Warren Buffet Curated

American Investor

CURATED BY :      +44 others

This profile has been added by users(CURATED) : Users who follow Warren Buffet have come together to curate all possible video, text and audio interview to showcase Warren Buffet's journey, experiences, achievements, advice, opinion in one place to inspire upcoming investors. All content is sourced via different platforms and have been given due credit.

  • Because you were comparing it to the tailwind of the hurricane at their back.

    Yeah, at their back. And they have found a way of life that is dramatically different than existed for the billion. There was a billion then, maybe a billion, two, or three, whatever it is now. They have changed a country, really, of size that, I don't think, there's ever been anything like it. We've done it, too, but it took somewhat longer. It was more stretched out. It was a remarkable period, but when you go to-- I first went there in 1995. And then, they regarded it as a miracle. Then I went back 10 years later, and it was a whole different country beyond that.

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  • In a good way.

    Absolutely.

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  • Yes. OK, and last question. China is facing its slowest growth in nearly three decades. The leadership there lowered the targets, I think, to around 6.5%, 6%. Are you concerned about this slowing growth and the impact on global markets?

    Well, I don't worry about it in terms of global markets. China is going to grow a lot over time. When you think of what's happened-- was it in 1949-- but there's been nothing really like it. You had 20% of the world's population at that time perhaps, and it really hadn't remotely achieved their potential. They had intellectual capacity. They had decent soil, all kinds of things. And what's happened there is almost beyond belief. And that game's not over, but we've had incredible developments in the United States. Real GDP per capita is six times what it was the day I was born in the United States-- six times. And we thought we were a pretty evolved country then and everything. My parents wouldn't have believe it. They would have thought, this kid has really got it made being born in the United States. And it was true. We had this tailwind, and China's had a hurricane behind it in recent decades.

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  • Exactly.

    We call them credit cards.

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  • I'm living it.

    Right.

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  • Right. The US trade deficit has been widening and, of course, a lot of that has to do with our trade with China. Is that something that worries you?

    Well, I wrote an article about it for "Fortune" and the trade situation many years ago and when our deficit got to be large in relation to GDP. I don't think it's essential to have a trade balance. But I think that, if a trade deficit gets large, and it looks like you have no way out from it, that can be a real problem over time. You're shipping little pieces of paper to the rest of the world, and they're shipping you goods. People are working making underwear or shoes someplace, and they get little pieces of paper from us. And it gets very tempting, if you've done that enough, to make sure that those little pieces of paper aren't worth very much over time when they want to cash them for something. We don't have any problem running trade deficits. But if we ran really large ones, and we sort of worked ourselves into a box, where we didn't really have a solution to get those numbers down, it could be a problem. And I wrote about it one time. It's kind of a nice thing, actually. Wouldn't you like to have something where you just send out little pieces of paper, and somebody could supply you with their food?

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  • DYD, yeah.

    DYD was Charlie's. But Charlie's very well-versed on China.

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  • Those are?

    Well, PetroChina and DYD.

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  • It's out there.

    I'm open. Yeah. We made two decent-sized stock acquisitions there, and that worked out fine.

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  • No?

    No.

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  • It seems like you're more open about doing a deal in China than in previous conversations.

    I don't think so.

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  • On the flip side of the coin, are you concerned that the rule of law is different, that the accounting might be opaque?

    Well, I'd want to be sure I understood the accounting, obviously. In some businesses, that'd be easier to do than others. But I know the laws, the customs, the accounting, the people better in the United States than any place else. So there's some small hurdle in many countries to get over, which I can get over, but it's just not as easy as looking at something where I already know the answer from previous transactions or something of the sort. So it it's easier to make a big acquisition in the United States. I'd have to do more work if I'm looking beyond the borders. But I love the idea of doing it. When we made the acquisition in Israel a dozen years ago, I didn't know what the tax rates were there. I didn't know what corporate law. I suspected that it would all be answered satisfactorily, which it was. But I didn't just automatically know it.

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  • Have you looked?

    We've been made aware of some things, yeah.

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  • Right. Right. Would you ever make a big acquisition in China. And if not, aren't you missing a huge portion of--

    Yeah, the answer is, we would. We would.

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  • Here's a question from Kevin Chen, who is a Berkshire shareholder and an NYU professor. And he says-- and this is sort of along the lines of what you were just saying, Warren-- but do you think the US and China will be able to resolve their differences or are conflicts unavoidable?

    Well, I don't think conflicts are unavoidable. But I think it has to be active thinking on the part of every hugely-powerful country. Russia is hugely-powerful. I mean, 90% of the nuclear arms in the world are between US and Russia. They have to recognize that the best world for them is one where they don't try and grab all the apples, basically, and we have to recognize that. And we can't-- the United States-- we can't think that either our ideas run the world, or we start getting aggressive about things. And China can't think that. Russia can't think that. That's obvious. You've got to be sure things don't escalate. We had World War I with an Archduke. You can get chance incidents. I asked one of the presidents one time in terms of what he would do if awakened in the middle of the night with somebody coming to him and saying, absolutely somebody else has launched. Would you launch on that? And you've got 10 minutes to decide. I wouldn't want to have that responsibility. But you want to make sure you don't get to that point.

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  • Fair enough. I mean, do you think there was room for improvement, then, in terms of the trade relationship between China and the United States?

    Well, I think that China and the United States absolutely are destined to be the superpowers beyond my great-grandchildren lives and will always be competitors and will be competitors in business. We'll be competitors in ideas, all kinds of ways. There's no other way it would be, and we just have to make sure that competition doesn't get us to a point where we don't realize that the best world is one in which both the United States and China prosper. We do not want to have an island of prosperity and the rest of the world envious of us in a nuclear age. And China doesn't. Russia doesn't. I mean, we all recognize the dangers of letting competition get out of control. You can be competitors without being enemies. And that's what all powerful nations have to realize over time. It's different than 200 years ago when you could have some dominant country, and then they may have done some things that you didn't like. But it didn't threaten the existence of the world. You really threatened the existence of the world as we know it if important countries do not constantly recognize that they can compete, they can fight over certain things, but they can't regard it as, essentially, the equivalent of war.

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  • So let's talk about this trade war that's been going on a little bit with China. And, I guess, I'd like to ask you, do you think that Donald Trump was right in calling out the Chinese government and, basically, putting them on notice?

    I won't have any comment on that. In terms of political activity, I don't put my citizenship in a blind trust. So when the election comes around, I'll do something. On the other hand, people will interpret things I say about any president as, to some extent, coming from Berkshire. And they and they don't come from Berkshire. I'm just an individual. I'd be glad to talk about China, but I can't talk to you about that part of it.

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  • Have you talked to Elon ever?

    He joined the Giving Pledge, so once or twice, but that's a lot of years ago, seven or eight years ago. He hasn't come to our annual gathering, so I haven't seen him for seven or eight years.

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  • I don't know if you've following this, Warren, but what do you think of Elon Musk's behavior as a CEO?

