Warren Buffett | Charlie Rose | Pt. 2 | July 11, 2006

this is the berkshire hathaway annual meeting 20 000 people come from all over the world to omaha nebraska for a weekend of fun shopping and to see their hero in person [Music] is [Music] [Applause] they even get to see a movie about him it all began with a key strategic alliance a merger 100 years ago between microsoft walmart and starbucks micro wall box however an elite rebel force of investment bankers created me a biogenic being who can travel back in time and stop the strategic alliance from ever taking place i am the warrinator [Music] this is the annual meeting in april 2004 and warren buffett is front and center what do you think they most want to hear this morning well that's the nice thing about taking unfiltered questions as you find out i mean you know the press is naturally on governance issues right that's right but in the end you know we'll end up talking about what shareholders want to talk about yeah that's that's it is a kind of weather vein of this yeah where they are in terms of you know what their concerns are yeah we'll get 50 or 60 questions by the end of the by 3 30 this afternoon and yeah uh interestingly enough every question almost comes from somebody outside of alma the alma people don't they seem to defer to the out of town and but we'll find out what's on their mind near the end of april in 2005 we went inside to see what happens warren buffett and his partner charlie munger sit on stage and answer questions for more than four hours we work together we really don't have any choice because he can hear and i can see a few years ago uh we have a dinner at garats the day after the meeting and we were in having the whole family was there having dinner the place was packed and it started raining cats and dogs and a waitress came to me we were eating waitress said i said i gotta tell you she said that it's raining like crazy outside and there's a long line and michael eisner is standing out there getting soaked so i turned to suez and michael and jane are friends of mine good friends and i uh i said to sue's why don't you go out there and help them out before they get drenched and she looked at me and said i've waited in line at disneyland name is molly fenner i'm 11 years old and i'm from long island new york what is your view on petro china if you come up at the break charlie and i will have taken all the pieces out of here that we like best and you will be you will get the rest charlie do you have anything to add to that she wants to know what you think about petra china we have real owners on our board and what they make for being board members is really inconsequential as i get reminded occasionally compared to their investment and they're friends of mine they're smart they're very smart i mean they are hand-picked in terms of a business brain power and quality of of human being and uh i really think that you know we have the best board in the country but the people that want to make their evaluations by checklists uh you know whether either in terms of diversity or in terms of of supposed independence although i don't know how anybody that's getting half their income from board memberships can be independent uh you know we don't we we may not stack up so well but but it's it's the kind of board that i want to have knowing that if i die tonight that virtually everything i have goes to a foundation i wanted that foundation to have as much money over the years to spend as possible and there's no group of people i'd rather have in charge of the decision subsequent to my death than the people that we've got on our board the correct system is the lau root system lau road who had three different cabinet appointments if i remember right said no man was fit to hold public office who wasn't perfectly willing to leave it at any time and a fellow who wrote didn't approve of something the government asked him to do he could always go back and be the most sought after lawyer in the world he had an identity to go back to and he didn't need the government's salary and i think that ought to be more the test in corporate directorships is a man really fit to make tough calls who isn't perfectly willing to leave the office at any time my answer is no yeah we will have one of our directors who was who's been removed twice from compensation committees of other corporations because he had the temerity to actually question whether the compensation arrangement being suggested was the appropriate one i mean it it's not it's it's it's being put on the comp committee of american corporations as i've said they're not they're looking for chihuahuas and and and not great danes and dobermans and uh yeah and i hope i'm not insulting any of my friends that are on cop committees you're insulting the dogs [Applause] the degree to which the administration or other people are worrying about the deficit in social security 25 years out when they have a 500 billion dollar deficit excluding the social security surplus now i mean it strikes me as nonsense here we are deploring something that's going to happen in 20 years that's a fraction of what is happening right now while they're cheering you know basically and charlie what do you say well that's the view from berkshire's democratic [Laughter] chairman and and the odd part of berkshire on this issue is that the right ring republican who is speaking feels more strongly than warren that the republicans are out of their cotton-picking minds to be taking on this issue right now remember that the annual meeting of virtue as it has evolved is without any close precedent in the history of the world no capitalist enterprise had ever had an annual shareholders meeting anything like the one we have we just morphed by accident into this enormous event that everybody loves so charlie is the best partner a guy could have now charlie is he's in los angeles i'm in omaha and charlie has got multiple other interests but anytime on anything important that i want to have the world's best brain working on and he usually get the answer in about 15 seconds i can pick him up and talk to him but he understands everything about me understands everything about berkshire he doesn't spend all day thinking about it like i do he's got plenty of other things he does but when he's needed he's there and he's right berkshire