cast and Mark Donegan I just said I'd make an offer if you want me to and if you don't want me to forget I just said the same thing on bnsf uh but that's not the way it usually goes , there's usually more of a back and forth dance and part of that is a kind of subtle law. Now the law is very different in the United States, but in any state within an hour we simply told him that we were not making a friendly offer, so you know we would leave, that clears up a lot because we had many.

Questions that arose from viewers said: Is this the first time you have made a hostile bid? Should we expect more to come? No, we don't make hostile offers, yes, no, no, no, I don't have any. I don't think they're morally wrong or anything like that. I think there are a lot of companies that can use them to shake themselves out, and sometimes it takes a hostile bid to do that. I mean, there are companies that deserve hostility, believe me, but not Berkshire. Do it and Unilever wasn't one anyway, but we don't, so what happened in terms of Unilever, what attracted you to that company, what made you look at it, it's a great company and I think you know that they.

I will do good things, I wish you the best with Unilever off the table, does that clear the way for a potential endorsement deal something like a mondelez or a campbell the market anticipated as a potential yes, there is no endorsement deal, I mean, there was one that was the only one that I certainly seriously thought made sense uh uh so no, there will be someday another deal at craft time, I guess so, but who knows when you know, I mean that there is no backstop deal and again it would have to be amicable and frankly the prices in that space make it very, very, very difficult to do a Unilever smart deal was more undervalued than companies like Mondelez, yes it is That's why Mondelez fell the next day and Unilever rose, but that's just my opinion.

I mean, someone else might have a different opinion on that, but you know, Unilever seemed more attractive. somewhere and it was bigger when and we always like the size is to say that you and 3g, as a group, have looked at all these other companies and are constantly evaluating them well, they always look at everything, yes, but that doesn't mean I'm going to do anything, but you can't help but be in business and be aware of what various companies do for what they sell. I mean, that's a wonderful thing about investing. I mean, there are thousands of options out there. and they change price daily so the relative attractiveness can change and uh, but there's nothing in the works.

Someone told me recently that just the activities of craft heinz and 3g and Berkshire's involvement in that just by being there and looking at 3G's operations has put pressure on all the other food companies in that space to make sure that they are also shoring up their operations so that they do not become an easy target. Makes sense? I think it s true. No, I think when people see what 3G management has achieved, you know, it can make shareholders of other companies a little unhappy. I mean, you've heard it expressed in a couple of places. One thing I'd like to emphasize about 3G: they're productivity wonders, there's no doubt about it, but I've been on 20 boards, I've never seen anyone better at marketing and product development, all that, I mean, that's what we talk about. in board meetings and they are hours and hours, and I have been on other boards of directors of consumer goods companies and they are nothing like the intensity that they bring, not only do they bring it to productivity, they bring it to new products, they provide it.

I learn a lot about what's going on in the marketing world when I'm at their kraft heinz meetings because it's their game, I mean it's interesting that you mention that because the 3g detractors have been on the other side of some of these issues, they've said things like 3g is just a cumulative company, that's what they are. Well that's not your experience, isn't it, I mean, they built the largest beer company in the world and they started with nothing, uh and uh, I was at the last meeting just a month ago and we spent hours and hours, everyone had different channels in you.

Get to know online retailers versus brick-and-mortar retailers: those who really understand your business. I mean, it's a much more informed discussion than I've heard at most board meetings in my life. It's day and night and I could say that they have developed a new dessert of which I had three different servings, so they are working on the right things as far as I am concerned, it is all aspects of management, they emphasize on what dessert they has caught your attention the most. Well, I don't know how much I'm supposed to talk about new developments, but it's about cheesecake, but I can't go beyond that, but I had three slices and then I had four or five of Take Them Home Too, so they won your vote.

At least 170 calories each. I have three, which is 510 calories. The best 510 calories I've consumed in a long time. When did you start counting calories? I don't count them. I find them interesting. just in terms of evaluating the product, but it's not something you're worried about, I'm not paying any attention, okay, I thought we had a new diet going on here, Warren, in terms of how much money you have in annual cash equivalent. The letter you just wrote presents 86 billion dollars, that is, money that is accumulating right now. I hate it. Do you have an itchy trigger finger right now?

No, you can't, you can't afford to have an itchy trigger finger. but well, in a sense, you can say that I always have an HD one in the sense that I'm always looking for things to do, but that doesn't change my standards in terms of having it, but I'm always looking for if. We only had the 20 billion that we considered our minimum that I would be looking for because we could sell some things if I found something attractive enough to do, but if you have 86 billion, if that doesn't change your standards, it certainly broadens your horizons there.

Can we do something big? Yes, and we'd love to do something big, but are you working on anything right now? I'm always looking, but I would say there's nothing close, nothing close, I don't think so. Okay, I want to go. to some viewer questions, there was one sent in to apologize, I just skipped one sent by Ken Maltt, this is control room t13, if you want to follow along, it says they only find out who is swimming naked when the tide goes out. You feel like there are a lot of naked swimmers right now, well it's not like during the internet boom or you know, several real pigs.

I've written a couple of times when I thought things were getting out of hand on the high side and that's not now that interest rates have changed dramatically up, so these valuations would go down in my opinion, but I don't see that I don't see to play the large scale games that were in the late '60s or that you had on the Internet, you know, no, I don't see a lot of fallacies that come from promotion or games that rely on accounting tricks and that kind of thing. , it's fair to say you're aiming for interests. interest rates it's fair to say that a lot has been built on the idea that interest rates aren't necessarily going to rise quickly or dramatically in the short term, yeah, low interest rates drive up stocks, you know, I mean because the 10-year bond is selling at 40 times earnings and is not going to grow, and if you can buy some business that earns high returns on equity and even has slight growth prospects, you know that with a much lower earnings multiple you're going to do better than buying 10 year bonds at 230 or 30. three year bonds or something like that and that, but that's been true for quite a while, I've been talking all the time and I said people were idiots in 2008 by putting your cash, I mean, was the only thing that wasn't going anywhere and interest rates are hugely important over time and that's if bonds yield a lot more a year from now than stocks can now. be lower, you know, interest rates, although the Federal Reserve has been talking.

