CNBC's Becky Quick interviews Warren Buffett (2/25/19)

berkshire hathaway chairman and CEO warren buffett joining us just after writing his annual letter to shareholders and Warren this is a big deal it's something that the investment community kind of waits on and and sees as a must-read because you spend so much time actually writing yourself too much you start writing the letter well this one I started very earlier very early because I had one section in mind it turned out to be the last section but when I when I talked about the americantale window I probably wrote that in late summer and and then I work around different sections but it takes a long time not yeah I am NOT a first draft writer well for people who have been reading this for a long time this letter was markedly different than you've written for the past three decades or so because at the top the opening of every letter in the past to this point has been Berkshires percentage change in Book value as the measure that you thought was most important this time you kind of stripped it out and said it's not the most important metric anymore for a couple of reasons one is which Berkshire has changed so markedly but also you just think it's it's not going to be the way that you'll be measuring things in the future no it's it's it's not the more relevant figure at least over time not in any one year period but basically its market value because we have become overwhelmingly an operating company and we hope to become even more so than a company that really held a lot of stocks and bonds so I've actually talked about that in previous reports I wouldn't have wanted to quit in a year where I got clobbered by the one I was dropping that was adopting one that made me look good so so I actually included them both in and it was a good year to to make the transition and and you said it's different I've always had the image that I am talking to my sisters I have two sisters they're both Berkshires pretty much their whole investment they're smart they're not active in business so they're not reading about it every day but I pretend they've been away for a year and I'm reporting to them on their investment and then this year because we may be repurchasing shares I I tried to have the vision that they were talking to me about whether they should sell their shares and I was explaining to them exactly how I would look at it if I were in their shoes so so it's there Doris and birdie at the start and then I take that off at the end but I'm talking to them and I'm trying to talk to them in a manner where if you know they're practically entirely in Berkshire and if they were thinking of selling some here's what I'd want them to know before before they made a decision to do that you used a new description for coming up with it this time which was the idea of having five groves being maybe a timber company and having five groves that Berkshires really invested in you broke down and looked at each of them on a case-by-case basis one being the the non insurance businesses that Berkshire owns another being the equities bunch that you have the final ones the insurance companies but you also have Treasuries and cash that you're holding and what am i oh and then businesses that you own part of not only the five groves that's pretty interesting how'd you come up with the idea of just the gross because it is something that somebody who's not so steeped in business can get their head around pretty easily well Berkshire you know as dozens and dozens and dozens of companies and and what analysts look at it you know they want to go out and figure out you know how many boxes of Valentine's we sold you know at our candy company and you can get totally lost in terms of looking at the force by trying to look at every tree because some of the trees are flourishing some of them are decaying and some of them are huge and important and others are more or less twigs so I thought I would group the assets in a way that is logical and where you could sort of figure out the valuation that you might attribute to that particular Grove and and I think it's a lot better than trying to describe 80 or 90 businesses with 300 but close to 300 90,000 employees I mean we're in one of businesses right now and this is a very interesting business but we've got Jordans in Boston we got star in Houston yeah we have RC Willey and to go through everyone and tell them about the latest story opened and it's it's much better just to look at him in groups because they make sensible groups to that point this is the ask Warren show and we have gotten a lot of questions that have come from viewers some from Berkshire shareholders others from people who are just longtime Watchers I'd like to bring up a question that comes from Marcelo P Lima or Lima he writes in and I think this comes from Twitter mr. Buffett in your letter you note that some of Berkshires trees are diseased and unlikely to be around in a decade which ones do you have in mind and how do we prevent healthy trees from joining them well I did say that and but I I would not name the ones that have major problems just from morale standpoint but the people would we're going to keep running them and but they we have companies that are on the downswing as well as on the upswing and it would be it just it would be very tough and and the the ones that are as I call it disease they're very very very small part of our earnings you gain nothing analytically and you'd have a hundred people go to work today feeling you know well we might as well give up or something of the sort so I I don't like to name them specifically although you could probably figure something out by looking at our list of companies there's some companies are just in the wrong industry I mean if you made you know whatever may well even making televisions of this country I mean that was a hot industry you know when I was young and and we don't do it anymore uh we saw a lot of them here at our store so i i i would not i would not like it if i were working at company accent and my bosses you're in decay you do name some of the big redwoods that you consider to be essential to the growth though i think you said that Berkshire Hathaway energy and the railroad Burlington Northern Santa Fe or to the biggest redwoods that stand in the girl yeah they're big again and both set records for after-tax earnings last year combined they earn right around eight billion dollars after-tax and eight billions a lot of money to us that's a third of our operating earnings that we earned 24 a large fraction of operating earnings last year twenty four billion and and those two companies alone earned a now Berkshire Hathaway energy also has multiple companies but the BNSF railroad is just one big railroad let's talk about that operating profit number it was twenty four point eight billion dollars but on a GAAP basis what you're now focusing on it was four billion dollars and that comes because of an accounting change that came into play this time around it was a twenty point six billion dollar paper lost on your investment holdings that you now count back in from the huge amount of securities that you owned and then also the three billion dollar right down on Kraft you go out of your way to emphasize again that you don't think people should be looking at these gatherings even though you're reporting them that way god we say the same well that's the final gap earnings a twenty four point eight billion also our gap earnings but their operating earnings and I think they were we had some I was outside tailwind on that but but there were forty one percent greater than any year we've ever had on operating earnings but beyond that we have this large portfolio of stocks and also the right dining kratides but main thing was the portfolio stocks and we've made a lot of money over in stocks over time but there's been years when we've lost money to it i i i tell the shareholders that that we expect we expect to make money on stocks over time we haven't got the faintest idea what years will will be up or down and then they changed the rule last year so that unrealized gains or losses are recognized through gap income that had not been true for dozens and dozens and dozens of years before so that that changed our figures but i that's why I explained that's why I tell Doris and Bertie that what's happened in the county during a used to point out this time it was a decline of more than twenty billion dollars there would be quarters where you'll see a huge upswing and you don't think people should pay attention to the upswing either these are fluctuating numbers no they should pay attention to how we do over ten years in the stocks we own but but actually the way the rule works now you know every minute it's recorded her nieces mark-to-market and and we're buying stocks that in some cases we will hold ten twenty and even longer years and and and those companies are retaining earnings they're reducing the number of shares they've got a lot of things going for him and I would you know I have been a lot of money we had 173 billion of equities in here and and I I love having those and they will make us money over time but I have no idea what they'll do in the next year or two all right let's talk through a few other questions that have come in from viewers just regarding Berkshire well we're here Eric Lafont wrote in and said Warren how have you structured Gregg able and the G Jane's compensation now that they oversee dozens of different businesses you did point out that you think the business is much better run now that goes to our vice chairman each running their own set of companies yeah our proxy will be out very soon that shows what they received I I think unless there's some calendar quirk or something like that they will have each received 18 million dollars last year and and the the base salary is a high percentage of that and then the bonus is discretionary with it with me but they they they're doing a fabulous job and it says discretionary just based on maybe the only one you'll read about like that are proxies there's another question that comes in regarding Greg and the G that says the this is from the rational walk a suggesting question on Monday given that Abel and Jane are not only responsible for running those businesses but also vice-chairman shouldn't they be up on stage along with Charlie at the annual meeting many of us would like to hear from them yeah well you will hear from a more in the sense that they they will be upfront with with microphones ready to take on any questions that come I know we there it's not going to be that many years where the tool is our button and they will be up on the stage when we rearrange the format and rewriting the format he's rearranging Charlotte to some degree but and it's logic it's logical for them and I hope lots of questions get directed to them at the annual meeting well because we'll feed a men do I should mention one thing about their comp there's this rule and I may not be giving it to hear exactly proper but there's a rule for public companies that that you get to deduct only a million dollars in less for a compensation unless the excess is tied to some formula so everybody pays you know you can be running the super company of all time and they tend to raise the base salary so they're a million or two million and then call the rest something that qualifies under the IRS where they get the deduction for every company kills it and they and their employment consultants know and everything so you have all these salaries but then they have something that makes it very easy for it to make a lot more money and and that money is deductible whereas I don't think what we pay in the way of excess I think it's over a million is deductible but I mean it would be a joke and so we we are paying them a fair amount of money I believe that's not deductible where is it and almost any other company you see that they're designing it I always wondered why base makes everybody feel they pass out or only 10 or 20 years ago and immediately everybody oh we just had this revelation that now that you really only worth a base salary is a tiny amount you know and they came to me about designing something like this alright I said you know it's just a joke I mean we're not gonna pay a million dollars here and huge responsibilities so so you'll see it you'll see a little different situation I think the bonus I give them the I think it was 16 base and two Moto's I think the two is is probably dr. Sol 619 on the East Coast and you're already making friends well done let's get to another question from the audience this comes from Brian Chan he asks how are Ted and Todd's performance since they joined about eight years ago the the money managers who were there have there Ted Weschler and Todd combs have they performed better than index Charlie said recently that most money managers did not add any value compared to an end a yeah II the first few years each of them they came at a slightly different time as maybe a year to a year and a half or something different times and they got