hathaway is now 140 billion company it began when warren buffett came back from new york after working with his intellectual mentor ben graham when you came back from new york uh in the 56 i think he says having studied and worked with ben graham what was the dream what was the ambition well it was kind of disgustingly low i i didn't know what i was going to do i had about 150 000 at that time and i felt you know if i earned 10 percent on that'd be 15 000 a year and and i could live big on that at the time i was i was interested in reading and and taking courses at the university i took my father-in-law's course in psychology and i thought if i go to law school i knew there were a whole bunch of subjects i wanted to read about and then i sort of stumbled into this partnership a few months later because seven members of the family uh said we want to and we want you to handle our investments and i didn't want to do it one at a time or tell them what i was doing so i put the seven together in a partnership that had a hundred and five thousand one hundred dollars in it you can guess who the hundred dollars and i thought that was it and a few months later a fellow named homer dodge who had been a stockholder graham newman came out saw me in omaha and he said graham newman was liquidating and he said he'd asked ben where to put his money and ben said maybe warren would be a good choice so he joined me for i think about a hundred thousand dollars at the time and then four months later some fellow in omaha that read the legal notice actually a friend of mine called me up said what are you doing and i told him and he did it so yeah i just kind of stumbled upon stumble along yeah all of a sudden you have a partnership right and you're making money and i couldn't sell keo now but the partnership did well and part of the partnership was buying what looked like cheap stocks berkshire hathaway looked like a cheap stock it wasn't a very it was a terrible business what was your ambition then now you have a vehicle yeah well i started out by thinking i was a textile expert but i was just abused of that notion fairly fast i mean he did i thought you know well you know what do these guys know about making textiles they've only been doing a few hundred years i mean the egyptians i think figured out how to weave so but i've been in omaha for a while that's right i know a lot of that just turned me loose at the plant and see what happens so anyway uh what happened was right at that period the textile business was good for a very short period of time and so i was like a duck floating on a pond when it was raining i was going up in the world but i thought it was because i was flapping my wings but it was that damn rain that was coming down and and then when it quit raining i mean i found out what do i know right and then then we went into other businesses yeah and what so all of a sudden it was you went into other businesses meaning you you had some cash flow coming in we had some cash not very much but we had some cash around and when jack ringwald decided to sell his insurance companies in early 67. uh we we paid 8.7 million i think 8.4 million i guess it was 8.4 million and we had in berkshire we had i don't know maybe four or five million around maybe we borrowed a few million but so that was your first entry into the insurance company why was the insurance business attractive well it it does control money and and and if you've got somebody that's doing a decent job on the insurance and in underwriting it gives you money to invest on my end how much of your revenue comes from the insurance bill a lot comes from insurance and then we have a lot of money that's generated by insurance so insurance has propelled our growth there's no question about that because it gave you money it gave us the money to both invest in marketable securities and also money to buy businesses outright and then in 1965 you have a chance to take over right berkshire what happened after a while i realized what a lousy business i was in and we didn't get out of the textile business but i decided that that to the extent we could we'd try to add on other things interestingly enough charlie the uh i'd have been better off if i'd done all the subsequent things without putting them in berkshire originally if you just talked financially uh berkshire the textile business was a drag for 20 years so if i instead of buying these things for berkshire we just bought them in the separate entity the excellent then why didn't you do that i don't know but it worked out fine but i don't know but everything worked out but i mean if you look back looking back it was it was it was a big fundamental wrong decision from a financial should get involved in a textbook business at all yeah i should have just gotten out of that and going on and done these other things but tell me why you didn't i kind of stuck with things it's that yeah i really do i mean here was here it's just my personality you know i mean i'm i'm driving a car after eight years i believe in the same house after 47 years your net worth about that time was about six or seven million dollars that probably is about right yeah that's probably around right because in 1962 when i formed when i put all the partnerships together it was about a million and when i wound up it was about 25 and so it probably was what are you thinking i mean i'm just going to continue finding investments that i can make and everything will turn out mid 60s i was running this partnership so i thought i was going to keep running the partnership and then i got to where i didn't think i could do that well and why did you think that well the market in six oh the stock market the soccer market just went crazy and and it was a little like you know in 1999 and 2000. i mean i was left behind and i didn't want to do things i didn't understand and that didn't make sense to me but i also didn't like sitting there while everybody else was you know running rings around me and my partners were probably not saying it but they might think you know has this guy lost it so so i gave him all the money back and i gave him the shares of berkshire and got a lot of them myself as part of that and then i i just kind of got more involved in berkshire but you know it it became my painting i was only painting an hour two a day at the start and