The David Rubenstein Show: Warren Buffett on His Early Career in Finance

thing is just about assigning yourself the right story I didn't want to go to college though my dad wanted me to go to college why did you come back to him oh I came back I had about $175,000 and I thought that's all I would need to live the rest of my life have you ever run into that guy again no he needs protection now when you had your first annual meeting how many people showed up at that well we had 12 but you had to count my aunt Katie and my Uncle Fred any word of advice you give to somebody who's a young investor who would like to emulate you would you fix your time please well people wouldn't recognize me at my Tyler's fix book okay just leave it this way all right I don't consider myself a journalist and nobody else would consider myself a journalist I began to take on the life of being an interviewer even though I have a day job running a private equity firm how do you define leadership what is it that makes somebody tick [Music] preciate it for the night from capital all right well just Frank yeah all right we're at your favorite restaurant in Omaha all right so why do you like it so much is it the food or the price or the combination of both it's the food and the price and the Heritage I four generations of the garage family were involved or Palika rot and I went to grammar school together and so I've known the people over the years the stakes are great you know the prices are right so had lunch here earlier today was very good it wasn't that expensive and I quite enjoyed it a lot cheaper than New York and walked a lot that's why I buy I buy people lunch here and then they could buy me the lunch in New York that's a good deal good arbitrage you grew up in Omaha but then you moved to Washington when your father became a congressman right how did you start your business career in Washington with various pinball machines or golf businesses yeah I was like to have a couple of businesses going in and the best business we had was the pinball machine business which was the Wilson coin-operated machine company and that was named after the high school my partner and I went to but but we had we had our machines and barber shops and the barbers always want to put us in machines with flippers which were just coming in but those machines cost 350 bucks whereas an old obsolete machine cost 25 bucks so we always told them we take it up with mr. Wilson this mythical mr. Wilson he was one tough guy I got to tell you so when you graduated from high school you weren't as interested in academics I assumed at that time I was not interested and your high school yearbook said he's likely to be a stockbroker but he's very good in math why did you go to Wharton and why did you only stay two years there I didn't want to go to college and my dad want me to go to college and we didn't have SATs then but he practically would have done the SATs for me so he in the truth I and I always want to please my dad I mean he was the hero to me and still is but so he kept kind of enjoying me along and said well why don't we just fill out an application for the hell of it and so he suggested Wharton and I applied there and they let me in and after the first year I wanted to quit and go into business and my dad said well give it one more year and so I went the second year and I said I still want to quit and he said well you know you've got almost enough credits if you go to Nebraska which I was quite willing to do for one year you can get out in three years so that's what I did has warden ever called you up and said well you were a half graduate you should give us some money or they never bother you so far they haven't tried that line but they may after they watch this so after that you wanted to go to business school yeah I'd won some minor scholarship but the Nebraska to go to any graduate school I wanted to that they'd give me 500 bucks and so I applied my dad suggested Harvard so I applied and you didn't get in I didn't get it I mean no it took 10 minutes for the guy near Chicago interviewed me so I spent about ten hours going to see him and he looked at me and he said forget it have you ever run into that guy again or heard from him since now he needs protection now so I guess Harvard that doesn't come after you for money because they turn you down but you went to Columbia Business School and why did you go to Columbia well I was at the University of Omaha what was then called the University of Omaha library in August and I was leafing through catalogs and I just happen to see that Columbia had Graham and Dodd as teachers and I I read their book but I had no idea that they were teaching so I wrote Dean Dodd and I said the dear Dean Dodd I said I thought you guys were dead I said but not your life I'd really like to come to the club if you can get me in so you did assume pretty well at Columbia Business School I did okay there yeah he worked for mr. Graham and his partnership and how did that work well it was terrific in the sense I was working for my hero but then was going to retire in a couple of years and so I was only back there about a year and a half but but every day I was excited about being able to work for him so what you were good at was picking stocks according to his formula which was to look for companies that were undervalued now we call it value investing did you realize that he had some principles that were very unique and is that why you followed his guidance well by the time I went to work