well ahead of the index and they got paid compensation now they got it paid so came in thirds so that it could be clawed back two-thirds of it if they missed the second year and so on overall they are a tiny bit behind the S&P each by just almost the same margin over the same time over the entire period over the entire period and the entire Perry's a little different for both of them they now manage about 13 billion each they've done they've done better than I have so I that's a measuring stick I mentioned it because if I don't somebody else will they also both of them have done an incredible amount of work in terms of acquisitions and Todd and particularly on our medical venture they that anything a Berkshire of we made a in arrangement with Lee Enterprises in terms of managing our newspapers Ted handle all that I mean you know he they got my approval on it but he a million details and and they're both but they both of you interview to all kinds of ways to Berkshire but it has been a it's been a tough time to beat the SP and but that's the deal we've got with them and and they've got a small carry forward of of deficiency to make up I mean they they had some Claud back earlier they're made pretty good money for a few years substantial sum of Claud back because of the three-year look-back arrangement and then now they've got a small carry forward another question that came in they've done better than I have Tony Dickinson writes in what changes should we expect from Geico with the transition from Tony nicely to Bill Roberts and how do they approach leadership differently are they they're they're two peas in a pod on that I mean they've worked together so long they're so compatible they have the same feelings about about Geico I mean nobody can quite magic IKOS Tony's feelings about guy go but they there's just no change I was at a meeting of Geico that they had maybe 40 of their top executives and everybody went around introduced themselves and gave the list of time they've been with Geico I think the shortest time any one of those people said was nineteen years old girls its own Warren we're just sitting down with you for the first time since the news last week that Kraft Heinz put out there was so much news it's hard to even summarize it but they came out with earnings that missed expectations they said by the way it's not gonna get better in 2019 they revealed that there's an SEC investigation taking place in to accounting they wrote down the value of the brands by just over fifteen billion dollars were you surprised by any of this news what did think of what happened because the street was surprised the stock was down over 30% yeah well I may have learned a week or ten days before about something like the SEC investigation and I'm not I'm not on the board the grains on the board and I talked to Greg and and Greg had been talking a lot to the head of the audit committee and he's a terrific guy Jack Pope but the write down I do my own write downs in my mind so I I was not surprised by that although the accounting firms look at write downs a little differently than I do but I would not argue with him on it and I can give you some math that would substantiate it I've been watching I was wrong in a couple ways on Kraft Heinz but the I think we talked the glide luncheon time about the packaged goods brands losing some ground against the retailers six months ago the the glide but the the packaged goods companies are always in a struggle with retailers my our family had a grocery store for a hundred years and that we didn't have much bargaining power but the really strong brands and they can go toe-to-toe with Walmart or Costco or whomever it may be but the weaker brands are tend to lose out now the interesting thing about about Kraft Heinz is it's still a wonderful business in that it uses about 7 billion of tangible assets and earned six billion pre-tax on it--so so on the assets required to run the business 7 billion they earn 6 billion roughly after depreciation pre-tax but we and certain predecessors but primarily we we paid a hundred billion more than the tangible assets so for us it has to earn on 107 and not just on the seven billion that the business employees and and we don't have a way be wonderful we had a way to deploy another seven billion and six billion but but it isn't there so I think that I think that when you're going toe-to-toe with a Walmart or a Costco or and maybe an Amazon pretty soon and you have a modestly good Brad maybe one word of the trends a little against or something like that you know you've got the weaker bargaining hand than you had ten years ago the really classic situation is this everything about it Becky Hines was started in 1869 so they've got all that time to develop various products particularly catch them things like that the crafts part of it's a little more murky but it goes back to CW Post in 1895 those companies have brought all kinds of brands all kinds you know them you had them when you were kid didn't you have a mouse something they've been distributed worldwide through tens and hundreds of thousands of outlets they've had hundreds of millions of try they spent a fortune on advertising and their sales now are twenty six billion Costco introduced the Kirkland brand in nineteen ninety two twenty seven years ago and that brand did thirty nine million last year whereas all the craft and Ice brands did twenty seven twenty six or seven billion so here they are hundred years plus tons of advertising build into people's habits and everything else and now Kirkland a private label band comes along and with only seven hundred and fifty or so outlets does 50 percent more business than all the craft hides brands and so house brands private label is getting stronger it's it varies by country around the world but but it's it's it's bigger and it's gonna keep getting bigger okay a couple of questions on it first of all does that mean you overpaid well we did overpay we didn't overpay for craft I mean a firm price that we bought that originally it was a 50-50 deals private deal with three J part me with three G yeah but 3G we had to stockholders and then we overpaid for we overpaid for craft and and we wrote down 15 billion of that and that you know then that that's CPAs working way of looking at it actually the markets marked it down more than that and and and probably quite properly I mean the the thing to remember say you know how the stock doesn't know you own it you pay ten dollars for stock it goes to eight you think it there it gets back to 10 I'll sell it you don't it goes up to 20 you say I can take out sell half of them take all my money all those things are nuts but in in business if if we paid seven billion for Crafton which is all it takes to run the business it would still earn the same amount as if we paid the hundred billion three million the stock the business does not earn more just because you pay more for it and we not only after buying crafts everybody starts speculating about things we buy so the prices of everything but up and then on top of it we pay large premiums for it and and we misjudged it I hear what you're saying about the house brands and the competition from places like a private label brand that Costco puts out but what what about just Millennials changing habits how much of it is that younger consumers don't want the brands that their parents and grandparents there's some change in habits but if you think about it people don't really change their habits that much if you try to think of the billion dollar brands that have been created in food and their private label there's very few billion dollar brands being created and so the fella pivot and yogurt probably you know but you don't really see that that that has not been a huge change physical volume hasn't changed much the ability to price though has been changed and that's huge we had an analyst on last week on Friday talking about what she perceived as the problems with Kraft Heinz and she said she thinks they're under investing in the business I mean that's kind of been three G's way to cut to the bone and that's how you make make this profitable but she thinks the brands have been under invested in would you agree with that I don't think so but that's how for me to tell but the I see well I was on the board I mean I saw lots of innovation on indifferent products and you saw them advertised to some extent I I do not think but I don't know this for sure but I think if you take the 10 largest food companies I think in an innovation they've tried a lot of things but how many things work if you look at Kellogg and General Mills and go up and down like coca-cola I mean how many new products really become big you read the bottom at all but but that kinds ketchup you know hey it's got 60% of the catch your mark it's got higher percentages in other parts of the world and it's a very very very strong brand some of the cream cheese is a strong brand but other brands are weaker and that you are right certainly that in certain categories maybe in a kool-aid or jello or something like that you know they go back 75 years or something and and there's some secular trending as that but that isn't the key I mean they cut costs not in an innovation or in product quality or anything like that they just took it out of as DNA basically now they may have they may have made a mistake in terms of working I shouldn't say they we may have made a mistake in terms of trying to push hard against certain of the retailers and finding out that we weren't as strong as we thought they were we were let's go to one of the questions from viewers because we got a lot of questions related to that Kraft Heinz this one's number t5 someone named JC Dominguez wrote in is this the type of incident in time when you buy more Heinz or do you pull the plug oh we don't pull the plug on I'm it we've never sold a share of of Kraft Heinz and and if we sold or bought it has to be reported within two days so we we wouldn't be able to do anything significant it but it isn't it isn't our our style weird are the partners with with with 3G on it and so we have exactly the number of shares we had before and they don't I guess I should never say never at age 88 somebody else might do but I can tell you I have absolutely no intention of selling I got absolutely no intention of buying why wouldn't if you're sticking with the business and it's 30% cheaper today why wouldn't you buy more because it isn't worth as much you've got a billion two hundred million shares out so that's that's 42 billion for the equity and we owe 30 30 or 31 billion so whole company is selling for seventy one or two billion dollars and as I mentioned it has about six billion of operating income now for six four six billion would you pay a lot more than 72 where it doesn't look like it's going to be going up for a while maybe even well they said it's gonna go down in 2019 you know we there are other things I think where you get more for your money and and better prospects not that I regard the prospects for Kraft Heinz it's terrible I maybe I would buy the bet one way or another I think people leave more of our products this year than last year but if you see better places to deploy money why don't you sell it well hey we can't as a practical matter move around tens of billions of dollars that easily but beyond that well it is I mean if we're working with a million dollars or ten million dollars would I have a position is no no I buy you move around with a million or ten million and Ted and Todd can move around reasonably well with thirteen but then that's gonna be difficult one hundred and seventy three building you you are you do you know you know your dance like an elephant not some guy on Dancing with the Stars but we always have a sure winner Joe last year it's true the favorites got knocked out early but but we did split $100,000 consolation prize for whoever does the best now that got split eight ways last year but but the year before we had five people that came within one game and just the last games of of winning the million dollar prize now if they'd won the million they would have had to split it if all five had won it but there's a million dollar prize and we're going to do it again this year and and we limited to employees of I know of Berkshire but close personal friends of mine who have a brick I don't matter I did you to enter last year and you didn't do it no no no we were doing other things where I we're depending let's do it again this year worn with a Creighton versus Xavier thing because they both have losing sort of records in there they're not doing quite as well although Creighton just be Georgetown and yesterday Xavier just beat Villanova I don't know if you saw it's pretty good so let's do something there and let's let's see there's a netjet card I can think about it I don't know what the payoffs are pay let's go to bed but let's see who goes further and get another brick exactly if I'm like I guess I guess 36 I got 30 seconds on the program versus a netjet membership for you is that it I'll tell you what I'll do I'll