    Well, I think it has room for improvement. [CHUCKLING] And he would say the same thing. It's just, some people have a talent for interesting quotes, and others have a little bit more of a blocker up there that says, this could get me in a problem. But he's a remarkable guy. I just don't see the necessity to communicate. I think I've got seven tweets, because a friend of mine signed me up for it. And she's called me about 100 times saying, can I tweet this or that? I said yes to her seven times, I guess, or something like that. I've never actually written one myself. I don't even know how to do it.

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  • You've talked about technology advancing faster than our ability to understand it. And I'm wondering if social media, and Facebook, and Google, and Russian trolls coming in, is that maybe an example of that? Are you still worried about that problem?

    Well, I think cyber poses real risks to humanity. Forgetting about the problem even of misinformation. I'm just thinking of we have railroads running over 22,000 miles of track. And some of them are carrying ammonia. And some of them are carrying chlorine and things. We have to carry them. We have no choice about that. We're required by law to carry them. I would rather do that in a non-cyber world than a cyber world. There are all kinds of things-- the problem by something like cyber is that it's moving, and it's just unpredictable whether you'll get some crazy guy, like stuck the anthrax in the-- you know, what they can do becomes magnified. You saw what 19 guys did on 9/11. Tools in the hands or potentially in the hands of either crazy individuals, crazy groups, or even a few crazy governments are really something. And we don't necessarily know what all the tools they have are, and that is moving all the time. Again, Einstein said, I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones. It's a dangerous world.

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  • Does it change modeling or something in the business?

    It would change our insurance business if we were writing 20-year policies. If there was something that changed life mortality adversely to the interests of a life insurance company, you're stuck with a policy for 20 years if you write the life insurance policy. You'll keep paying your premiums if it's adverse to me. That's what's happened in long-term care insurance, for example. But when you write a policy for one year at a time, see what the developments are. Cars, for example, are much safer to drive than they used to be. There used to be 15 deaths per 100 million miles driven. Now, there's a little over one. On the other hand, they've become much more expensive to fix. That little side view mirror, which used to cost 10 bucks, is now 1,000 bucks or something like that. So you have things that are changing in terms of, if you're writing collision insurance, you've got to allow for the fact that the windshield, the bumper, all kinds of things, the side view mirror and all that are way more expensive. But if you're writing liability, people aren't going to die as often. Climate has been changing. But the truth is that you now can buy really big catastrophe limits cheaper than you could buy them in 2005 or thereabouts, allowing for changes in the dollar and concentration of population. So far, rates have come down. That's the reason we've gotten out of the cab business to a great degree. We were a very big writer of cab business 10 or 12 years ago. We aren't out of the cab business because of climate change. We're because the prices aren't right. And the world will change, and that's got very serious consequences. But it won't change that much from year to year. We've done very well during a period of some climate change.

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  • Is climate change changing your insurance businesses?

    No, it doesn't change the insurance business.

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  • The Church of Berkshire. Seems like you've got a big weighting in financials. And of course, you finally invested in Jamie Dimon's company. Why banks right now?

    They're businesses I understand, and I like the price at which they're selling relative to their future prospects. I think, 10 years from now, that they'll be worth more money. And I feel there's a very high probability I'm right. And I don't think they will turn out to be the best investments at all of the whole panoply of things you could do. But I'm pretty sure that they won't disappoint me.

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  • Your own investors.

    Yeah. Well, that's important. To go back to when I started my partnership in 1956 that Berkshire came out of, there were seven people sitting there at a table having dinner, relatives primarily. And I said, here's the partnership agreement. It's done under Nebraska law. It's four or five pages. You don't need to read it. But I said, here's a little half page, what I call the ground rules. And I want you to read these, and if you feel OK about that-- about the interaction, what the expectations are, and all of that sort of thing-- then we'll join forces. And if you don't, it's fine. We shouldn't be partners. If I'm going to have a partnership with somebody, I want to be compatible. And when you have a public company, you can't control who comes in. I can't control some guy comes in and thinks we were going to pay big dividends or split the stock or something like that. So by my actions and my communications and everything, I want to attract the people from the public market that I want, and I want to keep the others away. Costco was built-- Sal Price, who started the Price Club, I think, he sat down and figured out the customer he didn't want. And he set up a system that would keep away the customer he didn't want. Who did he not want? He didn't want somebody buying a quart of milk with somebody behind him with a basket of $200 worth of goods waiting for that. So he put in a membership fee. And by putting in a membership fee, he killed all the drop-in business, the business that belonged to the 7-Eleven. We want Berkshire to keep out people who have expectations about us that are different than ours. Good for them, and I hope they find somebody they fit. But if you're going to run a church, you want your seats to be filled by people that generally want to listen to your form of religion. And you don't want it to change every week and say, gee, I need a new group. And I'll go out and talk to a bunch of investors and get them to come to my church next Sunday. Because there's only so many seats in the church. There's a 1,645,000 or so A-equivalent shares. And those are the seats, and I want them occupied by people that are on the same page I am.

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  • Another one-- UBS survey of Berkshire investors says, the five most important things to them are succession, investment performance, M&A opportunities, share repurchase, insurance margins. Do you read that? Does that surprise you?

    No, but I don't disagree with that. Somebody understands this.

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  • Right. OK. So Barclays put out a note. They said they were lowering the estimates for Berkshire for EPS. Do you read that stuff?

    No. Well, I mean, I may read it accidentally, but I don't seek it out to read. I'll put it that way. It just doesn't make any difference. If I spent time reading that, I wouldn't have the time to read 10Ks. And we're not going to do anything different. I don't know what we're going to earn. As I put in the annual report-- and I really think this is unique-- we do not prepare financial statements monthly for Berkshire. There's just no other company that would do it. But there's no sense doing it. I know where the money is. I know how the companies are doing, generally, but what difference does it make? Because I'm not going to try and hit any number for the quarter by having a sale on insurance or doing something even worse. And Charlie, he knows where we stand. And we know what businesses are doing well and which aren't. We certainly know where the money is.

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  • Yeah, and you said, you didn't understand it. That's why you sold. But than why'd you get it in the first place?

    Well, that's a good question to which I do not have a good answer. I know enough about the cloud to know I don't know enough about the cloud.

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  • Was one of those-- you made this investment in Oracle, and you sold it. Was that something they did?

    No, that was not something they did. That was something I did.

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  • And Todd and Ted? I didn't see them mentioned.

    Well, they have $13 billion each, including pension funds, our pension funds, that they run. So the $173 billion we had at year end in equities-- well, we had 173, but we had another $8 billion in pension funds. So of the 180 or so, they had 26 between them that they're managing. They got total discretion on that. They don't ask me. At the month end, I look and see what they did. They don't do much. They don't do a lot of trading or anything. But I look to see what changes they made. Todd, for example, he made a couple of small investments in private-placement-type operations. And I know what the businesses do, but I can't tell you their names.

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  • But they're not exactly like you two guys?

    No, Charlie and I have a partnership thinking about the whole place, and we've done it forever now, and we still do.