A tougher game this year than before the Federal Reserve met again this month or later in March have been meeting and could raise rates as quickly as then. Do you think this is a position we are getting? in a position where the Fed could raise rates quickly, I don't really know, but what I do know is that when you have Europe and Japan with the rates that they have and particularly Europe, I mean, that's the differential that you have to Think about the differential, you're not going to have eight percent rates in the United States and one percent rates in Europe or something like that, so Europe is an important factor and, you know, when expanding the dollar strengthens. it hurts exporting, I mean, there are a lot of consequences, everything you can never do, just one thing in economics, you always have to say and then what, and if I were the vet, I would probably be saying and then, what if I had too big a spread against?

Europe, well, we will continue this conversation in a moment. Welcome back to Squawk Wax. We're all live in Omaha, Nebraska this morning with Warren Buffett. You all have been submitting questions and we want to go over some of them. As quickly as we can, Warren, first of all, I asked someone to write to Gary Gambino, people in the control room, it's t26, you say autonomous vehicle technology continues to advance rapidly, how do you think it will affect the geico earnings? Well, autonomous vehicles will be adopted if They are safer if they are safer, there are fewer insurance costs, which significantly reduces the volume of premiums, then if all cars, if a safe autonomous car had been developed, then there are 260 million vehicles on the road, so it takes a The average time to reach the average age is about 11 and a half years or something like that, but if the day comes when a significant portion of the cars on the road are autonomous , this will significantly hurt Geico's business, it seems like something like this is possible. maybe sooner than you had anticipated a few years ago, that's my case, it's the last one percent, although that's a problem, I mean, it's going to happen one way, but you know who knows, you had that situation in San Luis a year ago. and and if you were driving down the road and someone took control of your car, just one or two experiences like that can slow it down a lot, but it will come, uh, if they had, if they were to take control and 10 years from now , if 10 percent of the cars on the road would be autonomous.

I would choose the less option, but I could very easily be wrong. You have very, very, very smart people, many of them working on it. you have the big car, it's something that billions and billions of dollars are being spent on and brains are being put into it, so it could easily come sooner than I think, but it will be bad for auto insurers eh, come on. go to a question t 129 by paul howard, he says: what would you do to address the country's debt? Would you like the idea of ​​the 50 or 100 year bond? Well, I think when rates have been where they have been for the last five or six years or even a little longer selling very long-term bonds makes sense for the same reason, I think it's foolish to buy them.

I wouldn't buy a 50 year bond, you know, not in a million years at these rates, so if it's that stupid of me to buy them. It's probably pretty smart for the entity to sell them if I'm right, so I would say that the Treasury, uh, would have been there, there's a lot of considerations that they have, but it would be taking out long-term bonds and, of course, in Berkshire, you mentioned that we had about 80 billion dollars in very short stuff, I mean everything we bought in the form of bonds is short term, okay, one more question, this is uh t-70 um, the question is what does he think? of Fannie and Freddie's lawsuits and housing reform, well, I think Betty and Fanny were broke in September 2008 and were a big cause of what happened that month.

They were the first of the really big dominoes. I mean, Bear Stearns had been a few months before, but those. they were huge dominoes, huge holdings of their paper around the world and everything else and they were bankrupt and and uh and the people who promote the policies thatThey bankrupted them deserve some responsibility for what happened subsequently, for various reasons, the government didn't want to take more than 100 on one hand, I think they would have to show it on their balance sheet and all that, so they came up with this conservatorship . They've changed the game when they came into this sweep deal here and they just did it overnight, they just said we're going to take out all the money so there can be no recovery essentially for Freddy and the family values ​​that are being tested in the court and you can argue that if you go back all the way.

There was no capital for those securities, the government created the capital by putting up huge amounts of money, but the court still decided I want to revisit some of the things that Warren and I have talked about because you know. He knows insurance inside and out and it's a great deal for a guy like Warren we already talked about. You know some of the ways that he can, you know that he can do things that it seems like he's going to be right. on the side like the dealer, it seems like he, by definition, is beyond that and insurance is such a great thing, isn't it if it's done right? do this now you have

warren

you have a year we ran out of letters for named hurricanes you know what I mean and then it's like oh boy this is forever and then you say go on, you're, you're like this, you know the cousins ​​are going to disappear and then in the next 10 years you won't have, basically, a single cat, so the way it can be done is pretty amazing, but I hesitate to go into this further, but you've said it in the past.

There has been an increase in catastrophic events in terms of the insurance business and year on year it is fair to say that it has been somewhat static or has been predictable. Well, it's not predictable, but it's been Florida's frequency. hurricanes for example have been pretty low over the last 10 years or so compared to history, uh that hasn't been true in Asia, I mean New Zealand had an earthquake a while ago that would have been equivalent to relative to its population probably three times or so what we've seen in the United States, but most of the cat covers relate to the United States that you see and Matthew came close last year to being a big one, but he's been noticeably benign in terms of floridaTexas, the southeast for quite a while, but that doesn't tell you anything about next year, I know, but prices went up to where we don't want to write it, I mean, we don't feel like home anymore. as you say, uh, when the race got to where they are now, the reason I bring this up, I'm also thinking, I mean, have you been paying them more for the flooding or do you know if the increase in tornado damage?

It has remained relatively stable. Has increased? What about forest fires? How about the idea? The idea is that all these things are happening with this high frequency now and I wonder if that is true in terms of insurance and I can understand how the damages will be compensated. It would increase because there are more people and they are populating the coast and they know that there are more people around that can be hit by tornadoes, so I could see that, but do you know that the incidence is absolutely increasing as a sign of that? You're ruining things, well, last year, the tornadoes were unusually frequent and if you wrote an auto comprehensive or wrote to homeowners in Texas, you probably lost a lot of money on that line, we have, I don't know, 25 car dealerships, or out there in Texas and we had losses that were, I think, seven or eight times the premium that we paid, for example, for damaged cars at our car dealerships due to tornadoes, so Texas was hit hard, well, a lot of places They were hit hard, so what you've seen in recent years there have been more tornadoes than you would expect and fewer hurricanes, but who knows what will happen next year.