let you name the bet and I will let you name the stakes and and we'll go from there Wow this is the honor system Joe you know yeah okay let's do that you're talking his language yeah but you know he's very crafty and very smart like he sent me a netjet card it had my name on it was absolutely useless it was like a you know was like I use it as a luggage tag it wasn't worth anything yeah you said you said net Jack cards you didn't say that had to work for it that's a starter card that's the starter card y'all they got big things in plaid for you I do have great things to talk to you about I'm worried I mean I think you think the markets expensive worn so I want to talk to you about that I mean you don't like to say that and you say long-term it's gonna be fine but you've got a lot of metrics you're looking at that like the market cap to GDP or GNP that that's that looks expensive there I mean there are things that look expensive and you're having trouble finding things so - you know you need to be honest with us about that or is it really expose it Joe if it depends on interest rates we've talked about that before if you tell me that 3% long bonds will prevail over the next 30 years stocks are incredibly cheap okay because even you know I mentioned that Kraft Heinz earn six billion on seven billion intangible assets yeah even if you pay seventy billion and you're and six billion on it that's better than having 70 billion out and three percent government interest rates covering everything and and if there were a way to short 30-year bonds and and own the S&P for 30 years I would I would give you enormous odds that the SP is going to be 30-year bonds now we've had this period of extended long term wall rates not only here but around the world and now it looks like we're not going to Jack him up very fast so we may be in a new world the world that Japan entered back in 1990 and if Seoul stocks will when we look back out of bullets very cheap but you know this has not been the history of the United States that have these continued low interest rates so I there's no if I if I had a choice today for a 10-year purchase of a ten-year bond that whatever it is or 10 years or buying the S&P 500 and holding it for 10 years I'd buy the S&P in a second well that brings us to a question that a viewer wrote in this is t67 pH pants says from the annual report in the 13 f it looks like Berkshire was the least active and the public markets in the quarter when the stocks were the cheapest you also did fewer buybacks in the fourth quarter when Berkshire was cheaper was taking the foot off the gas in the fourth quarter a conscious decision and based on what you just said we've got all these signs that looked like the Fed was not going to be raising rates in the fourth quarter - so why wasn't that a buy signal for you well I thought talked to her by in the fourth quarters just like they did in the third and second and first quarter but sometimes we have other things in mind - that may use a lot of money and sometimes they work out and sometimes they don't but but what does that mean you were holding your cash in case a deal came through we had at least one deal possible it was been very large and so we I like stocks in the fourth quarter but I like I would like buying a business even better is that I did say in the annual report that we expect to be buyers that buyers of stocks and this year we have not been net buyers I should point out I mean the markets going pretty much straight up I still think stocks are more attractive but I have trouble buying it what every day it's up the deal that you just mentioned is that potentially still on the books No so I don't think I don't think it is no is it a deal here in the United States on this planet so you went out of your way in the letter to say that you do think buying businesses outright is more expensive even though you don't think stocks are too expensive question that yeah and in this in stocks now you have a businesses I should say you have a huge huge huge fire and and that's not only and companies are eager to buy too but you also have private equity and if I don't know how whether private equity it's flexible because they can call on their partners for more money and all that but let's just assume that they would have a trillion available now they use a lot of leverage they call themselves private equity but they're really private debt to a great extent but that that trillion might buy as much as say three trillion of assets if it's leveraged with with two trillion of debt well the total stock market is something like 30 trillion and and if you take the top five companies you knock another six companies you knock four if I afford trillion off that so I you're down to something where the buying power of of private equity plus just the normal buying power from companies that want to get in there it's just a huge amount of competition when you start looking around is that do you think the private equity companies are overpaying for this or can they be like worried rather or not I mean they obviously want to make the best deals they can but they are in a game that there's so much more competitive than was for them if you go back to the 1970s when you know when when leveraged buyouts started which are the same thing they're doing now but the the name kind of lost its appeal there at some point but but the deals you could make then we're enormous ly more attractive than the deals you could make now let me ask you one more question that came in from a viewer you've you've kind of answered this but there there may be a little bit more to the answer this is t-84 for the control-room Nick writes in why didn't a large acquisition happen for berkshire during the fourth quarter 2008 sell-off are you anticipating a much bigger decline in the market or was i guess maybe it was the timing of it maybe it was so quick yeah well there - in 2008 for example we were going to by Constellation Energy we ended up buying the stock and making some money on it but but that was part of a deal when constellation fell apart it was in the fall of 2008 both I was watching the tape Dave Sokol was watching what was going on and we've actually called each other at the same time and he was on a plane with Greg to Baltimore yeah that day and and we we contracted to buy it so we were we were we were ready to buy that and we we tried on other things and we put but we participated in marketable securities big time at that point - as you know we spent I think we spent 16 billion dollars in three weeks where was when nobody else was spending and when was that well between about September 15th and October 7th or 8th and then we already had another three billion committed to Dow which was not going to get taken down till later on so we went through our cash pile pretty fast too fast actually you have a huge cash pile right now though twelve billion dollars yeah we're and that doesn't even count the other twenty billion in and cash like no that does count I mean but but the hundred ten or something like that counts twenty and you know I never get right down to twenty anyway but but we've got a lot of cash and we'd love to use it but we're a private equity firm that's going to borrow six or seven times what they call Eva da which I don't use as a metric they're gonna pay more than we are and you know as I said we paid too much for God if you pay too much for something it doesn't accommodate you by earning more money to make it look good it learns what it earns and if we'd paid if we paid ten billion less for crap that would is don't learn the same money you know basically this question that comes in this is F seven control room Doug Wilford writes in Warren when you come across bad news on a holding for example Kraft Heinz can you share the sequence of criteria you use to determine if the stock is on sale and buy or a busting to sell what really concerned you as as what is in what it as to what is in back of a dip well the stock market is there not to instruct me it's there to serve me so if it comes if there's bad news in the stock goes down the question is in my I have this is is the long-term valuation changed and you know there was well there was certainly bad news at Geico wasn't be bought for example but there was bad news in American Express when I originally bought it back in the sixties it was the best investment the partners have ever made so what you like it's bad news about a fundamentally good business and then you got to make sure the still fundamentally good business but no bad bad news on a good business we're better off because Apple stock is down significantly from where it was four or five months ago then if it stayed there Apple will probably they may not but they have said they're going to go down to cash neutral they could do it either by acquisitions or dividends or repurchases my guess is it'll be mostly purchases there are about a hundred and thirty billion dollars away from cash neutral now if the stock were 200 it would buy six hundred and fifty million shares if it's a you know 150 you buy close to nine hundred million shares yeah we're way better off you know if it's a if it's at a lower price when they're repurchasing share our partners are selling out to us and there's nothing out cheaper than otherwise the worst thing that can happen for from our standpoint with apples is it sells a to thirty or something like that because we don't like buying it as well at that sort of prices the camels yeah well I was back at Geico ten days ago when the camel was running well I had yeah you should win some type of mad you know madman or advertising me you singlehandedly you know turn that into you know people need to do that if they I mean Geico what the heck is a Geico it's a government of Martin you know and would have gone nowhere but you ramped up all that ad spending and look at it now so I mean you you really that sort of they owe you the whole advertising industry I'm the job I yeah I am so glad that you remember that I was the one that came up with the idea of a Geico the gecko I mean that lizard people Geico seemed but people Geico miss remember that entire they think it was their idea and I remember that little guy out and said why don't we try to get credit where we let's talk a little bit about what Joe was just talking about and Joe stay there because I know you want to ask about byd that might play into this the trade talks with China yeah how big of a deal is that what have you seen on your companies on your investments well I see that monthly reports from the companies come true and of a fair number you know not an insurance at all obviously but but a fair number of the tariffs have had some impact which one 10% errors and they a number of them say if it if it were 25% there'd be some big adjustments some of it the suppliers have swallowed over in China and some we split with them but but it pushes prices up I mean there's just there's no question about that but it hasn't had a big effect at 10% a number of them told me in 25% I mean the world changes and you either get a lot more money for your product or you source a different layer you do something so are you relieved to hear of the deadline being extended and being pushed off that March second it's not all going to go to 25% well I'm relieved at the idea that there's so some chance that sense will prevail I the it is bad for China it's bad for us if we head into some kind of a trade war and and and you know negotiations are tough and something like this ISM a big deal to both both countries and to some extent you're playing a game of chicken and because it hurts both countries and I generally think when two very smart countries have something very important at stake they'll end up making rational decisions I mean I've been figuring that way with the with the Russians ever since you know the nuclear bomb I that even though you got all kinds of tensions and people generally figure out what's best for themselves and the best thing for both China United States is to work on something that's all the both sides can live with it did you think there was a valid reason for amping up these negotiations for saying hey hey hang on a second we're not getting a fair shake well I think we haven't been getting a fair shake to some degree but I think we can sustain I mean to some extent the United States can do things that no other country can do so as I think number smaller countries for example if they want to run trade surpluses with us I mean in the and it strengthens their economy it doesn't hurt us that much I mean I think we've got a role to play in the world that way but I don't think we can be Uncle Sam either Jo you have some breaking news yeah out of the general electric breaking to a lot of us that realized GE had this much money tied up in biopharma the company General Electric is selling its biopharma business to Danaher kind of interesting Danaher 421 point four billion dollars and 21 billion of that will be in cash ge says it's going to use the proceeds to reduce leverage strengthen its balance sheet it