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  • You talked about Ajit Jain and Greg Abel saying that Berkshire blood flows through their veins. Have they made a difference since they become vice chairs? And then are they like Warren and Charlie?

    No, they don't have the interaction. They each run a separate business. Ajit does not think about the other businesses. He thinks about the insurance business. And Greg does not think about the insurance business at all. And I think about the money and the capital and so on. They're running two very big businesses. I mean, Ajit's business has, all told, a couple of hundred billion of assets. And Greg's business has $150 billion of revenues. They both would fit up there toward the top 10 or so in the country in terms of value, maybe the top 15. But they're very big businesses.

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  • You talked a lot about the tax cuts and the benefits to Berkshire. You didn't really get into the costs of the tax cut, which surprised me a little bit. Are there costs? I mean, is it just free money?

    Well, it makes a difference. The tax cut we get, for example, our utilities, as I mentioned in the report, that goes to the customers. That's just the nature of utility regulation. But net, we were a significant beneficiary from the tax cut. Basically, let's just say we had one class of stock. We got two. You and I own a business together, and we think we own all the stock. But the truth is, before the tax cut, the government had a 35% share of the stock on income. Now they didn't have a share of the assets, but they had a share of the income. And if it wanted to change it to 40, it could've changed it. But fortunately, it changed it to 21. And if we had a private business, if we had a McDonald's franchise together or an auto dealership together-- the third shareholder-- that invisible shareholder, the government-- just handed us back a bunch of the shares of stock. And our shareholders benefited, and a lot of other shareholder benefited.

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  • Did you ever try to calculate that? How much is that?

    Well, that depends on circumstances. There's some times when the float from insurers can be very valuable. There are some times when the ability to use production tax credits will stay in the utility business, but have been on as part of our consolidated return, helps. But that varies a lot. But it is a plus, and we can move capital. Take a business like See's Candy, which we bought 40-odd years ago. It's a wonderful little business. It's put us out of capital. We've tried 50 different ways to expand geographically, do all kinds of things. Doesn't work. And we'll try it again, and it won't work. But we can move that capital to help buy BNSF Railroad or do all kinds of other things. So we've got a seamless and tax-efficient way of moving capital where it's needed. And we've got some companies that really chew up capital, and we've got others that kick it off. And we can move it from one spot-- If you try to do that with your investments, you'll incur some taxes as you go along doing it. It's less efficient than what we've gotten.

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  • You say that the sum of Berkshire has a greater valuation than the parts.

    That is true.

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  • Yeah. Is it is it the case that those are sort of not the healthiest grove of trees? And why would that be?

    No, Pilot Flying J is very-- there are companies that, under GAAP accounting, we have the record under equity method. We own more than 20%, but we don't control them. So it's treated under GAAP accounting as a special category. It didn't fit well in the other grove, so I had to make it a separate grove by itself. It's not that significant a grove.

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  • You talked about the groves of trees in the letters shareholder. One was the third grove, which was sort of the in-between stakes.

    Yeah, the equity interests.

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  • Larry Culp?

    The Danaher. Yeah, Larry Culp at the Danaher is a good sell, and, I think, his priorities are straight. And, I think, he's a very able guy, and he's on the right track. And I'm a I'm a fan of GE's in the sense that we're a big buyer from them. We're a big seller to them. I know them, the managers. Jack Welch is a very good friend of mine. We don't agree on politics 100%, but we have a lot of fun together, and I love the guy. So I've got a great desire for GE to do well. It just hasn't looked that attractive to me.

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  • That's interesting. How have you avoided not getting back into GE more recently? I mean, I'm sure that they've reached out to. Everyone says, why doesn't Warren Buffett invest in GE, and save it, and take it to the promised land? It's this great American company.

    Well, actually, I think Larry is actually doing a good job.

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  • Yeah, but not like you do, I think. That's great. OK, so one company you invested in was GE, and you did well with that investment.

    Yeah, I was too early, actually. If you look back, I was very active in the last half of September and early October. And then I wrote that article in later October. And I knew it was going to get bad. I wrote in the article, it was going to get bad. But I didn't think the stock market would react as much as it did between then and March. So I had, more or less, used up our powder well before the bottom was hit.

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  • Do you just remember these things and apply them?

    Well, if you're 88 years old, I mean, you ought to remember something. You don't remember what happened yesterday, but you remember the old stuff. You've got a lot of interesting quotations in your head.

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  • Shifting gears, where do you find things like that Abe Lincoln tail-and-leg quotes? Do you read Bartlett's book of quotations--

    No, I don't read, but probably 50 years ago, I looked at a few Bartlett's quotations. But I read a lot and--

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  • Will he be talking to health insurers, for instance?

    He'll be talking to everybody. His game plan is not something we're going to try and lay out, because it's in his head, to some degree. I mean, obviously, we selected him by hearing, and reading, and so on what he's done. But he'll learn as we go. We will conduct certain experiments, or he will, and try out a community, where one of us has a lot of employees maybe. There are various ways to experiment.

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  • Is the administration focusing-- by focusing on drug prices, is that sort of a rabbit hole? Is that missing the bigger picture?

    They're trying. And Congress, generally-- I mean, you talk to the average congressmen-- they regard it as a problem. And they see specific instances of drug prices or something like that. It's a big problem to change. The problem is, it intersects in so many ways. And that's why we've got Gawande heading it, and We've got three bigger-sized organizations backing him. We're not trying to do it to make money. That is not a goal that we end up with some business that we make money off of.

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  • What is the plan?

    The plan is to support a very, very, very good thinker on this subject, who is a practicing physician and who commands the respect of the medical community, to, in effect, figure out some way, so that we can deliver even better care and have people feel better about their care, too. They have to perceive that they're receiving better care over time and stop the march upward of costs relative to the country's output. We've got this incredible economic machine, but we shouldn't be spending 18% when other countries are doing something pretty comparable in terms of doctors per capita, hospital beds per capita, and all that. The very top stuff in medicine, I think, is very much concentrated in this country, and that's great. I want us to be the leader, but I think we're paying a price. If we're paying seven extra points of GDP, that's $1.4 trillion a year.

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  • Does Haven have to buy companies to gain expertise? What do you--

    No.

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  • How often do you talk to Jamie and Jeff about it? I know Todd Combs, I think, is your point person.

    Todd really does all the work. If this works, give Todd 100% of the credit from the Berkshire standpoint.

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  • Right. Why don't we do an update about the Health Care Initiative, which now, the company has a name-- Haven. Was that your idea?