for him I probably could have recited the words of his book better than he could I read his books multiple times and so it was more a question of being inspired by him was by learning something new from him why did you come back to Oman III I wanted to come back to Omaha I I had made many friends in New York a lot of friends in New York but we had two kids by that time and I lived in White Plains I take the train and they take the train back and it didn't strike me as much of the life compared to to being here in Omaha and and both sets of grandparents were alive at that time and it just and uncles and aunts and I always a more pleasant place to live right so you buy a house here I rent a house you rented a house at $475 a month okay and when did you buy your house that you're still in in 1958 my third third child was on the way so you start a partnership here and how did you raise money well they've been actually when I came back I had about $175,000 and I thought that's all I would need to live the rest of my life I could take care of everything so I really planned to go to school I thought about going to law school just think how successful you could have been as a lawyer that's true I've regretted it ever since I know so in your first partnership when you had people cobble together some money how much money did you actually cobble together well we met one night in May early in May of 1956 and there were seven people there aside from myself and they put in a hundred and five thousand dollars and I put in a hundred dollars so we started with hundred and five thousand one hundred dollars and I gave them a little piece of paper called the ground rules but then ultimate you ended that partnership I thought well what happened was that between May of 56 and January 1st to 62 I started ten more partnerships I made a mistake I had no secretary no accountant or anything so every time I buy a stock I'd break it into 11 tickets I'd write 11 checks I kept 11 sets of books filed eleven tax returns and and and I did it all myself and I took the liberty of all the stocks because I was worried it was other people's money so I could I'm the bank and have these things delivered draft it finally I got wise and on January 1st 62 I put all 11 of the previous partnerships together and something called Buffett partnership I ran that till the end of 1969 at which time I dissolved it dissolve that one but then in 1969 you started a new partnership no in 1969 I mailed by that time we had about 100 five million dollars in the partnership and about 70 million or so that was in cash to be distributed and the balance was in three stocks mostly Berkshire Hathaway that I distributed pro rata to everybody okay and then you started buying more stocks through the vehicle Berkshire Hathaway and stocks and and business was yelling what would you say is the reason for your ability to do this is that you studied the companies more than anybody else you stuck to your principles you're smarter than other people people were just caught up with fads you didn't get caught up with fads what would you say is the reason for this success well the first ruler to quite an extent we we bought businesses that we thought were decent businesses at sensible prices and we had good people to run them but we also bought marketable securities in Berkshire over time the emphasis shifted from marketable securities over to buying businesses what was the theory behind buying a railroad because people thought they were kind of fossils as businesses the railroad business had a bad century they're kind of like they should all gonna come everybody has a bad century now that the David [Music] [Music] [Music] [Music] [Music] [Applause] [Music] [Music] [Music] over the years you've bought a number of companies and had steaks and companies one of the ones that I know very well is Washington Post how did that come about well in 1973 the Washington Post coming up on public in 1971 write about the Pentagon Papers type time but in 73 the Nixon administration was through bebe rebozo was appalling Nixon's they were challenging the licenses of two of the Florida television stations the post owned so the stock went from 37 down to 16 now it's 16 there were about 5 million shares outstanding so the whole Washington Post Company was something for 80 million dollars and that included the newspaper for big TV stations Newsweek you know and some other assets and no death to speak up so the Washington Post Company which was intrinsically worth four or five hundred million dollars was selling for about 80 million in the market we've bought most of our socket about the equivalent of 100 million in the market and and it was it was ridiculous I mean you had a business that unquestionably was worth four or five times what was selling for and Nixon wasn't going to put them out of business when you're doing these analyses then and now do you have computers that help you or how did you actually read all when you just get printing materials or how did you in those days get the materials to read about the Washington Post and how do you do it today well same pretty much the same way except there's fewer opportunities now but I met Bob Woodward back and and and he'd just come out with all the Presidents ban and all of a sudden is that all 30 years of Ag was getting quite wealthy and we had we had breakfast or lunch over at the Madison Hotel he said what do I do with this money and I said I said investing is just about assigning yourself the right