expects the deal at a closed during the fourth quarter of this year and it there's there's a lot of you know there's a lot of comments about how you know from cope about how this is in keeping with their plan to reduce leverage strength in the balance sheet and all the other things the deal Danaher meanwhile sees the deal adding 45 to 50 cents to adjusted earnings per share in the first full year and instead of us talking about this Becky me or you I guess we should get Warren's comments on what the effects of this movements let's do just that and I do want to bring up this is something Warren that we got viewer questions about two random IgE control-room t 102 Brian Savage Rhoda and mr. Buffett given the recent turmoil with GE do you believe Larry Culp is the right man for the job and if you could advise him what would you inform him he should do lastly if he is the guy why haven't you invested in a company like GE given your current funds well I think he should sell off the medical operation for twenty one point four billion to dinner I mean that's had sounds III think that that GE should be leveraged you know great insights there I'm then they believe the same thing I'm sure so they just they all they owe more money than they showed it president and and and they should sell assets to some degree not not in a fire sale at all and so this is not a fire sale price so I I applaud what they what was just announced and I met Larry at a terrific record a dinner and we are a big customer of GE we are a big supplier of GE you know I've had some connection with the company for four decades and they did call us in 2008 when they needed money and so I I think I think all America is cheering for GE but I'm certainly one of those that is cheering have they called you more recently well I talked to them off and on over the last year or two but and but I I've said the same thing pretty much that's what I'm saying right here Joe you have other questions on this front not so much on that I got a lot of things obviously that that that we want to talk about in I guess Warren probably does know GE pretty well it does he have I'd like a little more color to his comments on G he probably doesn't want to do that what do you want your expression what do you say you you criticize by just generally but you praised by category praise by name never got me to do that I haven't seen their 10k yet I mean I want to get their 10k as soon as I can't and and it may it may be it it's probably out just about now and that that's that's the document you have to read up about 50% of you don't think I thought Laura yeah other than that yeah but it's it's you know it's it's it's it's selling the equity selling for about a hundred 100 million dollar billion dollars and and and then they have they actually have a preferred issue that's five or six billion people don't even know about that and then they have they had you know something over a hundred billion of debt I'm consolidating the capital but I think that's the way to look at it and they've got it they've got a couple of very good businesses so but but they're they were over leveraged and they've got to reduce the leverage and and clearly they're doing it I mean you could write you could write a check for that war if you really liked it that that's true but you won't be okay there's a question that came in from a viewer and I asked this because we're talking about GE and it's one of many companies that's looking at unfunded pension liabilities potentially down the road this is t54 control room Brian Bannon roads and how do you see the unfunded pension liabilities across the United States affecting our economy over the next 10 years well if you're talking about the corporate sector the unfunded liabilities have been working their way down because all the new companies don't go for divine benefit plans so you've got you know if you take the four or five largest companies in the United States they don't they don't have divine benefit plans we have bought a number of older companies so we have we have a fair number of companies with defined benefit plans we wouldn't start any divine benefit plans but but that is it it's it's not it's not a huge problem in corporate America I mean you have a Sears and the Pension Benefit Guaranty corners but but it's way less of a problem than it was ten years ago or 20 years ago in the public sector you know it's a disaster and you know some of the it's interesting to me when they talk about these relocation problems you know in New York and Amazon all that sort of thing you know I if I were relocating into some state that had a huge unfunded pension plan I'm walking into liabilities because I mean who knows whether they're going to get the corporate income tax or my employees you know with personal income taxes or what but that that liability isn't gonna you can't ship it offshore like this and those are big numbers really big numbers and they may come you can delay a long time I mean you're getting push maybe somewhat but the politicians are the ones that really haven't attacted in a good many states and when you see what they would have to do I say to myself why do I care that has to sit there for 30 or 40 years because I'll be here for the life of the pension plan and they will come after corporations I'll come after individuals they they have to raise a lot of money I mean when you say that the states that come to mind having not looked at the statistics in a while would be Illinois and New Jersey at the top of the list as I say I I pray you'd buy Damon let's talk about the decision of Amazon to say forget it to a second headquarters in New York City we were with Charlie Munger on that day and this was February 14th just a week and a half ago we were with Charlie Munger the day that announcement came out and Charlie had some pretty firm comments on it he said he thinks it's crazy that states like California and others are basically driving the rich people out what do you think about it well III heard Charlie on that and he says hey they don't have kids they don't and and a good many of our charitable they tend to give them things that are around them and they don't use the services nearly as much relative to their taxes that they pay as the average person and they says they use the hospital's no no I obviously well the state like Florida which has no income tax attracts a lot of rich people you know and and and in Texas you know when people wrote relocate there the fact that that there's no income tax is a real factor and and I don't know about those two Tuesdays specifically I have a feeling that their retirement plan are in pretty good shape compared to the old industrial states you get legacy liabilities when you move in Nebraska is in very good shape for a long time that we've really been against the state having any debt now they get on that with leasing sometimes well what we're talking about a state versus state yes you're now talking about some new taxation plans that are being recommended in Congress or by specific senators or congressmen that are similar to some of the some of those policies that we've seen in the states I mean if you just run through it Elizabeth Warren with her wealth tax on anybody over fifty million dollars a OSI Alexandria okay Jie Cortez with her plan to tax anything above ten million dollars at seventy percent rate Bernie Sanders with his estate tax going up to seventy seven percent if those policies are enacted on a national basis do you see that same sort of trading off where people would potentially leave the United States what do you think about these plans well that's an interesting question I would say this if tomorrow everybody in the world had a chance to make a one-time change in where they lived every two billion families all over the world the only time they're going to get the chance to make the change but they will get transported free to any country they want to go their family and have citizenship what do you think's going to happen tomorrow let people are in the United States a lot of people are gonna come in United States very few people are gonna leave North Korea might have a small decrease in population I mean the point is I mean this is an incredible country and it's true that right now we're raising three point three trillion dollars and spending probably four points weird I have a debt of a deficit of about a trillion in a very good year in the cycle I mean what you're a prosperity and that's five percent of GDP and that's probably more than shot you could actually take a two to three percent deficit and not have the ratio of debt to GDP growing to five and prosperous years we're on a walk on it so we you know you can cut spending you can raise taxes but I would say that that the wealthy are definitely under taxed relative to the general population that was almost a dodge of the question I mean if these policies drive out the wealthy people sure if you've got your choice of where to go everybody would want to come to the United States but would the wealthy people do that if we changed our tax structure well I I I think most of the people that have the rich people mark rich they leave his case I mean you know he's leaving before the feds pick him up yet and I don't think if you offered most of the rich people if they were sane anyway and you said if you stay we're gonna take half your net worth and if you leave you can take it all with you and your eighty eight years old like me am I am I gonna leave the United States you know I could move South Dakota has no state income tax Wyoming has no savings so we've got two states the border Nebraska Nebraska has a seven and a fraction percent state income tax if I will which is right across the river had no income I wouldn't move I made it now I I think people want to come here I think if you made that offer I made the United States there'd be more people come the United States than anyplace else and they would come they would come if the deficit was one trillion or one point two trillion Warren you're you're making a decision to to leave all your money to the private sector in terms of charities and because you think may I assume you think maybe it'd be better spent there than by the government isn't it possible that that it's just not the right idea to to just look what's already a bloated you know what some people would think a bloated entity did address the spending side of things or else maybe you ought to reconsider if you think the government is so good at spending money well why leave it all in the private sector go ahead and give it all to the government let them do it you seem to have an idea that it's a better treated if you do it it was philanthropic Lee I've got about four choices Joe I mean let's say I have eighty billion dollars a I could spend it all you know and but even to spend it all I would have to sell Berkshire stocks so I would incur taxes of you know twenty or so billion dollars in spending so the government would then get twenty if I wanted to spend it all I could I don't know what the world I'd spend it on I can I can give it all to my wife undoubted and there's no tax I can give it I could give four million people twenty thousand dollars each and there'd be no well I there'd be no tax on it as long as I give them make gifts to separate people up to twenty thousand I could I could do it there's no tax one thing you one thing you could do the the estate tax is the wealth tax I mean in theory you get taxed on wealth on the estate now you're allowed to give to charity fifty percent cash 30 percent appreciated stocks and have it deductible from here from your income yeah they let you essentially deduct all the gifts of wealth at death so you could you could have you could have a limitation that you can only get 50 percent of philanthropy and and and treat it the same way actually is as if you're giving away from income during your life there's a lot of things you can do with the tax law I mean the tax and I think that one way or another when the Forbes 400 have gone from 93 billion to 2.7 trillion since 1982 the market system as it gets more specialized we'll get more and more to the top people if we were back in 1800 and we were all working on farms you'd probably be worth a little more than I am because you'd work harder and be stronger but the top person working out farm would be worth one and a half to maybe two times what the bottom person wasn't but as we get more and more specialized the guy that's the best in knocking out some other guy that weighs 200 pounds is worth thirty million dollars a fight now he's worth thirty million dollars to fight because somebody invented television and Cablevision it as we get more specialized the rich will get even richer and the question is how do you take care of the guy who's a wonderful citizen and fatherhood may have died a normally or something and and and but it just doesn't have market skills and I think the Earned Income Tax Credit is the best way to to address that question and and that means probably some more taxes it should mean some more taxes for guys