    No. I didn't worry about a name. We could've gone on as a no-name operation for 10 years, as far as I'm concerned. We've got a wonderful partnership in the sense that it's large and has reasonable market muscle, with more than a million employees among the three of us. We've got three CEOs that can make things get done and organizations that so are so big that normally, they wouldn't get very bureaucratic. If you tried to do this with many big companies, you'd have legal weighing in and public relations weighing in. We don't have any of that stuff. They may have them in certain areas, but Jamie hasn't got to worry about doing that sort of thing and neither does Jeff. So we've got a unity of commitment and an ability to execute on the commitment. The only problem is, you've got a $3.4 trillion dollar industry, which is as much as the federal government raises every year, that, basically, feels pretty good about the system. As we went around talking to people to find a leader for the group, for example, everybody says, the system, it turns out very good medicine. But you can't go from 5% of GDP to 18% without really making you less competitive, among other things, in the world. So everybody thought the system needed some adjustment, just not their part of the system. And that's very human. I'd do the same thing, I'm sure, if I was in the same place. So there's enormous resistance to change, while a similar acknowledgment the change will be needed. And, of course, if the private sector doesn't supply that over a period of time, people will say, then, we give up. We've got to turn this over to government, which will probably be even worse.

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  • I mean, if we don't do that, and the Democrats win, it's possible we get big taxes on wealthy people, free college for all. And those are bigger plans.

    You want more money in the pockets of everybody that's willing to work or is unable to work. And we can do it. A rich family would do that. If I had six or seven kids, and I had some business I wanted to pass on, you'd pick the most able person to run it, because that's the market system to do that. But you'd make sure that all seven of the family participated. You might give more to the one that kept producing the golden egg. You would. But you wouldn't just say to the one at the lowest end, who might be the best kid of all in most respects-- he's the one that shares with everybody and does all kinds of that-- you wouldn't say to him or her, too bad. That's just the way the market system works. Have your spouse get a job and look for housing someplace.

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  • OK, fair enough. Income inequality, wealth inequality-- you've talked about the Earned Income Tax Credit. Is there more to it than that? Should we adjust tax policy? It seems to be going the other way right now.

    Well, it was going the other way. But I think, the Earned Income Tax Credit is the best way to put money in the pockets of people that don't fit well into the market system, but that are perfectly decent citizens and that have made a good bit of the success, something like I've had with Berkshire or something possible. It wouldn't have happened without the America we have. And if you go back 200 years, and 80% of us are working on farms, the person that's the best at that-- working on that farm, whoever it may be-- is worth maybe twice the ones that's the worst. I mean, that's the difference between super-talent and no talent in the farm economy-- picking cotton or whatever it may be. Now, if you're the best middleweight fighter in the world, you may get $20 or $30 million. And if you are just a good citizen, raised nice kids, helping the neighborhood and everything else, but you don't have market-related skills, you'd be good on that farm still. And you would be earning something comparable to most of the people around you. But you don't have something out as it gets more and more specialized. And it's going to continue to get more specialized. You want two things for that person. You want them to have a decent life. They live in a country with $60,000 of GDP per person. You want them to have a decent life, and they can. I also think you want them to have a feeling of accomplishment. So you want them to have a job, assuming that they're not handicapped in some way. You want them to have a job. But the minimum wage would be one way to say, well, we'll make sure that they have enough in their pocket. But that's got a lot of effects in disturbing the market system. They just need more cash. They don't need a higher wage. They need more cash in their pocket. And the government, at relatively low cost, can provide a decent living for any that's living, that's working 40 hours a week and has a couple of children. And we've gone in that direction, and it's sort of bipartisan. And I find both Republicans and Democrats for it. I think it would be better not to have one annual payment, that they get it monthly. I think there are various things you could do. But you want them to feel part of the system, and as more and more of these golden eggs are laid, you want them to get a little bit more of their share.

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  • All right, well let me switch gears then and ask you about leverage a little bit. Corporate debt people are concerned about, people are concerned about federal debt at $22 trillion dollars. Should we reduce, let's just say, the federal debt and how would we do that?

    Well, if you're running a deficit getting close to 5% when things are really good, that's a new world. Neither the Republicans or Democrats are particularly concerned about it, and we're not having a lot of inflation. That wasn't supposed to happen, but it's happening. That's why I say, you don't want to get hung up on trying to make economic analysis, because nobody is any good at-- you don't get rich doing that. If you look at-- you mentioned that Forbes list, if you get out the list, the number of people that have done that by economic analysis, I think, are just about zilch on there.

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  • You mentioned Amazon as a game-changer. And I have to ask you, you haven't bought the stock. You're an admirer of Jeff Bezos. A listing of the richest people in America came out. He's number one. I think, your friend, Bill Gates, is number two. You're number three. So you can see what he's done in myriad ways. And, of course, the question is, how come you haven't bought Amazon? Is there still time to buy? Would you still buy?

    I always admired Jeff. I met him 20 years ago or so, and I thought he was something special. But I didn't realize you could go from books to what's happened there. He had a vision and executed it in an incredible way-- something that would not have-- But there's a lot of games I've missed. I would've missed Microsoft, even if I'd gotten to know Bill earlier or something. Those just aren't my games. I don't worry about the things that I miss that are outside my circle of competence of evaluating. I have missed things that were within my circle, and that's a terrible mistake. Those are my biggest mistakes. You haven't seen them. It's not a mistake because I missed Netscape or something like that at all. I would say that maybe 5% of the companies or 10% of the companies, at most, are within an area of my circle of competence, there's something I should be able to understand.

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  • First Walmart, and then--

    Yeah, Walmart. But it's been accentuated, I think. We have a new retailing environment now. It isn't like it goes from night to day, but it moves somewhat. And brands that people spent billions of dollars developing and sponsoring TV shows or sponsoring radio shows in the old days-- Campbell's soup was always on there with Jack Benny or something when I was a kid, and it was big. And adult brands, and people obviously like the product, too. But people are more willing to change, and it's a somewhat different world than what-- it is night and day. You're very unlikely to keep changing brands everyday. But it really surprised me that Gillette lost position. Men don't like to experiment much. Women are better at experimenting. When you were a kid, Gillette cavalcade of sports was your pal, and brought you the Rose Bowl and the World Series, and all that sort of thing. You just shaved with Gillette the rest of your life. And you still do to a great degree. But it's not exactly the same as it was, even five years ago or so, when we bought Kraft.

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  • A few questions about Kraft Heinz. Was that a mistake?

    We'll find out over time. But we did pay too much, in my view, for Kraft. We didn't pay too much for Heinz. So when we started out, it was originally a non-public partnership between us. And we did pay too much, in my view, for Kraft. There's not much you can do about things if you pay too much. And secondly, there's always been a struggle between the retailer and brands. If I've got a terribly weak brand, and I want to get into Walmart, I'm not to be able to do it. I'd have to offer all kinds of crazy concessions, you know? And I want to be in Walmart if I have some sort of consumer-packaged goods. The negotiation is way different if you have something essential versus nonessential. 10 years ago, Costco tried to get rid of Coca-Cola. Costco's got terrific loyalty among customers, and their own Kirkland brand is a $39 billion brand now. And it moves from category to category, and they only started in 1992. So they know brands. But in the end, they put Coca-Cola back in. If had been Royal Crown Cola, they wouldn't have had to put it back in. So there's always that struggle between the brands, and there always will be. But the retailers net has been moving in their direction, particularly, I think, because of the Amazon revolution.

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  • That's great that that's the question you ask the presidential candidates or presidents that you would speak to.