You know, you've seen that there was actually a big earthquake in New Zealand not long ago, yeah. quickly like we did a few years ago, yeah, I mean, we haven't started attributing earthquakes to the CO2 rise that's coming, um, I'm sure, but no, I'm just trying to get an idea if I'm trying to get a I'm sorry if I saw, you know, one of the most vocal advocates of anthropogenic global warming, this gentleman Michael Mann, so we don't need to do that anymore to really measure things because we can just see things, we can see the catastrophes that happen. that we don't really need to look at any data, we know it's real because it's happening and I don't know, I remember things that happened when I was young too, so I don't know if the frequency is higher, it's definitely not.

I haven't seen anything yet that will make me change the way we evaluate earthquakes, tornadoes, hurricanes, droughts by hemisphere, yes, more things can happen, less snow, more, you know, it's just incredible, okay, that , you know, I'm not going. I want to ask you something else besides that because I mean obviously there's nothing more important than things like clean water and clean air and keeping chemicals in and you know the EPA has a lot of work to do with waste sites and all these things. Which I just don't do. I don't know if it is certain that we have changed all the weather at this point, that is my only point, yes the only thing I have changed my opinion on is that I would now charge a higher fee for the hole. insurance when you play in the tournament, I mean we've done that, but that's been the only major change to our subscription policies Joe, when you circle when you're being sarcastic, that's not it, it doesn't work well, eh, okay . okay, I'll back up I'll back up you're so sure you're so sure the only thing you're more sure of is if I have a wet if it's a wedge then even you're like a sandwich we we I've written a lot of hole-in-one insurance over the years.

Well, it's perfect for you. It's like it's your perfect thing. billion dollars you got it no one's going to do it just make it even better what you got just do it more you'll get more headlines do it billion dollars I'd rather get more premium forget about headlines I want more premiums okay Warren I want to give you a moment to continue with what we just finished talking about Fannie Mae and Freddie Mac. Yes, one point I would like to make is that I think it is enormously important for the economy that we have. Readily available 30-year mortgages guaranteed by the government.

I mean, I think this country will work better. Homeowners will borrow or borrow for less money with a government-guaranteed mortgage. I think the problem arises when you try to mix the private sector with the government because it serves both. masters is difficult and you had that board of directors of freddie and fanny with some representatives of the government, you had congress telling them what to do and wall street telling them what to do, I think it's a bad model, but I do think it's important that we have a mortgage to 30 years guaranteed by the government. I think that's good for our citizenry and I think that's good for the economy, but you don't think we need Fannie and Freddie to do it.

I do not know, I do not think so. I don't think you need Fannie and Freddie at all to do it. I think you need a government sponsored program and you might want private insurers to have to take two percent of everything they do or something like that. kind of just like price control and all that kind of stuff, but basically it has to be the government, okay, Warren, I want to go back to the annual letter and something that caught my attention this year was a phrase that you put in that . you don't own stocks forever you just wanted to make it clear that there was a section, a little section that you put in, just saying look, people have said we own stocks forever, that's not the case, why did you put that in this year?

Well, there's a section in the report that's been there for over 30 years that says we won't sell a business just because we're offered a fancy price or whatever, but if one of two things ever happens, it promises to lose cash. forever or we have major job issues of some kind that we would consider selling, but I've gotten calls from companies saying I'll pay a lot more for what it's worth and I said I'm not interested. People had interpreted that, in fact, one of our directors. I had interpreted it to mean that it also applied to stocks.

The truth is, we are still selling stocks and our favorite holding period is forever. I mean, it would be nice to find stocks that I've owned in Berkshire forever, meaning 52 years. I followed myself and many of my families followed, but we didn't commit to owning anything, stocks forever. We commit when a colleague sells to me, it is a business. I promise to keep it, we are not going to resell it. We tell anyone: we're not a private equity firm and if it's disappointing we'll keep it unless it falls into those two categories, but that section in what I call the ground rules that was ambiguous is demonstrated by the fact that one of directors actually mentioned it to me, so I thought I'd better make it clear if that leads us to think that it might be selling any of its ultra-long holdings if I think about Wells Fargo or Coca-Cola or American Express stock that seemed to have gone far, we have no intention of selling them, on the other hand, let's say that the best deal in the world emerged, I mean, there is no self-imposed prohibition on selling them.

I have no plans to sell them but I just want to clarify that point because the way I said it before it was not clear, let me ask you a question, this is the t20 control and I am getting out of order on this. t20 comes from Chris, who writes what his thoughts are on the border adjustment tax. We've already talked about that, but he wants to know if this was a factor related to his recent Walmart sale. Maybe he could talk a little bit about the Walmart sale. And why did you do it well? Walmart is a fabulous company and who are Sam Walton's successors?

Did I mean it's one of the great stories of American business? I think retail is too difficult for me in general, we bought a department store in 1966 and I got my head handed over. I've been in a few things in retail, but we bought Tesco in the UK and it wasn't like that. I bought Tesco at home in the UK. My head snapped towards me. Retail is very difficult. and I think the Internet thing is very difficult to understand, you know, now we own our own retailer that works very well. I mean, I think this particular business is relatively immune to online business, although we do a lot of it. of online businesses here, but this works very well, I think it will continue to work well, but I think I think Amazon in particular is someone who is going to be an entity that will have everyone on their sites and they.

I have delighted customers and it's extraordinary what they've accomplished and a lot of people like the delivery they know and that's a tough, tough, tough competitive force, now Walmart is moving online and they have all kinds of strengths, but I just decided I would look for a game a little easier. A major investor I spoke to recently asked me this question. I'm not sure if it was supposed to be on the record or not, so I won't use the name, but this. The investor said that he had recently heard him make some comments about Amazon in which he was very complementary to Amazon.