then i started painting like crazy so you had a stake in berkshire right and i actually bought more but i just decided i'd put all my money in berkshire and ride with it and ride with berkshire as a vehicle just as this is kind of an extension a corporate extension of me yeah and are you out of the textile business by then we got out of it no we did not get out of the text evidence for 20 years i even bought another text talk about it you know i've got to confess i yeah yeah this is like this is like a revival meeting now i'm going to just go up to you and we need to forgive me will you because i i i bought another textile company i bought something called wombeck mills in manchester new hampshire why did you do that only my psychiatrist knows again i thought i was going to solve something by doing it i mean i solved something well i mean i thought that these two put together would do better some crazy thing i mean i did it myself too no management told me to do it so it was it was 19 about 85 i mean 20 years later before we got out of the texas business they got the textile business i said it's a little bit like watching a parade with all these other textile companies and you stand up on your tiptoes and then everybody else stands up on their teeth goes to it and all that you don't see any better and your legs hurt and that's what happened with textiles in 1973 it may be your first big first run at the washington post i began to buy shares yeah how did you come to the conclusion i looked at the prospectus in 1971 when charlie and i first met k graham one time and they were going public right at the time of the pentagon papers and then in 1973 uh the stock got very cheap because their television licenses were under challenged by bibi rebozo nixon's friend and the stock went from i think like 38 to 16 or so in a very short period of time and when it got down to around 20 uh just in a few blocks we bought almost 10 of the of the company and that now is about 18 because they've repurchased shares when it got to about 20 that meant the whole washington post company it had 4 million 800 000 shares out the whole washington post company was selling for 100 million dollars now they own the washington post they own newsweek they owned four big network television stations including cbs and washington dc and all of that jacksonville i mean everything and they didn't know any money and if you'd taken those separate parts you literally could have been out in the middle of the atlantic ocean you know at midnight in a row boat and you could have sold them for 500 million dollars people have been swimming out in shark infested waters if necessary and you could have had all of it for 100 million for 100 million i mean you weren't going to get all of it because here's what i don't understand how come 95 people didn't see that it was amazing we were buying it from big institutional investors and they were bailing out of it and if you'd asked any one of them what the pieces were worth they would have said something close to what i would say but they thought the stock was going to go down so so what you know and the stock didn't go down in fact after we bought it it went down a little more so what warren buffett believes that i'm not looking at the price of the stock i'm looking at the value of the business i'm looking at the properties and i'm looking at the gram family i mean that stock we paid about 10 million for is probably worth a billion and a half or more today and they haven't seen 10 million in a billion billion and a half and they have not struck oil they have not invented a cure for cancer you know they've just taken those properties and kept doing reasonably intelligent things and sometimes very intelligent things but the money generated by it and they've developed the properties they've had and they've been terrific stewards of the money but there's there's no miracles involved warren bought into the company without my knowing him that's why i say luck really plays a role in people's lives it just does a lot of people said stiff-arm him he's buying too much stock he means you no good and my native instinct was let's take a look let's see what he's like and everything i learned about him was very good so i asked him to come and take a look at the company in which she just bought these shares um he had to write me a letter when he owned five percent of the company saying dear mrs graham i've just bought five percent of your company and i mean you no harm uh and i think it's a great company and i know it's graham owned and graham ron and that's fine with me and so i got to know him and i thought whoa this guy's really terrific so after he joined our board he used to come to board meetings with about 20 annual reports and he would take me through these annual reports i mean it was like going to business school with warren buffett couldn't have a better teacher no it was wonderful kay graham told me that you did when she met you she'd never even understood how to read an annual report that that's what you brought to her some sense of being helping her come to grips with the idea of making business decisions kaye was very very smart but she thought because she this had been pushed into her by her mother and her husband to some extent in the in the past she she thought only males who had been to business school could run businesses i mean she she had been she had the intellect but she didn't have the confidence and i told her my job was to get her away from looking into that funhouse mirror that she was looking into about herself and distorting it and looking into a real mirror and when she looked in a real mirror she'd see a person that was perfectly capable of running the washington post or any other company how long did it take to learn that well you know fits and starts over time but but she i i had the right raw material i mean she was good she was good and and she had beaten into her over such a long period of time uh that that wasn't what she could do in life that it took it took some convincing the and she had to see evidence of success and all that sort of thing i said mrs graham i said you know you control this company lock stock and barrel but you're still worried about me so i said what you're doing is you're looking at me and you're seeing fangs and i'm telling you these are baby teeth