    If I really want to get-- and that's why Bernie Sanders was so successful. 90% of the people who voted for Bernie Sanders had probably not heard of him two years earlier. They felt they knew exactly what he would do. They felt he was authentic. And if you asked him what he was for that most people might be against, he would tell you.

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  • Would you ever talk to a candidate and say, hey, what do you think about these three things?

    Well, they'll tell me what I want to hear in most cases. So I want to hear what they tell people who disagree with them on the subject. I always like to ask a candidate-- they usually finesse me somewhere-- but I say, what are you for that the majority of your followers are against? I know you really believe in that, and that's really the test. But I'm not sure that, except under some kind of sodium pentothal or something you're gonna get a great answer to that question.

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  • President Trump was a business executive. So two questions. Is a business executive the right kind of person to be president? And what characteristics do you look for for a president that you would support?

    Well, I think a business executive can be the right person. But I don't think that because they're a business executive that you give them extra points. Number one, I want a president that wakes up every morning and realizes that the greatest threat to a country which has got all kinds of things going for it are weapons of mass destruction, and that we live in a world where people, organizations, and, occasionally, countries could have people that would like to wipe out a large percentage of the American people or maybe other countries as well. And that you now have capabilities, which I always thought, until recently, I'd classify as nuclear, chemical, and biological. But I think, you have to add cyber now. If you have some evil genius someplace that, for crazy reasons, just like what happened with anthrax back-- who knows what motivates somebody that starts sending anthrax in letters-- if you have somebody that thinks it'd be great to send a false alarm to the Russians and to the US that the other side was launching or something of the sort-- it's a very, very dangerous world. It's a wonderful world, but it has dangers now that started in August of 1945 when Einstein said, you know, this changes everything in the world, except how men think. So I want a president that has that same fella that all of these other things are important. But protecting the country and reducing the chance of successful use of weapons of mass destruction against us is the number one job. And I think most of the presidents-- I've talked to a couple of them about it over the years, and I really think that they do realize it. They may get lost in the events of every day as they go along. And then beyond that, I want a president that has two objectives with the economy. One is to make sure that this marvelous goose we have keeps laying more golden eggs. And then I want a president that also feels that if GDP is $60,000 per capita in the United States, that nobody should get left behind. We've got a market system that works marvelously in turning out more goods and services, better ones year after year, done it all through my life.

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  • He'll have your vote and a few others. That's funny.

    But I admire him enormously. I wish he had run. I want to be very clear on that.

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  • The 2020 election is going to be upon us before we know it. And I know that you had some nice things to say about Mike Bloomberg, but it appears he is not going to be running now.

    Yeah, it's hard to win with just the billionaire vote.

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  • Should the government tell companies when to do it or, at least, mandate conditions where they can?

    Well, they do restrict you a little in terms of some general rule of the SEC, if you're having some kind of-- this isn't quite the right word, but-- manipulative activity or anything like that in the stock. But no, I don't think the government should decide your dividend policy. I don't even think they should direct your capital investments. They can make it enticing to make certain kinds of capital investments, which they do with renewable energy, for example. I mean, the government has interest in fostering certain developments in this country over time. There used to be a special oil depletion allowance 50 years ago and so on. That was more politics than it was governmental policy. But certainly, renewables are a prime example of that. But the idea of directing whether you are entitled to return cash to shareholders and the manner in which you do it, I don't think, really makes a lot of sense.

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  • So just continuing about buybacks, Senator Schumers and Sanders want the government to weigh in to sort of legislate when companies can do buybacks. And then also, there was a report recently about executives doing insider trading, it appears, around the times of buyback. So are buybacks kind of a problem?

    Well, you'll have some people that misbehave irrespective of any activity. That really wouldn't have much to do with buybacks. I think, buybacks, the degree to which they've been part of nefarious activity that I've observed and put a lot of years in are very close to zero. But that just may be that there aren't enough opportunities. But that article did not-- I didn't follow the conclusion on it. You're distributing money to shareholders, essentially. You can do it by dividends and presumably, American business should distribute money to its owners occasionally. We do it through buybacks. We've done some, and we don't do it through dividends. But most companies do it through having a dividend policy. And then if they have money beyond the needs of the business, then, I think, if their stock is underpriced, then it makes nothing but sense.

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  • In my mind, I'd be wary of that for just that reason.

    You should be, yeah. If you want $600,000, you'll say come back tomorrow.

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  • At that point, it'll be more like a 2009 rather than just December of this pay season?

    Yeah, exactly. If you and I own a McDonald's franchise together, and it's worth a million dollars, and you own 50% of it, and you come to me and you say, I'll sell out for $400,000, I'll buy you out.

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  • So it obviously was at that point?

    Well, we thought so, yeah. But what's really intriguing is when it goes down a lot. I mean, when you're buying dollar bills for $0.60 or $0.70, which, periodically, you get a chance to do it in stocks, then yeah, assuming you've the cash, whenever it gets so that some surprise could really take you out in some way. But if we've got excess cash, we'll buy it as fast as we can.

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  • Let's switch over to talk about buybacks, which is another hot topic these days. And you did a fair amount. If you look in the annual report, you can see that between December 13 and 24, it looks like you guys bought back about $233 million worth of Berkshire, which was right near that particular stock market bottom. How did you know that? What was going through your mind?

    If I knew, I'd had bought a lot more than 200. That's not a big purchase for us, actually. We will buy Berkshire when we have lots of excess cash, all the needs of the business are taken care of. We spent $14 billion on property, plant, and equipment last year, way more than depreciation. So we take care of the needs of the business, then we have excess cash. We'd love to do is find other businesses to buy, but if I think the stock and my partner, Charlie Munger, think the stock is selling below intrinsic business value, we will buy in stock.

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  • And so Apple's kind of like a farm.

    Well, it's a long-term investment. If you owned the best auto dealership in town, the best brand, and had somebody good running it, you wouldn't drop by every day and say, you know, how many people have come in today? Or, I think, interest rates are going up a little. Maybe we ought to slow down our sales. No, you buy it knowing there's 365 days a year. You're going to own it for 20 years. So that's 7,300 days. Things are going to be different from day to day and year to year. You shouldn't buy it if the day-to-day stuff is important.

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  • Really?

    No. If you buy a business-- if you buy a farm, do you go up and look every couple of weeks to see how far the corn is up? And do you worry too much about whether somebody says this is going to be a year of low prices because exports are being affected or anything like that? You buy a farm, and you hold it for-- I've got one farm that I bought in the 1980s. And my son runs it. But I've been there once. It doesn't grow faster if I go and stare at it. I can't cheer for it, more effort, more effort, or something like that. And I know there's going to be some years when prices are going to be good and some when the prices aren't going to be good. I know there's years when yields will be better than others. But I bought the farm. And it just doesn't-- I don't care about economic predictions or anything of the sort. I do care that over the years it's well tended to in terms of rotating crops. And I hope yields get better, which they generally have. In fact, that farm 100 years ago would have probably produced 30 bushels, maybe 35 bushels of corn per acre. Now on a good year, it'd be 200. We've really made progress in this country. That's one reason commodity prices, go back a couple hundred years, they've moved so little is because we've just gotten better and better at whether it's cotton or whether it's corn or soybeans or all kinds of things. And you and I have benefited from that.