Its founder, Jeff Bezos, said that he is probably the best manager he has ever seen. I think he maybe is. Yes, you know. I said. I mean, it's extraordinary. I mean, here a guy you know gets in the car with his wife to try it. Let Shawn start crossing and think: how am I going to take over the world? Maybe you sell books online. It's a fantastic business. The investor asked me why he doesn't own Amazon stock. That's a good question, but I don't have a good answer, obviously I should have bought it a long time ago because I admired it a long time ago but didn't understand.

The power of the model as it progressed and the price always seemed to more than reflect the power of the model at the time, so it's something I really miss. Is it too late or you just don't know? I just do not know. I know, yes, it's hard for me to understand retail, I'm serious. If you go back to when I was a kid, in every town the department store owner was king, I mean, whether it was Marshall Field or you know. or dayton or hudson in detroit or frederick and nelson seattle or whatever jl brandeis and omar the department stores were king and people said what can happen to him, you know it's down there where the streetcar lines crossed and the women took They bought there and were able to see 500 reels and 500 wedding dresses and they couldn't see anything like that.

It offered this incredible variety of products and someone came with the mall and instead of making it vertical with all this display owned by one person. they can spread it as the property of many and now comes the Internet and that is the maximum variety of things that you can access very easily, so people love variety, they love low prices and a lot of things, so It keeps evolving and it's great. department stores many ofthey have disappeared and the rest are under pressure it is a business that has changed rapidly and it reminds me of another business where you invest in newspapers newspaper the editor used to be the king of the city also what happened to newspapers Newspapers, there are only two newspapers in the United States that I think have a secure future because they have a successful Internet model that goes with their print model and that is the Journal of The New York Times and I am not saying that it is even easy for them, but they have developed a presence online that people will pay for now.

The third one that can do it again, going back to Bezos, is the Washington Post and it has dramatically improved its online situation, so it's conceivable that its math works, but if Look, there are 1,300 newspapers left in the United States, we have 31 of them, there were 17 or 1800 not too many years ago and it was an incredible business when you were the first in everything, I mean, you could tell people how they closed their stocks. uh, I learned how my stocks were closed by looking at the paper, I learned, I learned who won the football games or what the box scores were, I learned all kinds of things with the paper first and now you have, you know you have.

The Internet and, apart from the ones I mentioned, 14, 13 or 1400 articles have not learned, I have not discovered a way to make the digital model complement the printed model in such a way that it is future-proof. circulation is significantly decreasing advertising, I mean there used to be dozens and dozens of pages of help wanted ads, it basically disappeared and no one has found the answer to that, but President Trump has looked at the media as a potential enemy, Steve Bannon said. they are the enemy um, you have had a long relationship with these newspapers that you read every morning, you have invested in newspapers like the Washington Post and many other newspapers, what do you think of that?

Well, I think all presidents. I've met him and pretty much every politician I've met in one way or another doesn't like me, they're just smarter in how they handle it, maybe in terms of coverage or maybe he's smarter in standing up to them, but either way, The media is watching. there are things to write about and they should, I mean, that's their job, but who wants someone to look at everything you do critically and the higher up the office, the more they look at it critically, the more time they have? Everything is going to happen for him to express his feelings, but I would say that he is not the only one who has those feelings towards politicians, not at all.

I know that you are not someone who has adopted Twitter although you do have a Twitter feed. How many times have you tweeted? Well, I think there are seven tweets up there, but I haven't made any. I have a friend who convinced me to get Twitter. a Twitter feed and she's posted a couple of things, but the answer is that I've never tweeted anything. Do you find yourself following something on Twitter? I mean, I know you don't have an iPhone, but I know you have an iPad. true, I have an ipad, someone gave it to me, but have you ever not done it right?

I would say this: there are two things I was told in life many years ago that turned out to be excellent advice: one is praise by name and criticize by category someone told me that 40 years ago and tom murphy 40 years ago said warren you can always tell someone to go to hell tomorrow you haven't lost the option both tips have been very good and I would say that both email and twitter can really make you deviate from that very easily because if you can just do something very easy to tell them telling someone to go to hell in 10 seconds if you get mad at them and just having that available instead of writing a letter. or doing something like that, I think it's brought out a lot more things.

People shouldn't have said that I think they do better following my philosophy, but I think it's harder to do that, if you can tweet something in five. seconds or go to email and say "do the same", so how often do you think that guy is a man, but you don't tell him right? I've certainly thought that over the years they haven't always been boys, did you think that about me? I think the only thing that sometimes you really feel different the next day and you haven't lost choice is that you know people have done things where you feel like you explode because of it and how many times you've had to use your own advice. a good number of times, yes, but one thing is reinforced because you see that it works, yes, a lot of people have said things in emails or whatever they were in and they said they didn't need to say them, you know, I mean it and and they don't lose the option, you can tell them to go to hell tomorrow is that a more important lesson in business or in life is very important in both places now you will learn about it, I mean, I think it was a character guide that said that life , can you know that life can only be understood backwards, but basically it must be lived forwards?

And you learn about a lot of silly things, like writing letters in the past, but now including tweets and emails, your first instinct is not necessarily Your best course of action is that why don't you send emails and tweet well, it's probably a mistake. of time, but that's a good rule, it's not, but it's a good rule to follow. I mean, I would say yes I had a delay system on every email or tweet and I couldn't get out for two hours. I don't think everyone came out. People submit the problem. We all still have our mouths that get us into trouble.