and i said they really are baby teeth but they always look like things to you and there's nothing i can do except even except take them out i said even though they're baby teeth i'm going to just take them all out so i'm perfectly willing you call george gillespie up here your lawyer and i said i'll sign an agreement that i'll never buy another share of stock of washington post unless you give me the okay and i said i'm fine you know i want you happy with me i want you nervous about me and so george came up and i took out the baby teeth and she saw fangs falling to the floor and we got a lot of great everything okay but then but you already had we had we had 10 million invested or not yeah we had 10 million of us we had not nine we had nine percent nine in a fraction percent of the stock i told her the smart thing is to repurchase your shares i mean it and and the shares i would otherwise buy you should buy for the company and and will all get richer if if you do that and and she had a lot of other people advising her otherwise but she finally she decided to do it and that's the reason we now own almost 18 i believe of the company instead of nine and a fraction percent the buffalo evening news was bought in 1977 right and i gave kay first shot at that you did what i gave kay for a shot of that you said i i'm if you if you don't want to buy it yeah i'm going to buy it why would you do that i just felt that you know she'd been good to me and and we were a big holder and they were in the newspaper business and and she wanted to buy things uh so i just said you know i'm not gonna you're not gonna find that i went up to see vince mano on a sunday and bought this thing away from you so that you otherwise would have bought so i gave her a shot at it in 1983 you purchased nebraska furniture mart that's right for 60 million dollars mrs b tell me about her well she this is a woman that walked out of russia got on a peanut boat landed in seattle with a tag around her neck couldn't speak a word of english and the red cross got her out to fort dodge iowa which is what the tag said she couldn't learn the language she moved to omaha because there were more russian jews here that she could talk with her oldest daughter started school came home and taught her the words that she learned she took 16 years to save 500 so she could start this company and she's selling used clothing bringing her siblings and her mother and father over 50 bucks at a crack and in 1937 took 500 and went into business and competed against all these people who had all kinds of advantages over in every way and she killed him and she killed him yeah and how was she able to kill him she cared about it she was smart she knew the limitations of her knowledge and she and she was confident within her circle of confidence competence she didn't get outside of it and she took care of her customer she sold sheep and it took her a long time but she built the largest home furnishing store in the country in a town like omaha with 700 000 people so how did you come to buy it well i was involved with this operation i mean that's my kind of woman and i bought it when she was 89 she worked till 103 there was a period there where she left for a couple years if you went over to mrs b's house as i did and you very nice house and you go in and on her sofa or her lamps or bed there'd be little green tags hanging down because it made her feel like she was at the store i mean this is he's a remarkable remarkable woman and the punch line charlie is she couldn't read or write you know and and i think every business school in the united states ought to study here i mean what would they learn they would learn the essence of business they would learn that taking care of your customer is what it's all about taking care of and and by that i mean giving them good deals you know which nobody would touch and she uh and working working like crazy i mean she was there day after day after day and and she she she had a passion for it and the truth is if if you took the fortune 500 ceos and i gave you first draft pick on 10 of them and i'd put them in competition with mrs b she'd she'd win no doubt she'd win yeah michael eisner was here and i told him the story he loved it and uh michael wanted to get the movie rights and michael could be very persuasive but but uh i saw him standing with mrs b's daughter the same daughter i referred to earlier you know who's now at that time was probably close to 80 or so and and francis is this tall and michael's that tall and francis is saying my mother wants a piece of everything when you're an 80-year-old say that her mother wants a piece of everything they didn't teach that at any business school to her she picked that ownership was everything she understood business and she understood people awfully well too in 1988 you started buying coca-cola how come i don't remember exactly probably read their annual report uh probably read the 1987 annual report and i've been i've watched it some but there just comes a point there's a tipping point you know in terms of knowledge you've accumulated over a period of time price changes in the stock which had gone down some they were heavy repurchases of their own stock roberto and don were doing a terrific job nothing bad was going to happen to coca-cola so i started buying most of it in that period from the middle of 88 to early 89 but then a little further on but we put overall about a billion dollars into it and it's probably worth about 8 billion now and you have no intent to sell no you have said though that in during the bubble it got overpriced there were some things that you might have sold sure and would have been wise to have sold them at that time if i was running the partnership like i did back in the 60s i definitely should have sold those stocks i mean they that if stocks went crazy and but you do not today look back and say i should have sold coca-cola when the bubble was there because it just it wasn't me i mean i wouldn't you know i i i i knew it was selling at a very fancy price and i even wrote about it and same way with gillette but but you know i i don't do that very often i'm not saying i wouldn't ever do it i mean if we went into the wild and speculative orgy in history origin history and some of these things went crazy maybe i would sell some but i it's not mine it