story I said imagine Ben Bradlee this morning said to you what is the washington post company worth what would you do if you have to write the story in a month you go out and interview TV brokers and newspaper brokers and the owners and it's a crime value each asset i said that's what i do i assign myself the right story and it's nothing more than that now there's some stories i can't write if you ask me to write a story on you know what is some glamorous but non profit making business worth i don't know how to write that story but if you ask me to write a story on what is Potomac Electric Power words or something like that I can write the story and that's what I'm doing every day I'm assigning myself a story and then I go out and so you get the annual reports and then you read them just like other people might read novels you read annual reports right and then do you do the calculations of what things are worth in your head or don't have computers that help you know if you need you need to carry something out to four decimal places forget it today do you use a computer today even I use it's my bridge and I use it I use it to go to search to search a lot yeah so here's a computer in your office use I don't use them I don't have one in the office but I have one at home and like for a smartphone if somebody wants to you know get a hold of you can they get a hold of you on a smart phone or a mobile telephone I know a smart phone is too smart for me and a computer you use rarely well I use it quite as one of the trick questions that Bill Gates and I get one we're talking odds is who's on the computer more excluding email and the answer is I probably am because I probably play 12 hours a week a bridge on it and then I use it a lot for for search but who do you play bridge with is it anonymous people on bridge right now my name is t-bone and I play with a woman in San Francisco goes by the name of Searle and she's a two-time world champ and I'm new time world chump so we're we're good we've been playing together for decades and are you at the world-class level after all these girls know that I I she you couldn't have a better teacher than she is but the student had limitations now you mentioned Bill Gates how did you actually come to know Bill Gates it came about because the Meg Greenfield who was the editor of the editorial page of the post called me in the late 1980s and she said Warren I've always loved the Pacific Northwest she'd grown up there and she said I want to know whether I have enough money to be able to afford to buy a house a kind of a vacation type house I'm Bainbridge Island near Seattle and I said Meg anybody that calls and asked me whether they got enough money does have enough money so I go call that don't have it so she bought the house so she invited me in Kate Graham a few people up to the house and she knew the elder cases so she called Mary gates and then Mary went to work bill to try and get him to come and bill so I'm not gonna go down there to be some stockbroker something yeah and Mary wasn't very firm type and said you're coming and he said I'm not coming by they started negotiating hours and she said four hours and he said one hour and this went back and forth and he came down and when we met we talked for about 11 hours straight without Peter yeah so that was the beginning of relationship yeah we hit it off but you never bought any his shares or you just never I bought a hundred shares just to keep track of what this young kid was doing okay and he's now on your board is that right that's correct so the relationship has become very close and you get involved with him in many philanthropic things as well oh yeah yeah we we have a lot of fun talking so let me just ask about the philanthropic things that you've done with Bill and with Melinda kind of that idea of giving away your money to somebody else's foundation come to you well I originally had planned that that my first wife would handle the disposition of all everything that we we had we and we came that conclusion 120s and we started something called the Buffett foundation over 50 years ago but in but it didn't give a lot way a lot of money during those intermediate years because I felt I was a compounding at a rate that I could give away billions a set of millions if I waited a little while she died in 2004 so that that plan disappeared and then I was faced with the question of how do I give away this money in a way that that goes to the people I want without me doing all the work so you called bill or Melinda one day and said guess what I'm going to give you the bulk of my fortune what was their reaction wasn't quite as elegant as that actually I you know I've been asked that I don't remember that clearly but I just some point I didn't call them up it was done over the phone I think good night and you didn't ask them say well called the Bill and Melinda Gates and Warren Buffett foundation you don't know what your name no I did not think that would do any good so you are on the board of the Bill Melinda Gates Foundation now that is true but they run it I'm gonna give them stock what would you say are the some of the highlights the deals that you're most proud of you know let's take one that you did recently the biggest deal you've ever done was Precision Castparts about 37 billion dollars per day yeah it was it was between 32 and 33 billion of cash and then we assumed about 4 billion at that okay so how much you spend 37 billion you spent a year studying the company no how much