Yes, definitely. I am a living example of that. It is really a mistake to give an instant reaction. You know anything that comes like this is going to have some things that are irritating for one reason or another, but people will tweet and they will and they will send emails and I sent them, you know, the only email I ever sent in my life. and I ended up in federal court. Tell people about it. What was that? Well, what happened is that Jeff Rakes, a friend of mine from Nebraska, was in a senior position at Microsoft and in the 1990s, in my only email, he emailed me and said that Microsoft doesn't meet all the tests to be a wonderful business and laid out some reasons and I sent them an email explaining why I didn't buy Microsoft and also I made some comments about Nebraska football, well I guess the US government decided this email to me I had sent or said it had some meaning in terms of Microsoft's position in the economy, so one day I saw my email in the Wall Street Journal. it was released to the world and i thought i didn't care what i said about microsoft word i said something negative about nebraska football and i would have to leave the state for good luckily i didn't hey joe is someone who shares your concern about twitter who tweets very rarely and joe, I know you came in here too blocking, blocking, that's the best thing, you can block people very, very quickly, so in the past, uh, Becky, every time I wanted to use that word, I said someone is a royal a-hold and that's a company and I can get it, I can get away, I wanted to say, I know, but he said, tell people to go to hell and the other sentence jumped into my head, okay, here's the deal Like I said, he's not an idiot. donkey is not a donkey so I can say ass, it is and I say it all the time, so I don't know if you're going to start with Becky, if you're going to go here, I'd like to use that word. all the time if now it's fair play I'm just going to be fair that was a mistake do you want to illustrate it was that okay with you?

The other one said I I thought the other one said I thought he was repeating his words Charlie and I have a code word we use when we see a guy who we really think is an idiot We'll tell him boy you think like a CPA and the guy gets excited and, of course, our keyword. It's psychotic twisted and you could feel it, the last thing you wanted to jump on I thought you had something else, yeah, no, I want to know, I want to start using it if it's okay now, I want to do it because I need page ranking, no.

I've used that, I've used that before, I've used that before and you know, I say, I say shih tzu all the time, I say shih tzu all the time and I'll still have skills, let me get out of my embarrassing problem, well, come on go somewhere else thing okay move on ask something else oh oh ask something else no no uh okay, we have exhausted the talk about the 10 year guarantee this topic yes no, you never answered me if it is strange to see the bond market so well -he behaved when so many people are suddenly worried about reflation or, you know, deficit spending, you know, we're not going to do anything with entitlements, we're going to increase military spending, we're going to spend a trillion dollars on infrastructure, we're going to cut taxes. across the board, why do you think the bond watchers, which is Becky, that's what she likes to say?

I like him too, but why do you think he's so calm Warren? It absolutely baffles me who buys a 30-year bond. I just don't understand it and they sell a lot of them, so clearly there's someone buying them, but the idea of ​​committing your money, you know, about three percent over 30 years. Now I think Austria sold some 50 year bonds here. I know under the percentage, I just don't understand the uh uh, in Europe there are certain incentives for banks in terms of capital requirements to burden the governments, but it doesn't make any sense to me, you just said that a 50 or US 100 Year Treasury might be a good idea to sell the treasury, but that is an indication that you would not be a buyer at all.

I wouldn't be a buyer. I wouldn't necessarily recommend anyone else buy it. No, but you know that's how it is. That's why I think the government should sell it, it's a bad buy, okay, um, Warren, let's continue this conversation, there's so much news that we haven't gotten to one of those yet, which is Wells Fargo, we haven't had a chance to sit down. and talk to you since everything happened with Wells Fargo and we also got some emails from viewers. I wanted to ask one of them. This comes from Norm's guys. This is t31. He says to ask him given his ownership of Wells Fargo.

Please explain his criticism of management why he has been silenced for Wells Fargo in front of the Solomon brothers. Well, it could be muted underneath. Well, Solomon, the company was failing and, uh, it could have gone out of business the following week with huge repercussions for Wall Street, so that was it. a completely different thing, they asked me to come, I was on the board of directors, uh, but with Wells Fargo because they bought back shares that we actually own a little over 10, we have to be a passive investor there by law unless we want to become a bank holding company that we don't want to become, so it might as well have been just as passive anyway, but I can tell you it had to be passive in any case.

They made a big mistake. The big mistake wasn't necessarily the silly incentive. system, I mean, everyone can think of, I mean, incentive systems are fine, sometimes they incentivize the wrong things and this certainly incentivized the wrong things. The problem was that they didn't do something about it when they found out, I mean, it was the same thing. Kind of like Solomon in that sense and, you know, I keep preaching to our guys, if you see a problem, attack it right away, it will get better and a big mistake was made at Wells by not preparing incentive plans for cross-selling. okay, I mean you want to have incentives for people to do it, but you don't want it to lead to crazy behavior, which it did, and the big mistake was that when they found out they didn't do anything about it.

I think his fine was 180 million or 185 million. I think they saw it wrong in light of the five billion dollar fines that were imposed for mortgage practices at some other bank and the three billion dollar fines, so they saw the problem as the same magnitude. by the size of the fine and it wasn't at all, I mean you know whenever there are people creating accounts and doing all the things that they were doing, it's not the size of the fine that measures the impact on the customer, but the and and how. your reputation will suffer, it's what you were doing and it was wrong and then the time came five years after you did it and they clearly knew what was going on to some extent and they didn't know it. do something about it and I'll say this if the boss doesn't do anything about it the people below John Stump is a perfectly decent guy in my opinion, he would have distrusted my will and not worried for a second. but somehow, when he saw the evidence, he didn't do anything about it.

Now maybe he thought someone else was going to do something about it. That part is similar to what happened in Solomon. I mean, John, good friend, he thought he postponed the call. jerry corrigan and that was at the end of April on May 15th another government bond offering came out and the guy who was behaving badly behaved badly again and now it was too late and I think to a certain extent when you get behind the eight ball and not If you don't do it right away, you keep thinking, well, maybe it'll go away because if I go in now they'll say why didn't I go in six weeks ago or six months ago, whatever it is, it's a terrible mistake when you see aThe problem is not attacking it immediately.

You know it can be unpleasant, but I say: get it right, get it out, get it done, get it right, get it done quickly, get it out, get it out and I keep saying that to our managers and I'm sure something is being done wrong now with 367,000 employees in Berkshire and I just hope to find out and do something about it. What do you think of Tin Sloane? The new lunch with him wants something. I haven't shown it to him again in a week or two. and I think he's doing well and they made a big mistake and they're correcting it.