goes against the grain for one thing but wonderful businesses are not that common and if you get a big position in a wonderful business not a bad thing what is the single best investment on a large scale that you have made geico twice in my life uh three times in my life has been a good investment i mean it was a good investment when i was when i was really 20 years of age and when i when i bought i put three quarters of my net worth in in geico when my net worth was like ten thousand dollars and and and that caused my net worth probably to double or something like that and that was that was great at the time in 1976 the company got in trouble and what we bought what turned out to be half of the company for like 40 million dollars and then in 1995 or so we bought the other half for 2 billion and that was a good deal so it's it's been a triple play help me understand this you you're sitting with more than 40 billion dollars essentially in cash right you could buy some big businesses i would assume for 40 billion right but you don't see any at a price that you want to own that's right and and when i look at the deals that have been made in the last year there's not one i'm envious of so i mean it isn't like we missed them uh i mean you know it may turn out that that i should have bought one of them but i mean there's nothing that i feel gee i wish i bought that last year but i hope i buy one tomorrow i know but i mean there's nothing i mean you know you don't look at general motors and say i look at general motors general motors is selling for about 15 billion dollars now there's 500 million shares 28 or 29 something like that you know and the whole general motors coming 15 billion and of course that was the most powerful company in the world you know back when i was a kid and you could you could have it in a second well i don't know about that but i but i certainly could buy i can i can buy plumbing what don't you know about that well i mean i if it's buying the whole company is a different store how much is the whole company uh the whole company would cost 15 billion 100 stock yeah so why couldn't you get pay 15 billion dollars and get general well they might they might not like me doing some other things oh sure but nevertheless i could buy a lot of stock uh at a valuation of 15 billion and you think it's a good buy today i think it's too tough to figure too tough to pick yeah you know it is a company that sells 25 of all the vehicles in the united states and and one-seventh of all the vehicles in the world you know and employs hundreds of thousands of people but it's got some terrible obligations outside uh understanding like fiat that's what they feel probably yeah but well the fiat deal they they solve for two billion right but still too big things like that yeah but they know the big problem was that they really entered into contracts with the uaw and they were based on their the economics of market dominance and they don't have market dominance anymore but they still got the contracts and i don't blame the uaw i mean you know they it was a free will negotiation but but they they signed up i think they're paying like two and a half people that don't work for every people for every person that works or something like that you know in terms of uh retirement and health care and and that gets to be crushing if you're competing with people that don't have the same obligations you've looked at this closely well i look at all the things when you read eight hours a day yeah you have a chance to cover a lot of yeah a lot of but general motors and listen i i think they're doing a great job considering the hand they're dealt but but general motors is a huge annuity and health insurance company with a major auto company attached and unfortunately the huge annuity and health company has got a terrible bunch of contracts out i mean it is worth some big minus number and the question is whether the auto company is worth a big enough plus number to offset that big minus number but you can't separate the two and you can't figure it out well i can figure it out i don't know but you can't what well i in the end i can't come to a conclusion that that that it's obvious that well that's what i mean you can't you can't come to a conclusion right because you don't have all the facts oh i got the facts what don't you know why can't you reach a guy i don't know whether you can exist with the kind of obligations they've got in 25 of the market and very tough people like toyota and all kinds of people coming at them who who don't have those costs they call them legacy costs here is the dilemma you got 40 million dollars in cash 40 billion 40 billion and you've gotten so big that you've got to make a big play right that's your problem that's my problem and i thought it was a problem when we were a lot smaller and it wasn't but it's a bigger problem now so what happened if i'm lucky it'll be an even bigger problem five years now and and why and you so what tell me how the dilemma plays itself out for you the odds are good charlie that one way or another we will find reasonably intelligent things to do with most of the money but they won't be as intelligent as the things that we could find 30 or 40 years ago with much smaller amounts of money nowhere closer there's a few there right it just can't it won't happen what's the test what test does it have to meet it has to be a business i understand it has to be a company that i think has some kind of enduring competitive advantage it has to be a management that i like and trust and it has to be at a reasonably attractive price price is the least important but it's still important and you'd like to own all of it i'd like to but not necessarily but not necessarily that's a very small it's a small field it's a small field when you get to have as much money as we have it was a big field 30 or 40 years ago when i bought the washington post stock in 1973 and 74 there were hundreds of companies that met my test it was just a question of you know choosing deciding absolutely and the one you like the most yeah the combination you don't have any single candidate right now that's true that's why you see these tears in my eyes it is i mean tell me the emotional feeling i mean you know not many tears but there is a certain sense of it's happened before i mean i closed up my