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  • Let's talk a little bit about Apple. Everyone always wants to talk about Apple, right? It's kind of the it stock, it company. You have a $45 billion stake, more or less. How closely do you follow the company? People are concerned they haven't really introduced any new products.

    Well, if you have to closely follow a company, you shouldn't own it.

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  • So you can be more cash-free than Berkshire is.

    Yeah. Yeah, I've got responsibil-- we've got insurance claims. We could have hurricanes that would happen, all kinds of things, where you might have to pay out billions of dollars. And I've got over a million people that own shares that are counting on me to run the place, so we get through periods like that. But if I were retired, I had a-- say, a million dollar portfolio of stocks that was paying me $30,000 a year in dividends or something of the sort, and my children were grown, the house was paid off and everything, I wouldn't worry too much about having a lot of cash around.

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  • Maybe you do! Berkshire has over $100 billion in cash. And you say that you always want this company to be a fortress. So how much cash should an ordinary investor have on a percentage basis, do you think?

    It depends on their personal situation. If you're working in something where you're living off your paycheck from week to week, you want to have a little cash around, and you certainly don't want have a credit card that's maxed out or anything like that. But if your house is paid off, if you don't have big living expenses, you got a portfolio of decent diversified businesses, you don't really need any cash.

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  • Berkshire. Not you. Well, I'm gonna see how much you got.

    Yeah!

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  • Fair enough. You have over $100 billion of cash at Berkshire.

    Berkshire does.

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  • All right, so you don't pay much attention to the dismal scientists then, I guess.

    Well, I pay none in the sense of as a guideline to doing anything. It's entertainment. It's like going to a variety show or something like that. But I just don't know of any economist that actually has bought businesses successfully or done well in stocks. Paul Samuelson did. And as you may know, he was a big shareholder at Berkshire. But it's-- they make guesses. And there's so many variables. In the hard sciences, you know that if an apple falls from a tree that it isn't going to change over the centuries because of anything or political developments or 400 other variables that go in. But when you get into economics, there's so many variables. And the truth is you've got to expect good times and bad times in business. And if you were to buy an auto dealership wherever you live locally or a McDonald's franchise or anything like that, you wouldn't try and time the purchase. You'd try and make the right purchase at the right price, and you'd want to be sure you got a good business, but you wouldn't say, I'm going to buy it because growth this year is going to be 3% instead of 2.8% or something of the sort.

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  • But are you surprised at how long this economy has been expanding?

    I've been surprised by all kinds of things in the last 10 years about the economy. I don't think there was any economist I've ever read that talked about negative interest rates for long periods of time. If you go back and read Keynes, or you read Samuelson, you read any of them, they do not get into a negative rate environment. I think now there's still $11 trillion that's-- of government debt around the world that's at a negative rate. So we've never seen it before. And we've never seen, at least the conventional wisdom on it, a sustained period of long and growing deficits while the economy's getting better, extremely low interest rates, and really very little inflation. So something different's happening, but something different happens all the time. And that's one reason economic predictions just don't enter into our decisions. Charlie Munger, my partner, and I, in 54 years now, we've never made a decision based on an economic prediction. We make business predictions about what individual businesses will do over time, and we compare that to what we have to pay for them, but we have never said yes to something because we thought the economy was going to do well in the next year or two years. And we've never said no to anything, because we were right in the middle of a panic even, if the price was right.

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  • And does that surprise you? And what would be the signs that you would look for to see that things were winding down?

    Well, I look at a lot of figures just in connection with our businesses. I like to get numbers. So I'm getting reports in weekly in some businesses, but that doesn't tell me what the economy's going to six months from now or three months from now. It tells me what's going on now with our businesses. And it really doesn't make any difference in what I do today in terms of buying stocks or buying businesses what those numbers tell me. They're interesting, but they're not guides to me.

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  • So let's start off and talk about the economy a little bit. And obviously, we've been on a good long run here.

    A very long run.

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  • All right. Warren, I want to thank you for your time today. We really appreciate it, your generosity with your time. And we hope to see you again soon.

    Come every year.

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  • Warren, before we let you go, let’s just go back to the Futures again this morning. Because right now the Dow is indicated to own down about a hundred and-- or 830 points. Weakness again on concerns about coronavirus and what that means. So-- what’s your mentality today as you kind of go out and look at the stock market and look at what you’re going to do?

    We’re buying businesses to own for 20 or 30 years. We buy them at whole, we buy them in part. They’re called stocks when we buy in part. And we think the 20- and 30-year outlook is not changed by coronavirus.

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  • How much wealth you’re anticipating?

    Yeah-- w-- we don’t want a big headquarters office. If we had a big headquarters office, we’d fill it. Believe me. I mean, if we had 15 floors of our own, we’d have 15 floors worth of people.

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  • And then finally, very quickly, we are in the Berkshire Hathaway’s headquarters building here in Omaha. Strom writes in a question that says: “Why did you decide to rent your offices for all these years instead of buying the building or building your own office building?”

    Well, we only use one floor of the 15 floors here. But we have signed a lease for the next 20 years on one more floor. So, it shows just how flexible our thinking is about the future here--

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  • But this is in his question. You can answer that, too. “Do you believe the problem with local newspapers is a lack of demand or a lack of innovation and a new business model?”

    Well, bottom is that-- well, getting back to the toast comment, Andy Serwer actually is the fellow that said those things interviewing me and then I repeated it. But the problem is, and-- even-- every day the circulation of the papers in every -- print circulation goes down. And the interesting thing about it, of course is that the three survivors so far that look promising online are The New York Times and The Wall Street Journal and The Washington Post, all three of those papers sold their smaller papers. The New York Times sold I think 11 papers about seven or eight years ago. The Dow Jones, which owns The Wall Street Journal, now is owned by News Corp, they sold the Ottaway Newspapers, eight papers. Washington Post sold the Herald. So, they all saw the handwriting on the wall before I did. And they all sold their papers. That was their reaction. They did not-- they did not try and figure out the online solutions. They got out of them. And, unfortunately, I bought some. And we-- we’re still-- you know, I mean, we are financing Lee. And we think Lee has by far the best opportunity to continue print as long as anybody and to find an online solution for these papers. So, we put new money into the newspaper industry here, or we’ve committed to doing it. It will close in a month or two.

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  • Okay. Let’s go onto a question that is posed by Ken Ducey. He says: “You sold 31 newspapers after buying them over 40 years as a self-described newspaper addict. You said recently that most newspapers were toast.” I know that’s not exactly what you said--

    That’s not-- yeah, that’s not true, actually.

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  • Why does PG&E not fit that bill?