like me and however you come at it I'm fine with we've talked about a lot of things so far but we have not gotten your take on the economy to this point there was just a Federal Reserve report out on Friday that suggested that GDP for 2018 is probably going to come in slightly below 3% what do you think the economy is doing right now just based on your businesses based on the receipts you see the companies that you track that you have major purchase a major shares in right now just based on the monthly statements I get and some cases I got other data in between but overall things are a little better I mean the rate of the rate of improvement is tapered but it certainly hasn't flattened now that could change next month and and home construction has been disappointing but most of our businesses I was I've seen other figures on retail that are strong and you know including Walmart's but I would say our retail figures in January we're not strong but but January's a peculiar month and that can be affected a lot by weather although any retailer will always like things on the weather I now I'm right now things things look fine when you say it's it's a little better that's relative to win what are you what's your comparison well I'm saying that if it if it if it developed as I see in January in February for the whole year I think we would probably beat our twenty four point eight billion but that would depend on insurance profits because swinging away their their profit that you just report the operating yeah yeah so I know I business looks looks decent it's not galloping ahead and the tariffs having a little effect of ten percent they went to twenty five they would change things quite a bit and I I do see some more inflationary things but no I I don't see anything be alarmed about at present what inflation today if you told me GDP would be down this year I'd we'd still be doing the same thing it's pretty much what inflationary signs do you see at this point well we just as I get the reports from the companies they say these raw material costs are going up and and now oil being down helps us I mean that's the basis for a lot of Rominger of costs but uh overall there's more cautious pressure you mentioned that housing has been weaker how homebuilding you've seen that why do you think that is it's puzzling because you know before 2008 you know we were running high well I mean one obvious answer is expect you expect the household formations to go way down in a recession and we had a bad one but you've had this big trend from home ownership meetings are running so that you know that's probably changed by five percentage points well five percentage points when you talk about 125 million households or six million houses there are people that are living in rural units rather than houses so that that configuration has really changed and I would have thought it would have turned back as people got the jobs back and all of that but single-family construction is really I think it's been quite weak compared to what you would expect after ten years of really cover him with a stock market now quadrupling him from the lows and unemployment at 3.7 percent people are just making different choices j-pal the chairman of the Federal Reserve is set to testify before Congress on Tuesday and Wednesday of this week based on what you said about the weakness and housing based on some of the downturn that you saw did you think he made the right move by signaling a much more dovish take less last quarter yeah I don't I don't second-guess him at all I think he's a terrific choice for Federal Reserve Chairman he he actually was at the Treasury in 1991 when Solomon was in trouble and I saw him make a lot of very good decisions for the United States government he's a smart man and he's he's very level-headed in he he understands both business and economics and I don't think you could have a better chairman so I will never second-guess have not done I know you don't make a lot of investing decisions based on what the Federal Reserve chief or anybody else is saying but what would you be interested in hearing from him this week what what might what might you be listening for well I I read what he says but it doesn't affect anything we do it just doesn't I mean it doesn't affect that investments are in you know the amount of money we're going to spend on the railroad this year and energy or anything we we're plowing ahead always we always spend more than our depreciation and we know the country is going to make lots of progress over time and we don't think we're smart enough to jump in and out as to when the time is a couple of questions that came in from viewers when it comes to the economy one is t19 control-room Rashad Khan asking do you think the 10-year yields are likely to rise from current levels in the long run I don't know what the long run is well I'm amazed that ten years into a recovery or nine years into the recovery ten years and the panic the I'm amazed that rates worldwide or what they are this is not classical economics to have trillions and trillions of dollars still at negative interest rates with the world doing really very very well I I don't know I you know I I don't understand it I don't think the economists really understand it I mean they gotta explain it somehow but that's the real quick the real question for stock investors are are these rates more or less a new normal and people who thought the Japanese race in 1990 couldn't possibly stay where they were you know that had turned out to be suicide for the people that sure if you have any spawns and so on and we live in a world that wasn't described in classical economics do you think it's because of the experimentation by central banks around the globe well I think the central banks did what they had to do after two thousand eight nine and act I think Europe was a little late doing about one Draghi finally said we'll do whatever it takes the only one that can say that at central banks and I think central bank's behaved very well post the recession you've mentioned twice this morning how we could potentially be in a situation like Japan where these interest rates stay at these incredibly low levels will it work out better for us than it has for Japan well the answer is I just don't know but Japan also has a declining population and no energy resources and I we're a different case than Japan we're here at the Nebraska Furniture Mart today and I know that you've talked a little bit before we came on the show this morning just about Rose blumpkin who founded the Nebraska Furniture Mart you bring up immigration so I thought maybe now would be a good time to talk about that she came here in 1917 yeah she came over here on a boat from Yokohama and she landed in Seattle and I've got the manifest of the boat and the hair and I've got her entry papers and she and she couldn't speak a word of English the Red Cross got her to Fort Dodge Iowa where her husband was she spent two years there couldn't pick up the language there so they decided to come to Omaha where there were some Russian Jews and they would feel at least they had a home of sorts and she sold use clothing and that various things had four children and 15 or so years later she'd saved twenty five hundred dollars and you're in what was became the largest home furnishing store in the country except we now have a larger one in Texas but but in the 50 something largest market she took $2,500 and turned it into the largest home furnishing store and the punchline is that she couldn't read or write and I've got a contract here that we signed this is what I came out with I typed this up in 1983 are the 30 yeah it's it's really just one page I mean this is a signature page here and that's her signature at the top as you can see it's just a scroll and we did not get an audit we did not look at the property records to see I just said mrs. B do you owe any money and she says no and that was that well at that time we bought that we rearranged things within the family something so we in effect about 80 percent and a value of 60 million dollars on a hundred percent basis but we had but we just we we shook hands and I felt like I had the Bank of England on the other side and and then she went on to work until she was 103 if any of my managers are out there listening that's sort of a yardstick we use now on retirement and it was a marvelous marvelous woman and when never went to school a day in her life and when the family sat down for dinner they sang God America before eating it you know it's an incredible story we're in the annual letter this year you read about the American tailwind yeah what well as I point out in there I'm on this March 11th in a couple weeks Italy 77 years since I bought my first stock and I paid one hundred and fourteen dollars and 75 cents for three shares of city service preferred but if you had bought if you'd been a pension fund and you put a million dollars into the sp500 at that time and reinvested during mild investing lifetime that that million would have turned into 5.3 billion you have gotten for every dollar you put in you've gotten over five thousand dollars without ever reading a headline an annual report you never know accounting you just had to believe in America and you didn't have to pick the right stock you just picked America and if that isn't the tail winds more like it's more like a hurricane I mean it is American business has done incredibly well and America's done incredibly well and you know I go back and I point out that there were 277 year periods before that and that takes us back to George Washington getting inaugurated and there wasn't anything here then and now you have a hundred and eight trillion dollars of household wealth in the United States you know with we've got something that works and that framework wasn't that we were working harder it wasn't that we were smarter but we had a framework that unleash human potential and just think of that 377 year periods one of which I experienced and you couldn't help but all you had to do was believe in America and and you got very very you didn't have to read the newspapers yeah nothing you didn't have to pick a stock that worked the last 77 years but there's a question that came in t29 this is from Scott Baker with so many people in the SP index funds is it still market neutral and the best investment vehicle for most people yeah I think it's best investment because most people don't know how to pick stocks and and most of the time I don't know how to pick stocks I mean it is not an easy game and by definition people are going to do average I mean take everybody and aggregate and if half of them are paying big fees and jumping around and paying burgers Commission's the other half have to do better and no it is as I've told they blend and my my widow will get I've instructed the trustee but ninety percent and in an S&P 500 index fund and ten percent governments just so that just for feeling of security but but there's been no better bet than America nothing like it there was one question that came in from this is f20 ahmad abu huraira said who said what a strong a sustained shift to the left and fiscal and economic policy rip away at American business tailwind moving forward yeah well my my dad thought you know communism was coming in the thirties very anti Roosevelt like all my life I've been hearing half the country say that if the other person favored by the other half wins things are gonna go to hell and so I pointed out in my discussion I've lived under 15 presidents 14 of them I've invested under I didn't invest under Hoover I was a little young man but seven were Republicans seven were Democrats I mean it after this last election and in 2016 my most of my friends were for Hillary and they thought you know sells stars you know dig a cave crazy you know and you do not want to have a political view in investing and most people put it through a political prism they just can't keep their politics out of it they can keep their religion out of politics they just have to look through those glasses and if you'd if you've done that if you've been a staunch Republican or a staunch Democrat through these 77 years you'd have missed out on a lot of a party what about now when the parties are kind of in flux Donald Trump was not a typical Republican and Bernie Sanders now looks like he's leading the way in some of these polls he wasn't even a Democrat until recently he's a socialist his whole life who just caucused with the democrats well he was an interesting candidate in 2016 because I would you know he he came close and I would say that 90% of the people that voted for him hadn't heard of him two years earlier that's really unusual and it's giving a hope to all people when you look at what senator did what do you look at what Trump did it a lot of people look at the merit I would say well that could be me so Sanders the big appeal I think he had was he came yeah unusual authenticity I mean they all want to seem authentic and they that they are authentic in a certain way but they they do move around as the polls come