time did you spend with the CEO I met the CEO I think on July 1st of last last year and he happened to be calling on certain shareholders and one of the fellows in our office had had a position at the stock for some times so it was an accident I met him if I'd been out playing golf or something I never would have happened but I went in and I liked him I heard and talked for 30 minutes and I then said to the fellow in our office I said call him tomorrow and and say if he would like to receive a cash bid from Berkshire Hathaway we would supply one and if he wouldn't like to receive one you know forget we ever called that was it you do hire any investment bankers health analysis no do you ever hire investment bankers to help you analyze a company not to help analyze economy sometimes sometimes we they're involved in the deal and we're perfectly willing to pay off that commission one time you told me a story about how an investment banker was hired by somebody you were going to try to buy what happened on that was I said we'd pay $35 a share for a company then in American energy and and they hired an investment banker and the investment guru came out and spent about a week and they they they kept if they want to send a big bill at the end and they said well you've got to increase your price to make us look good I said I'm not really worried about whether you look good so they hung around all mall for about a week and finally they call up and sort of pleaded and said you know can't you increase your price somewhat so that we can send a bill and get paid appropriately for our non services and so I said okay you can tell them we'll pay thirty five dollars and five cents and you can say you got the last nickel out of me so that's what we paid 35 or five knew normally you make a price and you don't party and you ever do any unfriendly deals no no no I even say Berkshire Hathaway originally was an unfriendly deal but no we're just not interested not that unfriendly deals aren't necessarily bad they're management's that should be replaced but now people must call you every day and say I have a deal for you it's perfect and how often any of these deals ever pan out they don't call every day and we've made our Arkwright criteria fairly clear so there's relatively few that call and when somebody calls I can usually tell within two or three minutes whether it deals likely to happen or not there's just a half a dozen fillers and it either makes it through the filters or it doesn't one time I was told that you got a letter from somebody from Israel correct saying I'd like you to look at look at my company now what's the likelihood as somebody from Israel sends a company prospectus to you over the transom and you say you're going to buy it and you did buy it yeah we did buy it we gave we bought eighty percent of it at that time for four billion and then we later bought the remaining 20% but before you bought it did you go to Israel to look at the company no I did not go to Israel I hope it's there and you were happy with what you bought absolutely and you also bought one of the biggest railroads in the world that's correct and that's worked out okay we just forgot okay what was the theory behind buying a railroad because people thought they were kind of fossils as businesses the railroad business had a bad century they're kind of like the Chicago company everybody has a bad century now that but finally the the railroad industry got rationalized quite an extent and modernized and and the railroad business is a good business it's not it's not a great business but it's a good business and in the fall of 2009 we already owned a fair amount of BNSF permit in Northern Santa Fe and the price it looked like we could do it at a sensible price so that was a Thursday and on Friday I said we would pay $100 per share if the directors were interested then he checked with the directors over the weekend and the following Sunday we had a contract sign somebody from the White House called and said would you mind having a tax named after you and I said no if all the diseases have been taking my question I I'll take a taxi David Rubenstein show [Music] [Music] [Music] [Music] [Music] [Music] [Music] [Music] [Music] [Music] [Music] your view still is the best place in the world to invest to the United States well certainly it has to be the best of it it's the best I know and so it it's been wonderful I mean nobody has sold America short since 1776 and and and enjoyed that the what happened subsequently but we were having roughly 2% or less slower growth in the last couple years you think that it's possible to ever grow three and four and five percent again in this economy there will be some years but 2% growth if you have a little less than 1% population growth means in one generation 25 years call it that we will add maybe 18 or 19 thousand dollars of GDP per capita family of four seventy five thousand sigh so we're just beginning that one percent you know my my life has been a product of compound interest it may be better to do it at higher rates but if you have an already prosperous economy and we've got the most prosperous economy the world's ever seen and you keep compounding it over time people will be living far better twenty years from now than they are now you have said your secretary pays a higher tax rate than you do in counting counting counting payroll taxes yes right and so your favor of changing that some years ago somebody from the White House not the president called and said