    It’s too tough. I don’t-- I don’t know the answer to it. I mean, it-- rearranging that utility. And-- I think-- I know Governor Newsom. I think he’s a very, very, very smart guy. And-- and in terms of solving this problem, it’s just not easy. You’ve got so many constituencies. And they’re at each other’s throats. And there’s lots of money involved. And-- I don’t want to be the guy to try-- I don’t know how to solve all that.

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  • You also talked in the letter about how Berkshire Hathaway has-- Berkshire Hathaway Energy, I should say, has the ability and the talent to manage big investments. $100 billion and more. I think you wrote, “We stand ready and willing and able on such opportunities.” California Governor Gavin Newsom asked you at one point to bid on PG&E. Is that such an opportunity?

    PG&E, we’ve obviously, I mean, we work with them for decades and been familiar with them. But-- but-- that doesn’t-- that doesn’t fit Berkshire. But if-- if there were 100 billion transmission lines or whatever it might be, Berkshire could do it. I mean, and we would love it. That happens to be a very tough thing to do because you cross all these states and everybody says, “Not in my backyard” and all that. But-- but-- there can be huge, intelligent investment made in the utility energy area. And no one is better equipped to do it than Berkshire in both talent and resources.

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  • All right, let’s get to a few more shareholder questions. Chip Crook writes in a note and says: “It was reported that Boeing was looking for a large cash loan. Were you approached about Berkshire loaning the money, kind of like the Goldman Sachs deal from years ago—”

    I think-- I think Boeing’s raised about $13 billion. But that’s bank type money. In other words, my memory is that-- that maybe 1%, you know—post--. They’re looking for-- they’re-- they’re looking for traditional bank loans. And we don’t make traditional bank loans.

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  • Okay. Jim Beam writes in a question. He says, “In the past, both you and Bill Gates have stated that half of the board meetings are spent discussing succession. How has this changed since Ajit and Greg are on the board? Do they leave the room?”

    They leave the room. But, if I die tonight, the board tomorrow morning knows exactly what they’re going to do. But, I hope they’re polite about it. Let the body cool off. Basically, they know what they’re going to do. And the-- the interesting thing about it is we own-- you know, the Apple and JP Morgan and all those things. I don’t know who’s going to succeed-- the CEOs of any of the companies I think that we own stock in. But-- we’re well prepared for succession. It’s almost going to be embarrassing how well.

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  • Yeah. And you said you did this because you’ve gotten a lot of questions from directors, shareholders, other people who had kind of advised you that they thought it was good for them to be playing a bigger role--

    Yeah, everybody-- I-- I heard from quite a few people. Now, we directed questions out to them when they were sitting with the directors-- out in front. And the spotlight went down. But this may encourage more questions directly of them. And that will be terrific.

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  • They’ll be sitting onstage with you and Charlie?

    Well, there’s this-- yeah, there’s-- there-- we’ll -- sitting in front of the crowd, there’s two different levels of-- of tiers there.

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  • Warren, one of the questions that did come in, and it was something that you wrote about in the annual letter, was-- the role that Greg and Ajit play-- Greg Abel, Ajit Jain, the two Vice Chairmen who were recently added as Vice Chairmen, the role that they’re going to but playing in the annual meeting with shareholders. You said that they will play a larger role in the shareholder meeting. How will that work?

    Well, it will mean that any shareholder or any of the journalists there who are presenting questions from shareholders that have been sent to them, can direct those questions to either Ajit or to Greg. So, if they were insurance questions, they might want to direct them to Ajit. And not insurance questions, to Greg. But they will be there. And-- we’ll have 60 or so questions. We don’t know what they’re going to be. And-- if anybody says, “I would like Greg to answer this,” or, “I would like Ajit to answer this,” then they’re right there, adjacent to us.

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  • Another question comes in from Beale (PH) again on Kraft Heinz. And this person writes in: “Private labels have performed very well against brands like Kraft Heinz. But they haven’t made a dent against other brands like Coca Cola or See’s. Why do you think that is? And how do you think about brands’ modes, given your experience with Kraft?”

    Brands are always going to be in a fight with the retailer. And it varies by country enormously. It varies by product category. If people -- I worked in a grocery store in 1941. Charlie worked in the same one in 1940. People would call and they’d ask for a can of peas and I’d write down, “A can of peas.” They’d call and they’d ask for Heinz ketchup, and I-- I’d better give them Heinz ketchup. They didn’t care which brand the peas were. They didn’t care that much whether the two quarts of milk we sent them were this brand or that brand. But they cared whether it was Heinz ketchup. That was in, you know, 1941. Some brands are terribly strong. You can’t bring out-- a private label Cola and do very well with it. And people have tried for a long, long time. On the other hand, you can bring out private labels and lots of products and-- and they sell very well. And-- you know, you take Costco with their own Kirkland label. I mean, that-- that label grows dramatically. It cuts across categories. It, you know, it’s done since 1992 or whenever it was introduced, what-- other people spend 100 years, you know, with huge amounts of advertising and special displays -- all kinds of things. So, the battle goes on. I would say that the retailer has gained ground against brands to some degree. But brands are still terribly important. I mean, try – give me a $10 billion budget and ask me to bring out another Coca Cola that makes a dent in Coca Cola and I can’t do it.

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  • TheoFilos Theo writes in a similar question and says: “Do you still believe in the company and management at Kraft Heinz?”

    It’s still a great business, in the sense that it earns we’ll say $5 billion after depreciation pre-tax. And on $7 billion of tangible assets, it uses about $7 billion of fixed assets. It – working --. I mean, it’s a very valuable business, but we paid too much for Kraft. And we-- we took on more debt in that. And-- but we paid too much.

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  • Okay. And then Kraft Heinz. This comes in from David Hall. He says, “Mr. Buffett, while Kraft Heinz continues to whittle down their total debt, do you feel that the current dividend payout is appropriate? Or should it be reduced further to free up more cash flow to reduce debt more rapidly?”

    I think Kraft Heinz should pay down its debt and it should-- but I think-- under present circumstances, it appears that it can pay the dividend and pay down debt at a reasonable date. And it has too much debt. But it doesn’t have some-- it doesn’t have debt it can’t pay down. And the debt owners are going to get the interest. And the debt should come down year by year. And I think it will and I think it can with the present dividend. But who knows for sure in the future?

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  • Okay. Another purchase that came up recently, Kroeger. And Jason Escamilla writes in, “Was that one of yours, or-- or a lieutenant’s pick?”

    It was one of the others. And-- you know, I-- I know Kroeger. Kroeger-- Kroeger’s done a good job, but it’s in a very tough business. I mean, when you have-- when you have-- Amazon and Walmart slugging it out and Costco taking a special part of it and everything, it’s a tough business. But-- they’ve done a good job. And one of our managers decided to buy that.

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  • Let me ask you about-- a question that came in from several viewers actually-- and that’s about the ETF. Dmosley Management wrote this version of the question in: ‘News agencies have reported that Berkshire Hathaway purchased two ETFs. So, can you talk about if this purchase happened? And if the purchase happened, who purchased the ETF for Berkshire Hathaway? And how was the decision made to purchase it?’ Small numbers.