I don't think in terms of the company's purchasing power five years from now, it's material, but that's Tim Sloane. Was he there at that time? Did he have any involvement in it? Well, it's not that I mean what I suppose is that there is consumer banking and it goes up a chain and then there is a person who has a very responsible job ahead of consumer banking. that should do something about it, but if that person doesn't do it, then the CEO has to do it and the board of directors won't know anything about it, nor do you learn about that kind of thing at the board level, right ?

We are talking about Bank of America, it is surely another great participation. He doesn't count it among his 15 largest holdings because of the different way it is structured. Yes, we all have warrants that arrive. Yes, that's what he talked about in the annual report. As to when you might or might not go ahead and exercise those guarantees, you want to explain that to people who didn't read as deeply. Yes, we can use our 5 billion preferred shares as payment for the warrants, which is 700 million shares at 7.14. so that we can have a cashless exchange, we will get 300 million dollars a year for holding the preferred, if we use that preferred to exercise the warrants, it would only make sense if the common we received pages of more than 300 million and the magic number on that is 44 cents, I have no idea if they will pay that or not, but I just want to make it clear in the annual report that that would cause us to exercise the warrants before their normal time, which would be one day before expiration.

He also uses this year's annual letter to really address investment managers, hedge fund fans in particular, and people who think they can get ahead by relying on experts when it comes to investing. There was an email from a viewer that came in and the gentleman said if he was looking. in these topics they talk about the investors who know nothing, oh yes, I know the United States will do well, yes, well, the investors who know nothing, I think he may have been a little offended by that, what is an investor who knows nothing? What does that mean?

This person is not a professional, I am a doctor who knows nothing, I am a dentist who knows nothing, I have not been an obstetrician, I mean, I am not in that business and the idea that that, uh, that you are going to be the game that you're not even necessarily trained or spend your life or something, it's not like the guy has an IQ of zero, you have an IQ of 200, but you're not involved in investments that I don't know why They turn on the light switches. You know, I think I'm generally reasonably intelligent, but I don't know yet.

You know I'm a physicist who doesn't do anything, but your point is for investors who don't. If I don't do this for a living, it's really, really hard to beat the index, well, they're not going to, I mean, and you know you can get lucky for a while, but the beautiful thing about it is that you'll do wonderful with the Americans. In the industry you don't have to, you don't have to be an expert and experts won't do it to a large extent either, but you'll do fine, so it's not like you're saying you know. the investor that doesn't do anything will just be left out on the street or whatever, you'll get a great result and you know, I mentioned the past, when I die, I told my wife that having 90 percent of her, uh, and that the trustee have 90 in an index fund, they will do better overall than they will if they go to professionals because since the professionals don't know how to pay the fees, they don't know how. to get a better result if you take half of this half of the people in the country and they do nothing, they just own the average, they will get correct average results and if they don't have any expenses, they will get those, both gross and net, the The other half, by definition, have to be average if that other half is, I mean, the average is left to them and they're going to include all kinds of fees and they're going to do much better. worse than the people in the uh and they do nothing and I made this bet just to illustrate it and you know the difference is incredible I mean the amount of money that people have wasted on getting investment advice is just ridiculous in this country , yes, you mentioned that there are 10 managers that you may have met in your life, but I want to let Joe participate in this conversation and then we will come back to that point as well, Joe, go ahead, no, it's just going to say a lot. of those hedge fund guys are um, I can see next year I'll do this I'll do this show on my own next year uh-oh seriously seriously two-twenty born twenty-two and they can't beat the index.

I mean, that's something you were showing and I'm glad someone finally showed it. I mean, some of them are good, some of them year after year are good, but there's a lot of naked emperors there that charge in twenty-two and you know. They have a couple of good years and then they give it all back, they keep their twenty-two, but no, you know, then they lose everything because of the people who are there, no, 2 and 20 is going to train a lot of people. rich and will make very few investors rich, and in reality, it's kind of bordering on the obscene.

As I said in the letter, I have met about ten people who with modest amounts of money I would bet a lot of money that they would do better than average and I say there are hundreds and maybe even thousands, but there are thousands and thousands and thousands of hedge fund managers now charging twenty-two is just ridiculous and doesn't get any better because Charging a lot, I mean, that doesn't make you a better judge of values, none of that, so the good salespeople are overwhelmingly the ones that attract money instead of the very few who are extraordinary at managing money.

Phil Fisher, who wrote that book. Common socks and he was going to do better than the average Charlie was going to do better than the average in life in investments bill rewayne a friend of mine was going to do better there have been some but there are very few and only if they work with a considerable amount of money, which is why you don't want to tell us who we could invest with at this time. Well, part of it, 86, my team is, you know, the guy, you never heard of his wolf, probably if he had picked one. guy to manage money, I would have asked him to do it, you know, but Bill Rowan was excellent and I recommend him to my partner, as my partner Sandy Gottesman and many things, there is no doubt that he was going to do them better than the average, but very, very, very few. people and I'm okay when we were looking for a couple of people to hire at Berkshire I think you were on that trip it was cnbc when I had hundreds and hundreds and hundreds of applications from people and the truth is I let anyone in the world who wanted to challenge me Nine years ago they offered five hundred thousand dollars for half the bet and all these guys who make billions of dollars a year didn't want to put up five hundred thousand dollars and bet on themselves.

You know, it's amazing what's happened in investment management, Joe, I have one more philosophical question, uh, Warren, and it goes against what you normally talk about, but just in terms of looking at the market and whether you've had a career where made. too well and it needs regression to the mean or where it hasn't done well enough and it will come back if you look at an eight-year analysis, let's say it tripled in eight years, so 16 percent per year or something like that. Think about why it doubled, it doubled twice or not, not quite, but if it tripled, that's one way to look at it, but if you go back to 1999, 17 years, it only doubled, so it's only four percent. cent annually, so this market moved forward. of itself because it has tripled in the last eight years or it has taken forever to go from ten thousand to twenty thousand, so we are not necessarily in this rarefied air.