partnership in 69 because i didn't feel there were any opportunities then in what i was doing managing money and there weren't i mean it's at least for me and i you know in the year in in 1999 and 2000 in the in the general stock market there was certainly nothing attractive and we found some businesses then but it happens from time to time i mean i am not in a business where you can do something smart every day i'm not even in a business where you do something smart every year but i may be in a business where you can do something smart every three or four years yeah but i mean i read every day about one more big deal by by a group of private equity guys in the paper today right yes and they're using other people's money and they get an override and and and their calculus is not the same as my calculus and right now that enables them to pay way more tell me how their calculus is different well they they just it's it's money they get from somebody else that they get paid quite a bit of money on if they don't do anything and then they get a percentage of the upside and they don't take the downside i mean that is that is a different calculus than berkshire yeah you have the upside and the downside outside and the downside and i'm going to keep them forever and i'm not going to dress up the accounting or rearrange things a little and resell it not going to take a big fever doing it no so i don't have an exit strategy and i'm not getting paid just to sit with a whole bunch of other people's money you know it's my money we sat down again with warren on june 29 2006 after he had made some acquisitions since we last spoke with him let me talk about the future of berkshire hathaway right the last time we talked about the rise of berkshire hathaway you were sitting on give or take a billion dollars about 44 billion dollars you didn't find anything that you were very interested in making an investment since then you've made some investments yeah we've spent over 10 billion this year the one was this car one was this car which was 4 billion 80 we bought of a 5 billion business pacific corp was five and a fraction billion and we we're finding a few things the important thing is to find big things okay for you you have a unique size scale problem i'm looking for elephants [Laughter] but my question is did anything change between say 2004 and 2006 i mean because you don't look at the economy as much as you look at the business i only look at the business there's never been a business that i passed up that i liked because i had some view on the economy that maybe it'd be better next year there's never been one i've bought because i thought the economy was going to do particularly well this year you know i i i look at i look at a business we're going to hold it forever if i hold let's say i live 20 years that's pretty optimistic but let's just say i do you know in those 20 years there could be a lot of good years maybe a few bad years you know in the economy but what difference does it make i mean it's like playing 18 holes of golf there's some par threes and par fives and you know by the only way to get to clubhouse is to play them all yeah if you like golf you play them all i like business and and so we're going to play the tough years we're going to play the the easy years and if we got the right businesses and the right managers it's going to work i mean why couldn't you have seen iskar in 2004 because it was just that company nothing happened to them or nothing happened to you to make the investment in 2006 rather than 2004 except the ceo wrote you an email that's right never heard of the of 2004. that's the reason yeah okay very hard to do it if you haven't heard of the company and i never heard of i i'd never heard of anton wardheimer but he wrote me a letter yeah and i told the guy he's the ceo he's the ceo and the owner and his family and he wrote me in october of 2005 and he said he told me a page in a fraction of about the company and he said berkshire is a logical home for us and he said i'd like to talk to you so he came over from history and we talked but if he'd written me in 2004 we would have made the deal you would have been cheaper too but my point is understanding why you didn't see companies was nothing having to do with the economy nothing having to do with anything other than you just simply hadn't seen one yeah sometimes it's something that happens in a family you know there may be more people or they may owe taxes or who knows what i mean we buy when they're ready to buy it's ready to sell and i don't go out prospecting i i let my interest be known but i get a lot of people say well why don't you call on this person why aren't you calling that one and you know soften them up and then i don't do it because my batting average would be terrible just uh you've got to wait till they're ready to do something and that's when we hear about companies so they come to you when they're ready when they're ready my phone rings at this stage in your experience you know pretty quickly if it's right yeah but like about two minutes yeah i mean i read the letter from kathy i knew it was right i mean you can tell have you ever met girl charlie that you knew it was right i mean i don't want your pencil but there's something you know you know and you know that other people would like them but it's just not fair for you yeah they're just not exactly uh but but that has to do with i mean you you can see the numbers immediately you got to make an evaluation of the management how can you do that so quick you just have at this time in your life it's an instinctive no no yeah it's not going to always be right but it's usually going to be right one more time for the criteria it is in terms of an earnings that we're looking at 75 million pre-taxes 75 75 million you're looking at management you're looking at a simple business one i can understand which really being simple and and we're looking for management in place and we're looking for a seller that knows the price he wants for his business the seller must know yeah the price is it a hard negotiation or is it pretty quick i mean they know which very quick because they know that i mean if i like the price and if i if it meets the test i can say yes very fast i mean i it doesn't take any time really charlie you know there's others if i spent two years on them