that they've read my views on taxation and they said would you mind having a tax named after you and I said well if all the diseases have been taken away why shouldn't I'll take a tax so and so they've referred to this but I really do feel that anybody that's making millions of dollars a years should have a combined payroll and income tax that that is at least 30 percent and in my office everybody in the office does have that except me how do you think you became a Democrat when your father was a big Republican and you're living a very conservative state how do you think that evolved civil rights more than anything else I mean I I didn't think about it when I was you know twelve years old or fourteen years old and I went to Atlas steel and it was a school for blacks just a few hundred yards away and it just never dawned on me how different life was for for other people and then as I got to see more of the world I just decided that there were a lot of things that were unfair and the Democrats seem to be doing a little bit more about it in berkshire hathaway today you have an annual meeting that attracts roughly 40,000 people when you had your first annual meeting how many people showed up at that well we had 12 but but you had to count my aunt Katie and my Uncle Fred and a couple of managers wait we usually had about two outsiders and when you start at Berkshire Hathaway did you ever in your wildest imagination think that you could build a company that became one of the biggest in the world was that ever in your plan sir no no I I just I've always just kind of put one foot in front of the other what is it that you would like to have as your legacy as you think I'd like to be the oldest man that ever lived actually but no I I like teaching and so if if I've been a decent teacher and I have a lot of university students come out every year and today is there anything on your bucket list that you would like to do that you haven't done I'd have done it you know if there's anything I wanted to do I go dad money has no utility time as utility to me but but money in terms of going making trips are doing only more houses or having a boat or something it has no utility to me what so it has a lot of you suddenly other people which is the reason for the Giving Pledge what motivates you to still run a company when most people your age are playing shuffleboard or they're relaxing or doing something yeah they spend all week planning their haircut usually I I get to do everyday what I love with people that I love I mean it doesn't get any better than that and so the greatest pleasure in your life other than doing interviews like this is is what looking at new companies making investments giving away the money what deed gives you the most pleasure your grandchildren all is all of the above I mean but the truth is that that I regard Berkshire Hathaway sort of like somebody that a painter regards a painting the difference being that the campus is unlimited so there's no finish line at Berkshire and it's it's a game that you can continue to play any word of advice you give to somebody who's a young investor who would like to emulate you what you would recommend that they do to kind of build something close to what you've done think you should look for the job that you would want to hold if you didn't need a job I mean you're you're probably only going to live once Shirley MacLaine may differ without our few people but and you don't want to go sleepwalking through life and you really whether you make X or 120 percent of X really isn't remotely as important as to whether in most cases you marry the right person and you also find something that you would do if you didn't need the money and I've had that job for you know 50 or more years and I was lucky and then I sort of found early on what turned me on that way but but don't settle for something if you can possibly don't worry about making the most money this week or next month I mean when I went there I offered to work for Ben Graham I said I'll work for nothing and I met it you know I mean I just the idea being turned on so look look look for the job that turned on find a passion the David Rubin stuns [Music] [Music] [Music] [Music] [Music] [Music] [Music] [Music] [Music] [Music] you [Music] [Music] [Music] [Music] [Music] I'm mark halperin and I'm John Heilemann with all due respect to Team Trump it looks like the Democrats think they've got this one in the bag on a day when the New York Times delivers thrilling details about a new Tribe Called Quest album boo boo we strike a musical theme on the show tonight including Donald Trump's change of tune and the Clinton campaigns blue state jam session but first the polls pick up tempo we can barely keep up with the onslaught of surveys from key state polls by Quinnipiac CNN and other organizations that flooded our inboxes today with less than a week before Eid a Florida remains a razor-thin race in one poll Clinton is up by one point among likely voters and the other she is up by two points in Ohio Donald Trump is ahead by five percentage points in North Carolina Clinton leads by three and in Pennsylvania Clinton leads by five points in one poll and four in another in Wisconsin where Donald Trump campaign yesterday and Mark Halperin was Clinton is still up by six while her advantage in Colorado has shrunk to three points while in Virginia she's up by five percentage

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Length: 31min 10sec (1870 seconds)

Published: Wed Nov 02 2016