Do you have an opinion on this? Yeah, well, I'd bet my life it doesn't. It doesn't mean much when I'm 86 to bet my life on a 30-year bet, but I would bet my life that the 30+ year stock outperformed the 30-year bond. I'd approach it betting on that. The 10-year will do better than the 10-year bond versus the one-year bond or the two-year bond. I have no idea, but stocks, if you look at American Equity, America's core business, American Equity gets a tremendous return on tangibles. net assets that's what the business is about that's what the farm is producing now a bond is limited to what it can produce but when you say reversion to the mean I'm not sure what the mean is, I mean the mean will be based on the returns on capital, the amount of capital reinvested and reemployed and I would say that the prospects there are much better than in fixed investments in dollars which, without a doubt, I liked stocks much more a few years ago and I have said it in this program , but stocks versus bonds right now are not close now bond yields can change a lot if bonds rise to 15 percent.

I can recommend Bonds Warren. Did you consider yourself among those 10 people who you thought could beat the indices? Did you always know? that you were going to be able to be, I always felt like I would, yeah that's a little gross, but I really did. I retired when I left Graham Newman with 175,000 and I thought that would be enough to give me a good life, you know? the rest of my life and I had a couple of kids then and uh uh you know, I thought I was right for this business now I thought Charlie was right for this business I thought Bill was broke I mean I knew about 10 people or so walterslawson uh but Oh, and that's I didn't think they were necessarily the smartest guys in the world.

Oh, maybe Charlie is, but I thought they were well suited to business. People have different talents. I mean, if you look at chess champions or bridge champions, sometimes they. I'm not that good in other areas and I'm wired for this business to a certain extent, so I felt like yes and I learned from the best teacher you could have, what you would have done, what other jobs you considered besides going to work. for ben graham well, when i left columbia i only applied for one, i went to graham and said i was working for nothing and he rejected me, but i did it.

I joined Merrill Lynch. I went to Merrill Lynch and this woman said. that she put me in this little room to wait and well, there were already a couple of guys there and they called them, but then three or four came after me and these guys were all very fat and they kept calling them. was in front of me and I finally decided that Merlich had a minimum weight requirement so I left and if they called me sooner I could be working for Merrill Lynch today but I got tired of all these fat guys being in front of me and I thought about it .

I must have been a pro football tryout or something so I was only about 135 or 40 pounds at the time so I decided there was some requirement in Maryland, they hadn't told me about it and oh how different could it be? been your life. Nice effort, yeah, you keep talking about the 10 guys, maybe 10 people that you may have seen that could be top performers. Is there anyone actively managing money today that investors can still get into that group of people? Well, I'm sure there are, but in all likelihood they will only be effective with fairly modest sums of money and of course that will attract.

Yes, the reason I keep coming back to this is because it must be a question everyone asks themselves: who do I turn to to beat the average? Yeah, I hired two guys that I thought were very good and they are very good, yes, but they are handling 10 billion each and they would do better if they were handling 1 billion in terms of percentages, so they will, it's just that we have there's a lot of money, but added funds work wonders for general partners who get the 2 and 20 and are totally against the interests of the limited partners beyond the point, there was a question that came up from a viewer. and I don't know the number, you guys, if you can find it, the only question was, does the market still have a lot of geicos that you could find that are great investments that will continue? grow phenomenally or is it just a different market since in a different era it is more difficult than it was obviously 50 years ago.

I mean, my best year was actually 1954, so you can see how early I peaked, but I was working with small amounts of money and in a market that wasn't analyzed the same way it is now, so that there are a lot more people looking to compete and I still think that due to temperamental differences, I think there are a good number of people that with small amounts of money can do well, but the chances of the average person choosing them or the person sitting in front of you trying to sell it, since that person is betting against the odds significantlyagainst the odds you mentioned in the letter, though that's all. something your richer friends just don't want to hear is a very interesting phenomenon.

I've talked this way and people with small amounts of money say that sounds good to me and then they just go and buy index funds and they keep buying them and they've done better than people who have turned to hedge funds, but I do say that several pension funds ask me, sometimes they are local and very large pensioners have asked me. funds from other states and I tell them the same thing and they basically can't stand the idea that their big money can't buy a special performance and of course these people call them all the time, you know? they, uh, and a good salesperson, yeah, they'll fall in love with good salespeople and what really bothers me is that sometimes they hire consultants and they say, well, I don't know enough to choose good managers, but I know enough to choose a good consultant.

I never understood why if they can't find a good manager, some guy comes in and says, "Well, I'm a good consultant," so it's very sad, but in many cases they are really outmatched by the sales people, I mean, that It's true in many fields, but in investing you're talking about a lot of money and someone has a billion dollars, they want to have a family office, they want to feel special and the truth is that it's not necessary. Be special, okay Warren, if you don't mind, we'll take one more short break when we get back, folks, we're going to talk a little bit more with Warren Buffett about some topics related to the markets and some of the securities. which has been getting louder you're going to want to hear this so stay tuned squawk box will be right back welcome back to squawk box everyone where we are we live in omaha nebraska with berkshire hathaway president and ceo warren

buffett

, for who has been answering questions. most of the last three hours and Warren again thank you for your time today thank you uh before we go I'd like to make sure I hit some points for people who weren't up three hours ago from the beginning of things the one question that all the world asks me when I come back from talking to you about one of these things is what do you think about the stock market right now.

There are many concerns on the part of investors who have seen that things have moved very quickly in recent years. In some months we have seen the dow go over 20,000, seen the s p go over 2,300. and there are investors who feel like, wow, I missed my chance, I've been sitting on the sidelines now I have to wait for a pullback, what would happen? You tell those investors: Well, I don't have the slightest idea what the stock market is going to do tomorrow or next week or next month or even next year. I know eventually and we'll talk in 10 years or something. that stocks will do better than bonds, which is the main alternative, or bank deposits or whatever, fixed dollar investments for people and they will not be able to choose the time to enter, I don't know how to choose the time to enter.