i wouldn't know the answer at the end of two years but i do know the difference between the ones that are taking two years the ones that take two minutes and you like the ones that take two minutes yeah and you don't go to some investment bank to do the due diligence no no if if i need them you know i need a doctor maybe to tell me about my health but if i need them to tell me about a business you know they ought to be running berkshire uh i did not i did not take money from 400 000 people to essentially start farming it out and ah and say well i lost your money but this guy i thought it was good it just happened he was wrong it's my job to know what i'm doing and if i don't know what i'm doing i don't do it well we've established that you know what you're doing no no not always coca-cola is one example your value the value of your holdings gone down by about eight billion dollars haven't they that's you hit it right on the button let's keep those quiet i mean does it ever you ever say man what am i doing here my my commitment to the end is no i don't i i i i looking back i made a mistake by not selling have sold time or something out but but no i don't i don't look i don't look back on things okay but let me just stay with that idea yeah so you look back and you say when it was eighty dollars a share should have sold it because that was at its top say or close to its top and fifty plus times the ranks right 50 times earnings but but it's not in your blood to want to sell no but i i do sell marketable security sometimes i don't sell businesses right but i i do something sure and this is a marketable security that was a marketable security as is american express as is yeah but i don't sell seized candy or the buffalo news for sure yeah i don't sell businesses so for when you're married to them for better or worse yeah i've got one section in the annual report and i put it in every year that if a business like that promises to lose money indefinitely or if they have major labor problems or something but just because uh just because i don't think it's going to do very well or i could use the money better elsewhere or because i get offered a crazy high price for something i don't sell them i got offered a crazy high price for something here recently that we own and i told the fellow to call me i said i don't do it you can look in the back of the report and you'll see i don't do it he said well i read it but i didn't believe it i believe it now he thought he could buy it and he thought he named a number to me that he and it was a good number it was a good number if i was trustee of a children's home and that was the only asset of the children's home and it was my responsibility simply to do get the best economic result for the children's home i would have had to sell it exactly since i last talked to you you have with the consent with the in concert with other members of the board have chosen the successor well what we have charlie is we have three that could do it and every meeting of the board we don't have very many meetings but every meeting the board that's the subject and the question is if something happens to me that night who do they put in charge so they always go away knowing what they would do the next day now there's there's there may be a pool of three but we have settled on one at at any time and and so if something happened to me tonight tomorrow morning the board of directors of berkshire uh would convene and they they would know exactly who they were going to to put in charge you will run berkshire as long as as long as i keep my marbles and you have somebody that'll come to tell you that you don't have them if necessary well i i yes i've assigned that job to my children i tell them i tell them they better all three come in together because if just one comes i'm cutting them out of the will [Laughter] you have said that you want to keep if you could find 30 billion dollars in acquisitions you're prepared to do that yeah you just keep in reserve 10 billion about 10 billion yeah why that breakup why that well i think i think that a company that writes the catastrophe insurance and all of that sort of thing that we do should have plenty of liquidity i mean i want i want berkshire always to be the rock of gibraltar i mean we we've got 400 000 shareholders we've got people who have workers compensation claims against us that are quadriplegics or they're going to be getting a check from us 60 years from now i've got no business fooling around with anything close to the to the solvency of berkshire so i i i will keep it way way over on the on the safe side in every respect and having a lot of money around you know when you're in the insurance business like we are i don't want to depend on letters of credit from banks or anything of the sort you know i don't want to know too big to fail doctrine to bail us out i really want to stand alien is the right number well is the insurance business still as attractive to you today as it was from the beginning it's always been a a business that sort of fits me i mean it it gives you the money first so it investment element is important it also is a business that where you know you're calculating odds on things and that's what you i guess i i was probably destined to be a bookmaker but my dad wouldn't like it you can calculate odds but i mean in the insurance business is is the increasing number of hurricanes the increasing number of terrorism is a fact of life today i think so no matter how you can write a policy against all those things i mean does it make it any less is it well you have to get the right you have to you have to calculate the odds right you got to get the right premium and you never know whether you've got the right premium i mean and you know over a lifetime whether overall you've gotten the right premiums for things but you lose on some policies and and other policies nothing happens and so you don't know in any given day or week or month whether you're doing the right thing but over over time you'll see whether your judgment has generally been right and it's it's an interesting game has the scandal affected at all no i wouldn't say so though all of the controversy about agi and aig well we're doing you know we do a lot of business i mean we've got a lot of different irons in the fire in the insurance business and we've