in and their advisers come in you had the feeling when you listen to Bernie that he was saying exactly what he believed now you can agree with her or not but that's a very appealing characteristic and Academy they may not be enough to carry anybody to victory but it isn't it it makes people notice you they really do know to some extent whether you believe what you're saying when you're out there on the stump and Bernie he really did hate billionaires and and and the campaign for that saying I mean he was talking Athena Klee and he's still talking anything I mean I absolutely give him that do you agree with his policies well I agree with certain things that make him mad I don't like the campaign finance laws and I also think that the inequality gap has widened and will continue to widen unless something is done about it but I also believe that the most important single thing is to have more golden eggs to distribute around so I don't want to do anything to the to the goose didn't that lays the golden eggs and we've had the goose that lays more and more golden eggs over there is unbelievable in this country so we've got something that works in terms of the market system in terms of turning out lots of goods and services people want the question is what happens to the person is decent citizen doesn't have market skills and we can solve that a rich family can handle if they've got six children and one of them isn't as good in the market it's just good every other personal quality they take care of them and we've got sixty thousand dollars of GDP per capita in the United States that's six times what it was when I was born in real terms so we can take care of people and we shut but we shouldn't screw up the market system well Bernie looks mild compared to some of the candidates who are running to the left of him well that's there's somebody who wrote in this is t13 Ted Waller this is probably based off a play off of some conversations we've had with Jamie Dimon but he says do you still consider yourself a Democrat if you look I'm not a card-carrying Democrat but I never have been I voted for a fair number republics I'm getting getting money to Republicans I I am NOT a Bob Strauss called me one time because they want me to handle finances in Nebraska he said but the question is for question Warner you a card-carrying Democrat I said no I'm not I mean I I don't think I don't think either side has an edge in virtue or anything of the sort I mean I think that they have different views on things and I think that that by the time they get in politics they sort of stake out their positions although they move them in a period like this when they think this may help to be further left you see people that that sort of funds have a new new vision all of a sudden because they saw how it worked for Bernie but no I I will vote for more Democrats than I've in in the last 30 years I voted for more Democrats than I voted for Republicans I was president of the young Republican Club in 1948 at the University of Pennsylvania I ran for delegate to the Republican National Convention in 1960s the only office I've ever run for when we were just out with with Charlie Munger he said he didn't think much of too many politicians but he did like what Mike Bloomberg did in the city of New York what do you think about Bloomberg as a potential candidate what do you think about Howard Schultz potentially running as a third party candidate i I want to answer your most questions but I'm illegal I would Mike Bloomberg announced tomorrow that he was a candidate I would say I'm poor and I think he would be I think you'd be a very good president and I mean he and I disagree on some things but I think that that he knows how to run things I think he's got the right goals for America he understands people he understands he understands the market system and he understands the problems of people that don't fit well into the market says he no III would have no trouble being for him I Howard Schultz if he he suddenly got run as an independent and if he ran as an independent I think he would take votes away from any Democrat including Bloomberg a favor running so I think it would be a real mistake for him to run and I I think generally third party candidates they're going to hurt one side or the other and they're more likely to hurt the side that they actually favor because they're closer to that view and so they they pull more people away that that would otherwise you know go to the second best with that view so I I hope no third party candidate runs the polls any significant amount of those I mean they'll always be a couple people that file but but I think third party candidates are good wart actually the will of the people I just want to run through some of the holdings some of the changes that were registered and get your take on why first up Apple you trimmed three million shares to two hundred and forty nine point five million shares of Apple and that caught a lot of people by surprise they were wondering if you were selling no the one one other fellow in the office one of the two had about six or seven million years he had it before I did and he works with a limited amount of money third a billion roughly so if he wants to buy something he needs to sell something I want to buy something I've got cash around to do it so he sold about three million shares I believe cut it in half roughly to buy to buy something else and and I didn't I I I've never sold a share so that this was not even a conversation you had with him I take it this is either times business yeah I mean they do not check with me I sometimes learn at the end well I do at the end of the month I look and see how their portfolio compared to the month before and say what they've done this generated a lot of questions from viewers and let's go to one t14 jedi marcus wrote in if you loved it meaning apple undervalued at two hundred plus and a trillion dollar valuation at two hundred dollars plus and a trillion dollar valuation why would you sell any this past quarter you've answered already you didn't say yeah incidentally I've never paid two hundred ferny stock an apple would you start buying in one sixty or something was that why no I think our average cost about a hundred and forty one or something like that okay there was a question that also came in from Rick Saffir as this is t90 he said do you plan on adding to your Apple position throughout 2019 and I just want to also bring up a tweet from Jim Cramer he tweeted back on February 5th doesn't Apple trade like Berkshire is back buying I spoke with Cramer about it and he said look I don't know anything it's just all of a sudden the stocks really picking up it's almost as if so are you interested at lower levels in a number of stocks we all know there's some where we really can't go over 10 percent and generally I don't like to go over 10 percent because it it complicates life quite a bit and with banks it it actually throws us into the bank holding company so there are stocks that I would buy that we own nine in a fraction percent and I actually may be selling a little bit because they're repurchasing their shares and I don't want to drift over ten percent but Apple that I don't see myself selling the every the lower goes the better like it obviously I mean Apple is not one of those 10% stocks don't you own about 5% of the shares or shot so is this a situation where you have been silent buying since it came so much lower at the end of December it's really not back to where it may have briefly very briefly got there but but but we're cheaper we'd be buying it now we aren't buying it there there was another question that came in this is t91 from Umar say bear Zubair who said Apple decelerated share purchases share repurchases from around 20 billion dollars in the third quarter to around 8 billion dollars in the fourth quarter just when the stock price went down by about 30 percent in fact Apple repurchased zero shares in December of 2018 when the stock at a 52 week low what are your thoughts on Apple's repurchase deceleration well and Apple have said publicly that there and they've repeated it that their goal is to reach what they call a cash neutral position or their debt is roughly equal to the cash I think that would take a hundred and thirty billion or so they get there but of course they could make some acquisitions on the other hand they're earning a lot more than their dividend so that number goes up mentally I say to myself we're very likely I a lot of things could change this with them and and the lower the price goes the better it gets but then they should be at four billion shares probably and maybe three years and so are our 5% would become something over six percent at that point and I like that prospect and then we might buy some ourselves who knows it depends on the price but they will buy a lot more stock if it's cheaper than if it's it if it's a higher and and you know it's just simple math we're better off if in the next three years Apple is cheaper you loaded up on financials in the fourth quarter you added to your stake some JP Morgan bank of America Bank of New York PNC and US Bank Corp and six year top ten holdings I believe our banks at this point why so much emphasis on the financials very good investments it sounds prices based on my thinking and they're there they're good they're cheaper than other businesses that are also good businesses by some margin and a couple of those we own nine in a fraction percent of and I don't like to go to nine nine because that means in that quarter maybe I have to sell something so I try to leave myself a year to two years of repurchases but Bank of America has been particularly aggressive on on buying a site then Brian Moynihan has done such a good job earning that company since he took over I mean everything he was the most underestimated bank executive in the country and he is everything he said he would do he's done it and he's beat it and he said stuffer targets all the time for himself and he's been smart about repurchasing shares JP Morgan is a relatively new stake you had 35 million in the third quarter and it was a new stake you raise it to 50 million dollars or 50 point 1 million shares I should say in the fourth quarter is that your purchase because for a long time you held it in your own portfolio why I still got a little bit but that goes back years and years and years yeah so why why JP Morgan now well the other question is why we just dumb about not buying I was not buying it are clear but it's a it's a very well managed banking and banks are you can find a bank like JP Morgan earns maybe 15% maybe 17% even on that tangible like witty a business in turns 15 or 16 or 17 percent on that tangible equity that's incredible in the world of 3% bonds I mean just just imagine that you had a deposit account with JP Morgan that they've made a mistake and they gave you 15% on it and they couldn't redeem it what would you sell that account for you wouldn't sell it for 100 cents on the dollar you wouldn't sell it for 200 cents on the dollar when they even sell it for 300 cents on the dollar you have an FDIC guaranteed instrument that would now be at 300 cents on the dollar if it was 15 percent on equity you'd be earning 5% on it which is way better than Treasuries now if on top of that your deposit allowed you to let your interest compound to some extent now that instrument comes even worth way more because if you have an instrument that could compound at 15% for 10 years and use the added capital that's worth way more than three times tangible equity that current interest rates way more so a lot of things can happen to change that equation around and the banks like all other Americans almost all other American business got out a big plus last year with the new tax bill I mean corporations benefited a lot including Berkshire including the banks that can be taken away you know so but on the other hand the FDIC now has gotten replied there were special FDIC charges on the big banks they ended here recently because the FDIC has a hundred billion dollars in it now that money has all come from the banks the US government has not put any money in the FDIC people think that you know the somehow the FDIC is financed by the government it's guaranteed by the government what the FDIC was started in I think January 1st 1934 and I think one time it borrowed temporarily but it doesn't have a dime of government money in it that money and and now they've got a hundred billion in there and the banks are much better off because that fund takes care of the bank here and there that goes broke incidentally last year was no bank in the United States no FDIC bank went broke that's the first time in a long time let me slip in one more question before we take a break Oracle that was a stake that you suddenly popped up in the third quarter that berkshire had 2.1 million billion with 2.1 billion dollars of oracle shares at the end of the third quarter it went to 0 at the end of the fourth quarter which it's really unusual to see a technology company creep into the berkshire