I bought a lot of stocks in the last few months and the stock market may drop 20 or 30 percent. But that won't bother me if I like the businesses I bought. You know there are many people who think you need to be balanced. If you are going to be in stocks you also need to be balanced in bonds maybe 60 40. or 80 20 or whatever and I have money retirement for infidelity I have everything in s p 500 index funds like you have written like you have told people what to do with the exception of the comcast stocks I have but everything else is in s p 500 index funds and I get a red signal from loyalty comcast saying this is dangerous you shouldn't invest in stocks are they right to get hot?

No, I think that's totally wrong, I mean, it's been, obviously, you shouldn't invest. in stocks with money you might need to use retirement funds, oh yeah, but if you're going to need to you shouldn't borrow money against stocks and you shouldn't if you're going to need some money for college or something in a year. You don't want to be in stocks because you have no idea what the stock is going to sell for in a year. It's inappropriate. Stocks are safe in the long term and are very unsafe for tomorrow if you call it unsafe. A drop in market prices bothers you, but Berkshire three times since I took over is down about 50.

Did I feel poorer than not? Not at all, I mean, and you know, but I didn't know what I'm borrowing. I knew it. It was me who was worth more over time American businesses will be worth more over time you know that's what you're buying as a business you're not buying stocks you're buying a piece of a bunch of businesses those are those will be worth more in 10, 20 or 30 years, of course you do, but if you think you can get in and out or that you know the time to get in, then I think you are making a mistake in my life.

He said you wouldn't be surprised to see the dow hit 100,000. Yeah well you're probably 30 35 and you have another 50 or 60 years left, you're nice you'll see, no I'm serious. To go, I mean they retain earnings every year just retained earnings. A guy named Edgar Lawrence Smith wrote a great book about that in 1924. It was the fundamental reason for the great bull market in the '20s, but he, you know, pointed out how retained earnings. it actually increases values ​​and if you own a private company and you retain profits every year, Berkshire does that and it becomes worth more money and that's what's happening in this world, as you told us earlier on the show, probably has invested 20 billion. dollars to work since the time of the elections because he has liked two areas, one of those areas is Apple, another is the airlines and we have a question that came from a viewer, James Lee, it is the people of T-51 who says why that.

Do you think management in boom-and-bust industries like airlines will act prudently and rationally for a long time? Well, that's the question, but it's certainly easier to act rationally when you're doing more than 80 percent load factors than if it was much lower, so the big problem if they have too many airplanes around, you know, you can be sure that It's going to be a lousy business for a while, so does that mean it's a number you watch like the canary in the coal mine? it's the little well where you can see what the orders are and whatnot and the deliveries are expected to be and the usage of airline seats sold will increase over time, not necessarily dramatically, but it will increase, so the demand will never increase.

It's going to disappear if you get too much supply, you have a problem. Speaking of supply and demand, crude oil is another one we've watched very closely. I know you mentioned in the letter that Marmon makes things like the railroad car and the leasing business. That was there, it has dropped significantly. You said it was not just because of crude oil, what are the factors involved in that well? Crude oil is a factor, but heavy industry overall hasn't been super strong. It's very interesting since the fall of 2009. I've had growth of about two percent annually, year after year, and people get more optimistic than that sometimes and the strengths and weaknesses have moved a little bit across the economy, but the oil business, you know, seemed fantastic a few years ago and and more oil products are going to be moved in the United States with hundred dollar crude oil than with $50 crude oil and people got very excited about the order for tank cars ago a few years and then became less enthusiastic, in fact, there has been a bit of an uptick lately.

I can't believe we've gotten to this part of the show and haven't asked him his opinion on the economy. Where is the economy? The economy is all I see, it's been the same from the fall of 2000 to 2009. It keeps moving. forward a couple of percentage points a year, which is fantastic, by the way, not as fantastic as three or four percent would be, but if it stays at two percent, in one generation we will add nineteen thousand of GDP per capita to our current economy. We have a lot more things than we have now, it will be great in a generation, so your children will live better than you, but people would rather have three or four, maybe we will get it, but two is two we are moving forward, we just finished spoke to Treasury Secretary Mnuchin last week and he said he sees a way for us to get to three percent growth based on a few things, like tax reform, whether it's cutting regulation, some other things that go On top of that, are you saying let's go back to three percent growth?

I just do not know. I mean, I wouldn't bet on it, but two percent will be great. Three percent will be better. Anything. I shouldn't say anything. but a lot of policies that could take it to three percent if they do, I'm all for it, what do you think would help us improve growth? Well, productivity is the only thing that gives you growth, I mean, if we had done it. Productivity has not changed since 1776, we would live like we did in 1776. If 80 people had to be on farms to feed us, we wouldn't be producing much of anything else, so it's all the productivity over time that counts.

I have a lot of people who have written about artificial intelligence and robots and where do you think they are moving forward? Are they harming our productivity? Yeah, I don't really know anything about robots, but I'll put it this way if you finally understand the world, then a guy could press a button and everything that is being produced now would be produced from him pressing that button. It would be a better world, now you would have to make sure that guy didn't keep the entire outcome except the idea of ​​becoming more productive benefits everyone and I shouldn't say it benefits everyone, it benefits society, it can hurt people in their given industries, but we should yearn for greater productivity that provides fewer hours worked, will generate more output per capita.

We will get a better life for people and that is what we have done in this country, we saw it dramatically in agriculture. I mean, it's incredible what has happened in agriculture and now we have two percent of the population working on farms. much better than when we had 80 percent, but if we didn't have tools and fertilizer and all that stuff, we would be an agrarian economy and we would live like we did in 1776. Very quickly, the dollar has continued to rise. That the good or bad news for Americans depends on whether you are an exporter or an importer, it makes it very difficult if you are, if you are exporting, but you know, the interest rates are what they are in Europe, you know, compared to here. the dollar has just gotten stronger and, uh, when people tell you what the dollar is going to do, they're going to be very careful, I mean, they just suggest that they get into forex trading for a living and see how they do. , Warren.

I want to thank you. Thank you very much for all your time today, thank you for inviting me again. This is our 10th annual Ask Warren show and we can't thank you enough for hosting and hosting us. It's been fun.