got geico's auto insurance so we've got a lot of different insurance businesses and and uh no it'll be it'll it'll be the most important business at berkshire throughout my lifetime and probably a long time thereafter one thing you're doing is looking out to international companies is it for the first time no i've always been interested but we haven't been on the radar screen very much for entire businesses abroad people did not think of us in germany or the uk or you know until now israel if they had a business to sell now i've always looked at international stocks and we've always owned some international stocks tell me how you see the economy today well the economy still is pretty good as we sit and talk today at uh you know people they've taken lots of equity out of their uh or they've taken they've extracted the equity that's appreciated in their houses uh big time in the last few years and all that but if you looked at the economy right today you'd have to say it's pretty good now it we've got plenty of problems but they are not manifesting themselves in business today do you worry about inflation i worry some about inflation sure sure inflation inflation is never gone it's always in remission and and and you know it's it's very easy it belongs it never did but but it uh and it's something that is man-made and governments can create and and it oftentimes seems preferable to some alternative that's in the here and now so you have to worry about anytime you have governments you have to worry about inflation and what about oil prices well i'm no good on oil prices i mean you know we're using 84 million barrels a day or so in the world of oil and if something disrupts three or four million barrels a day of supply like something happening in iran perhaps you know the marginal barrel will go we'll go crazy we're on the edge yeah yeah we've got less reserve capacity by far than than we had 15 or 20 years ago when you think about the dollar i think the dollar over time will go down because i think we're following policies that uh in connection with trade that will cause the dollar i don't know whether it'll be in uh you know six months six years ten years but but the policies we're following as a country will cause the dollar in in my view to decline primarily our trade deficit our trade deficit right and the the flip side of our trade deficit is when we when we consume more than we produce we have to trade the rest of the world something for that and we give them our our assets we get myous of the government we give them dollars initially and then they can convert those into other other assets in this country so we're trading away assets in order to over consume as you said to me earlier we're giving away pieces of the farm yeah we'll give away pieces of the farm we want to we want to we want to consume more than we produce and so we trade away a little bit of the farm and we we've got such a big farm i mean it's you know this is one prosperous country but we so we we can trade away we don't see it day by day but it adds up and it has consequences more severe to you than the fiscal deficit that's true yeah fiscal our national debt in relation to gdp is not extraordinary i mean we've had plenty of times in the past when it's been higher particularly after world war ii and i don't like it when it keeps going up as a percentage of gdp but a very rich country can stand more debt than a poorer country and and and we can we can handle a lot more debt than in the past it now as that debt gets to be more and more owned by the rest of the world because of the of the trade deficit you know it it it can cause problems down the line but if you if you ask me whether i'd rather cure one or the other i would i would rather largely cure the trade deficit you accept the argument that countries like china are locked into this dance with us because they need our market so they're unlikely to dump american securities oh yeah they and if they want to sell american securities if they sell them to somebody united states they get dollars with them so they have to buy some something else with the dollars if they sell them to the french the french now have them you know and and the the chinese have got a claim on france but they can't get really get rid of them they can they can change their asset preference about the american assets they own but china can't get rid of american assets basically or the rest of the world can't unless we start uh exporting as much to them as as we're importing and that day is not going it's coming but there are people who will suggest that there may be some catastrophic day and we had that little tremor from the south koreans about a year ago there could be a catastrophic day i don't know the answer to that i mean i but any time you have huge imbalances in the world and you have lots of people on hair triggers trading currencies and stock and bonds you have the potential for catastrophic days back to the fiscal depths and your sense of where we are a lot of people look at the budget that they see today and they look 10 years out and they say with a baby boom generation coming in and social security and medicare you know that we are looking at a a huge problem downstream that either we got to raise taxes cut spending or change the age of the beneficiary yeah we have to change the promises i mean what a lot of what you see coming down the uh the road as really large looming problems revolve around promises and and uh we won't in my view ever change the promise on social security we may change it when you get into medicare or something of that sort no politician will suggest this no they wouldn't but this country has incredible resources it has more resources per capita than it had five or 10 or 20 years ago i mean we're not going backwards economically as a nation but we have made a lot of promises and we can we can have a very rich family charlie and our income could keep going up but if i promised you know the elder members of the family that they would you know all live like multi-millionaires we could get in trouble tomorrow a 60 billion dollar friendship how did it happen and what does it mean for the world

Channel: Investor Archive

Views: 29,858

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Id: PPyud17lHDc

Length: 51min 6sec (3066 seconds)

Published: Thu Nov 12 2020