holdings like that and it's even more unusual to see it flushed out so quickly was that you yeah and Larry Ellison is not a fantastic job with Oracle I mean I've I've followed from the standpoint of reading about but I thought I didn't understand the business then I started buying I felt I actually changed my mind in terms of understanding and not in terms of evaluating it I think I mean Oracle's is a great business now but I don't think particularly after my experience with IBM I I don't think I understand exactly where the cloud is going you know I I've been amazed at what amazon has done there and now Microsoft isn't doing as well so I I just don't know why I don't know where that game was going that leads us to f4 which is question from a viewer named Mark Hall who said with IBM bouncing back how do you feel about getting out oh we got out of hire a lot higher prices than this I'm not knocking well but noble markets come back and mark is at a high I that doesn't mean I that I don't mean it's at a high and then it's going down subsequently I mean that it's just I hire that's been on it you know for well really ever I mean when we met here 10 years ago the DA the S&P was at 666 and within a day or two of when we got together and and you know people thought America was washed up and you know they were afraid of America and what's happened a quadruple in ten years how many quadruples do you got in your life you're a company that has never really shopped around for deals like that what do you think of companies that do get special deals from states well I've actually helped Nebraska few times when the governor of somebody's asked me to call a company ah and everybody does I mean they say it's just you know it is a competitive game on on locations but it it can be a little irritating uh since when you're already here and you're employing thousands of people and they want to give special incentives to somebody who and then which they haven't given you and and in some cases to be your competitor I mean it you know Amazon Amazon is gonna compete plenty in New York regardless but I mean Amazon's is gonna affect negatively the business of men many companies in every state including New York got that as Jeff Bezos says you know your gross margin is my opportunity does that mean you think New York was right to turn down the deal or to kind of second guess the deal that they had yeah that's what happened is they they they both got to the altar you know and then the dowry was changed in a sense I I don't know all the details but and you're in a tough position if you're a company and negotiating with public officials because the public officials really can't necessarily be the last say whereas it the company if the CEO says that you got a deal you got a deal and on the public side you know there's a city council that has to ratify a mayor or something of the sort so it's it's unequal that way now our experience in New York and Buffalo has been fantastic I mean Geico went there we got 3,000 people and the communities help them and Governor Cuomo's hell I mean just generally it's been very very very good for us but I think if you're gonna have a bad marriage it's better to find out before before they pronounce you man and wife said after you still they're both hurt a little bit by the fact that it went there I mean it makes thing people think twice about doing a deal where the community may get upset about you for one way or another or that the politicians can't deliver on it and from Amazon standpoint I mean they heard something a little too but not not meant not a great big way for either one but it's no plus to have things fall apart so you really as much as possible you want to have a sort of thing sealed before but you need labor you enginee political figures I mean a lot of things can tank it on the public side you know Jeff Bezos very well in fact you're working with he and with him and with Jamie Dimon on this health care initiative between the three companies can you give us an update on where things stand right now well we've got a terrific fellow in a total Guan D running it it is a long long term I mean process and and when we get through we have to not only have a better medical service I think we've got a lot of great things about our medical system but it is costing us now 18% of GDP up for 5% and it is a tapeworm and if any other cost in America had gone from 5% to 18% federal taxes have stayed quite constant around 18 percent for 40 or 50 years same time medicals gone from 5 to 18 now the double counting there because Medicare is but so we've got to stop the cause situation but what we're hoping to find is something that will not only do a better job for our employees but have them feel better about it and stop the ascending rate you know every point you chew up of GDP comes comes out of something comes from somebody else and their only honor cents in the dollar okay but it's a very long term I mean it's and and and we'll get something done the probabilities you know I mean it we're at we're trying to change if 3.3 billion dollar industry point three trillion dollar industry sorry that really for the people participating and they feel pretty good about it I mean the people getting the 3.4 troy you know hot the hospitals aren't unhappy the PBMs are not happy to drive mad I mean they you know it may complain a little bit but the people that are getting the three point four trillion are not screaming change change change what are your thoughts on Kraft Heinz following all the current news and what is your biggest concern regarding Kraft Heinz future well we have some very very strong brands at Kraft Heinz and as I pointed out earlier the company earns about six billion dollars pre-tax but after depreciation not after amortization after depreciation earn six billion on seven billion of tangible assets it's a fabulous business it's in terms of return on tangible assets I mean this is a great business we're sitting here in the first year mark but Richards much higher at crap it's much higher than it is at JPMorgan its much you go up and down the list there's very few companies that are earning 6 billion on 7 billion of tangible assets but we paid a hundred billion more than the tangible assets in buying and and we overpaid in an end craft I don't think we overpaid in hinds and we borrowed money that related to projections that have not been met we're and a lot of money but we were paying out a lot of money so we had very little in the way of retained earnings to reduce debt so our debt of 30 1 billion is higher than we projected originally to rating agencies and so on and and we need to bring it down and it comes down very slowly I mean unless you sell sell properties I mean even if you cut the dividend from 250 to 160 that's a billion one a year but on 31 billion yohko the right direction but there's a lot of there's there's real debt to be reduced a lot of people wrote in and had questions about your partnership with 3G 3G we're your partners in the Heinz deal and then with the addition of Kraft as well let's go to t61 this is from James Shanahan mr. Buffett how would you characterize the relationship with 3G today would you still consider additional deals with 3G yeah I considered George Apollo and his associates but my primary contacts been with George II ballo lemon over the years first meeting him on the Gillette Board and I think he's an absolutely outstanding human being and and and but a year ago he he pointed out that the game had changed in terms of brands that didn't give a talk at some forbes event or some place and and that that was a full year ago and six months ago I told you no I think I think that brands said it's it's not as packaged goods not as good a business as they were the really strong brands are but you know we've learned that over the last few years as the struggle between the retailers and the and the brands has shifted toward the retailers and that's why Kirtland is a big a very very big brand Walmart's going more to to private label there's some big forces on the other side if you've got if you've got a good enough brand you know you can you can you can also call your attorney what Costco drop coca-cola some years ago they brought them back do you see that ever shifting or do you think that the the game is going to be this way weighted towards the retailer's except for the biggest brands it certainly looks like particularly with the addition of Amazon to the picture I mean when you when you have Amazon and Walmart fighting it's a little bit like the elephant's fighting and I mean the mice get trampled and I don't see I certainly don't see the retailer's position getting weaker I mean you have all tea coming in and stronger I that just and you got a Walmart's not a very very very good job yeah Doug McMillon on it but he carries around that list of the 10 top retailers from the past and from every decade oh my yeah to remind them you know that it's hard to stay on top and and and but now you've got to bury and a lot of other players to put too particularly strong players that that I've got their foot to the floor and and there's some extent are will be pushing their own brands in terms of the partnership with 3G if the situation has changed according to both Georgi Lehman Jojo Paula Lehmann and to you if brands are not as strong as they used to be and as you've said in the past it's gotten really much more expensive to try and look at any of these other consumer packaged goods companies and potentially buy them does that mean the whole 3G formula has kind of been upended is it really difficult to make it work if you can't go out and buy another company and then cut costs yeah well the acquisition just don't work as well I mean for one thing the prices got pushed up and you know anything almost almost anything at a price can be good not everything anything at a certain price can't be bad I mean if you if you pay too much you pay too much and and and it doesn't that doesn't change and if you borrowed a fair amount in conjunction with it it takes a while to turn rmii I do not see well we're not in a position to buy additional brands and I have not thought it made sense as we've seen both prices change and the competitive position changed somewhat I still like that I like the businesses we have very much I'll be happy to be in Kraft Heinz five years from now or ten years from now I'm certainly happy to be George Apollo's partner he's a terrific human being and very smart on business but but you can say that we both misjudged the retail versus brand fight as to who would be gaming around on the other watching what happened to shares of Kraft Heinz on on Friday after all that news came out after the market closed on Thursday I mean stock was down 30% and I think for Berkshire alone that was a loss of about four billion dollars on top of your three billion dollar share of the fifteen billion dollar right down I know you wrote the annual meeting or the annual letter about how there are days because you have such a big portfolio 173 billion dollars in stocks there are days with market volatility being back that you see a swing of plus or minus four billion dollars or in certain ways I know you're like dr. Spock you're completely emotionless when it comes to dealing with the market moves but is there any part of you it gets a little queasy when you see that you've lost four billion dollars in a day not at least I mean makes me assuming I like the business best which ones they are but overwhelmingly during the fourth quarter the things were going down a they were buying out their own stock so I'm actually making money that day you know without laying out of dime and then secondly I can buy more of some although a lot of my bets at 10 percent problem with but I I mean there are certain stocks I would have kept buying except that was bumping up against the the 10 percent but no I'm I mean if if if you paid X X dollars a pound for amber yesterday and you're going today and now it's at 80% of X maybe you have a little hamburger left in here refrigerators I mean you tear your hair out over the dad or do you say oh my god you know this is terrific the price is cheaper what what else in the world don't you like to buy cheaper but then you're paying the day before that's a if you're gonna keep buying it that's the very logical way of looking at things the rational way Hey Joe has a question to Joe mr. Spock mr. dr. Spock is that wacky god dr. Spock there wouldn't come swing he's the baby guy I finally said something that got your attention no no I actually wanted to ask about I was just talking about dr. Spock with my say he was I don't know he was I don't know if you just let kids cry forever I think you need it anyway no no way can't you can't think I was wacko traveling Freud too and this'll one I agree anyway unless of that can I ask quickly about that 60 minutes and to some some philosophical questions Warren so the basic thrust of this piece yesterday on electric cars was that at least the way I read it is in this country I think we're starting to feel like maybe the subsidies that Tesla gets aren't really a good way to do things necessarily and over in China they seem to be going the other way where they are going to subsidize this it's almost a state-run enterprise how much they're subsidizing electrical vehicles as a result the thrust of the piece was by 2025 they're going to be doing a couple of million 3 4 million electric vehicles we're going to be stuck down under 1/2 million is that what we should be doing here in your view or is there a reason you're invested over there in electric vehicles rather than here I mean is that the way to do it should we be subsidizing it completely here in the US or or to market forces allocate capital better markets are better generally so I mean you know me I'm at but that doesn't mean all the time but they're certain but markets are better I think I actually think electric cars I think you're gonna have a lot of people pushing electric cars and in the United States even though the subsidy is going away I think it goes away at 200 thousand units or something like that and Dussel is hitting it and so on but no I think electric cars are are very much in America's future and I think much sooner than autonomous driving but I listen I'm all for the Chinese doing what they're doing I mean it and in terms of the in terms of the planet and you know it's it's a good thing so I I cheer them for doing it I don't think we'll need to do it in the United States that much you invested over there you're not how does it here right oh when we bought the BYD ten years ago and Charlie called me up and said buy this and that is totally Charlie's position that and it's done fine and and he keeps in touch with the management all that I that is not something that that I could not tell you within 20 percent what the price would be why he is I don't look at it I so that's not your thing okay but it's just just watching at it you know that the the spin I was getting from 60 minutes was that you know we're we don't understand that you you know certain industries you need full on government assistance or almost you know subsidies out they you know ten times what they are right now to try and win at something which is not surprising for 60 minutes but I was just wondering whether you thought we're gonna fall behind if we don't have a concerted government effort to prop up the industry I think there's a pretty conservative industry effort from what I hear I mean that no I think you're gonna see a lot more electric and incidentally I mean you know we have an interest in pilot Flying J and so we have we have certain businesses that would be adversely affected uh with all electric but III I think we're going in that direction and I think you'll see the American companies quite aggressive in that field all right I was listening the whole time Becky what do you mean that's only commonly I was listening though I'm listening listening I got nothing else to do here about listen so I really I was I was listening I just I just like that I like that you know you know how much I love mix metaphors my favorite is like that's a walk in the cake I call it you know or you know there's just so many guests if you can mix them up but when they start working on March March Joe start working on your March Madness ballot I offer a hundred billion to someone who gets a perfect bracket it has happened once didn't it well we had one a few years ago that bracket not all you have to do is get through the first bracket to win a million dollars there's something nobody else wins a million great three anyway but we had five of them two years ago we had five of them that got to the last four games and and four of them went out on one game and one went out on the other game but they split it what are your thoughts just in terms of looking around trying to find businesses trying to find pieces of business versus when you started the game well it's harder for two reasons one of which is peculiar douses we just we've got a lot more money so our universe of possible things to do is shrunk from thousands and thousands of things that I used to look at when I had small amounts of money to a relatively few things nothing seems to defy logic I have more money so I have fewer things I can do but it's just because ideally it's gonna be much bigger than you know you know so so no I there's probably a hundred stocks you know if we put five billion dollars in something and it's 10% of the market cap which would be as much as it would be you're talking 50 billion and up market caps and and five billion is 1% of our Berkshires values so if it goes up 50% we make a half a percent and I'm basically on valuable for tax 35 40 basis points afterwards your problem yeah so and then the second thing is I mean obviously got you away more competition than when we started the 19 well really when I took Ben Graham's class in 1951 I mean the whole world was was my oyster because people were not going through the manuals and you had to it's easier to get the data now for one thing I mean just with the internet far easier and I used to mail away for any reports and go to the Interstate Commerce Commission the Public Utility Commission the Insurance Commission I went to all those offices and dug through papers and and now it's you know it takes five five seconds for somebody to get the information I'll ask this very fleetingly as your position changed on Bitcoin I know I mean it's too bad but but Bitcoin it's ingenious and blockchain is important but Bitcoin has no unique value at all it doesn't produce anything you stare at it all day and the little bitcoins come out or anything like that it's it's it is a it's a it's a delusion basically so we've gone from rat poison squared to a delusion who knows where we'll be next year but I I'm I'm really sorry it happens because people get their hopes up that something like that is going to change their lives and there's a very ingenious thing to figure out how to have a limited supply and make it harder to more expensive to create them as you go along all that sort of thing but it doesn't the function and this is explained to me by people a lot smarter than I am but they say blockchain does not depend I'm betting on and JP Morgan it's not about creating their own you know JPM and and then it'll be worth $1 I mean it's match to the dollar the dollar and it's I'm suppose I think the people don't want it there there are a lot of questions that are kind of like the new Bitcoin questions we got several questions that came in to ask you about I'll go to t46 this is forked Design LLC do you think the hemp and marijuana industry is a viable industry to invest in even though there are still restraints on how capital can be moved and used we got lots of variations it's an industry that I don't know really anything about you seed your otherwise no never no III couldn't even smoke a cigarette [Laughter] what do you think about college athletes and whether they should be paid and I ask you this having watched what happened with Xion Williamson the Duke player who's Nike shoe blew up on him last week I kind of read that whole debate and you're a long time watcher of college athletics well I say this if I was an athlete I think I probably should probably have a viewer I should be I mean that you are I mean if you're really good you're of enormous commercial value and and and the rules of design are designed to prevent you from cashing in on that commercial value you know the for some period it doesn't I the rich schools are going to win that Harvard may have a resurgence of football this one came in t-28 the tataka go to said do you see any irrational human behavior by investors or corporate Americans right now you're kind of you and Charlie are kind of like the the police of corporate America what do you see that you don't like right now well there's always a certain number of people doing things that that are designed to take advantage of other be the market is so big and so there's always been people that you know maybe it's Bitcoin maybe it's new issues I mean look at all that look at all the things have been created around Bitcoin I mean and there there's been a lot of fraud and disappearance and all these kind of things it it attracts charlatans basically because the money's so big I mean if you've gotten do something phony and selling yo-yos or something there's no real money in it but when you get into Wall Street there's huge money and and you can do it with little pieces of paper and they don't bounce back on you for a long time and a lot of people get a moment Madoff was the old example but but that's that's that's going to happen and that's why we've got an SEC and Wiley got courts and but it'll always continue you'll always need policing there are a bunch of new technology IPOs that are slated to come to market this year I think back to what you thought about the tech IPOs back in 1999 and not wanting to be near them these are a little different a lot of these actually have earnings you think of an Airbnb you think of a Pinterest or something along these lines is this different what do you have this stuff no yeah but the big ones have losses and and and and some report earnings differently than I would report nice I mean it's you know we have more time peels and and if you think about it you've got a whole bunch of people on the other side who have an interest in marking up each stage of it even if it's phony sometimes they offer one price for the employees that already have the shares and that but then they have an artificial price that so they can say that this round went at a higher price it's they're picking the time to sell to you I don't like I like it when I'm picking the time to buy in a 2008 rather than having them pick the time when they've decided this is the time we can cash in my selling to you we're going to do you a big favor and let you buy in so I have never been a big fan of of IPOs and I'm and the valuations they're kind of staggering now on some any in particular by category that's the category of those that you think the valuation is staggering is based on what just earnings per if a company's got a couple public will pick a figure fifty billion dollars okay what should you expect it to earn in five years is it you should certainly expect to be earning five billion pre-tax I mean if you wait five years to get ten percent on your money and people they don't sell them that way and uh there aren't that many companies have been five billion or more pre-tax there's a fair number but but but it's not that easy and it's particularly not that easy if you count what you're paying the employees and stock options all that sort of thing question came in this is t1 twelve from Todd Marshall he says who wins more at the card the card game bridge Buffett or gates well I probably play a hundred times as often as bill so that that's probably the only game in the world where I'd have a slight edge with a very slight edge of the fee we probably spent two solid days working on he'd do better while you bring up Bill Gates Melinda Gates has got a book coming out on April 23rd I think it's one of the best books I've ever read what's it about it's about women and it's about women around the world it's about herself and it's very candidly told when the stories are terrific and I read it the other day once again it's only two hundred and twenty or thirty pages coming out April 23rd I think it will be a huge summer that's great well look forward to seeing it another question that came in is t-55 steve pilgrim asks for those of us who have lived our lives and careers reading and listening to Warren Buffett and Charlie Munger to whom do they recommend our grandchildren listen well I hope it stops sort of an actuarial freak no there's plenty of interesting writers uh you know and but I will tell you the fundamentals won't change you're not going to discover anything new about investments in the next 50 or 100 years I mean it's buying a business you have to know how to value the business and you have to know something about how markets operate but you don't buy a business unless you can value it you have to learn how to value businesses and know the ones that are within your circle of competence and the ones that are outside and that won't change and it really gets back to Lane investing is laying out a dollar an hour dollar purchasing power and getting more back in the future and you try and figure out you know how much you're willing to pay for that bird in the bush compared to the bird in the hand warning we want to thank you for the three hours that you've spent with us today we truly appreciate your time thank you you you

Channel: CNBC Television

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Keywords: Squawk Box U.S., CNBC, business news, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable, cable news, finance news, money, money tips, financial news, stock market news, stocks

Id: Pqc56crs56s

Length: 120min 1sec (7201 seconds)

Published: Mon Feb 25 2019

Reddit Comments

[u/lamplamp3]

Man he is a smart cookie. Just watched the whole thing.