    Yeah, it wasn’t---me-- it wasn’t me or it wasn’t Todd or it wasn’t Ted. And-- it-- it happened in some pension fund. And we have a few pension funds that aren’t actually managed by us. But I-- all I can tell you is that nobody that-- nobody that manages money at Berkshire is buying ETFs. Nor do I see any possibility that they will.

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  • Should the Astros players get off scot free?

    Oh, I-- I’m not going to-- make a judgment on that. But-- Joe Jackson certainly didn’t. Yeah. Yeah.

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  • You’re a huge baseball fan. Were you surprised to hear about--

    Yeah, I was surprised to hear about it, yeah. But-- but then I find out that Bobby Thomson’s--somebody just stole the sign I think off, I think, Ralph Branca or somebody, you know? It-- so-- people are going to-- in any games, include the stock market game, you know, certain number of people cheat. And, generally, we have people that administer things to try and minimize the cheating. And-- and I’m sure that Major League Baseball will-- will address the problem.

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  • All right. Let’s talk about a question that comes in from Rusty Thomas and he has-- he’s got a question on baseball. He said, “Given Warren’s love of baseball and the contrast between his deft management of the Salomon Brothers scandal and Major League Baseball’s inexplicable mismanagement of the Astros’ sign stealing debacle, what advice would Warren provide MLB Commissioner Manfred to restore confidence and integrity in the game?”

    Yeah, well, it survived the Black Sox scandal back around 1920. And people will continue to love baseball. But, you know, it was one thing to steal signs if you were on second base. But it’s bad. But baseball will get past this.

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  • Or maybe in countries where you have —

    Yeah. So, the logical move from the introduction of Bitcoin is to go short suitcases because the money that was taken in suitcases from one country to another, suitcases will probably fall off in demand. I mean, so you can look at that as the economic contribution of Bitcoin to the society.

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  • You don’t own Bitcoin?

    No, I do not own one – I don’t own any cryptocurrency. I never will. And, you know, in the end, I may start a Warren currency. You know, maybe I can create one and I’ll say there’s only going to be 21 million of them and you can have a little ledger sheet from me and everything that says you have it. And you can have it after I die but you can’t do anything with it except sell it to somebody else. And the interesting thing, of course, is that Bitcoin’s been out there a long time. And people talked about how it would be used in various kinds of exchange. But none of our companies are doing business in Bitcoin or anything. Bitcoin has been used I think to move around a fair amount of money illegally. So the people that—

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  • He gave you some Bitcoin. So, what does it feel like to be a Bitcoin owner?

    I don’t have any Bitcoin.

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  • So, it sounds like he did not change your position.

    No, but I didn’t change his either. And I had a very pleasant dinner. And those people were – they behaved more than well. And they gave four point – or Justin gave $4.6 million to Glide. And that will buy a lot of meals and provide a lot of beds for people in San Francisco. So, I thank him.

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  • Okay. I want to run through a series of questions that have been in. These are kind of all over the map so forgive me. We’ll bounce around. But these are questions that came in from viewers that I thought were good ones. Lucas writes in. He said, “Did Justin Sun change your mind on cryptocurrency?” For anybody who doesn’t know, Justin Sun bought the dinner or the lunch that you just had from the last Glide Foundation fundraiser. He is actively involved in Bitcoin. After that meeting, his PR people put out some notes saying that, you know, you kind of listened to cryptocurrency and maybe you’re a little more in tune with the idea of Bitcoin now.

    Well, I would say this. When Justin and four friends came, they behaved perfectly and we had a good three and a half hour dinner and the whole thing was a very friendly exchange of ideas. But cryptocurrencies basically have no value. And they don’t produce anything. So, you can look at your little ledger item for the next 20 years and it says you’ve got X of this cryptocurrency or that. It doesn’t reproduce. It doesn’t deliver. It can’t mail you a check. It can’t do anything. And what you hope is that somebody else comes along and pays you more money for it later on. But then that person’s got the problem. But in terms of value, you know, zero.

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  • All right, let me ask a follow up question that is similarly related, Warren, and that’s just having to do with sustainability, all these issues that are out there. Guys in the control room, sorry, this is not where I told you I was going, with but Abhishek Bhardwaj wrote in a question. He said, “Larry Fink recently said that our investment conviction is that sustainability and climate integrated portfolios can provide better risk adjusted return to investors. What’s your view on sustainable investing?

    Well, I don’t happen to make that decision when I’m buying the stocks in our portfolio. What their individual policies are, I think they’re all pro social, I mean, obviously. You’ve got to be in tune with your society. But if you think that I look down at a bunch of stocks and decide whether to buy Apple or whether to buy JP Morgan or – I am not using the factors that he lays out.

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  • The reason I asked the question is because the other point you made, which I think is a very smart one, and is often misconstrued in the corporate governance land, is that an independent director these days isn’t always independent, in large part. And you make the point that those that don’t come to the table with some form of wealth often need the job. They need the money. They want the money. And therefore, that makes them less independent. And the reason I ask this is one of the things, as we’ve been trying to get more diverse candidates on boards, more women on boards – as you know, there are fewer CEOs. Fewer people who have made enormous amounts of money. And people therefore, then can question their independence. It becomes a very tricky issue. And that’s what I was hoping you might weigh in on.

    Yeah, Andrew I’ve been on 21 publicly owned – boards of publicly owned companies. And I’ve seen them in operation. And I would say that people that I have often seen, and that’s perfectly understandable, I have often seen people who are classified as independent directors. And they are getting $300,000 a year for a job that takes them a couple of days, maybe six times a year, maybe four times a year. And the company flies them to their office. And it’s very enjoyable and the company’s good. And who wouldn’t want a job like that? I mean it’s an incredible job. And people – I get calls from head hunters, I get calls from CEOs. And they ask, you know, who I think would make a “good” director. And what they are asking is, you know, who’s not going to cause too much trouble and who is going to reflect – who their name is going to reflect credit on the institution. And they are not looking for somebody that I would regard as really independent. And I don’t blame them. I mean, and if I had spent my life being, you know, a teacher or whatever it might be, I mean my IQ is just as high as the average or higher than the people on the boards and all that. But on the other hand, I want to get on a board. I mean, 300,000 bucks a year would look terrific. And you don’t even have to retire probably in most cases at 65 or anything of the sort. So, to call them independent is ridiculous. And if you’re on one board like that, you want to really go on another one and make $600,000 a year. And you are not going to do things that irritate your present CEO. So, when he or she gets a call and says, “Would this guy make a good director,” that the answer is, “No.” I mean, it’s just ridiculous to ignore the factor of compensation with board members.

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  • So Warren, just to follow up on it though, what’s your thought about both the requirement that maybe banks and others investors are going to force companies to have diverse candidates on their board, laws, as I mentioned, in California?

    Yeah. actually, there may be – there’s been sent to us a proposal which, unless it’s withdrawn, will be on our proxy. I can’t tell you precisely what it says. But that relates to this issue. And we will get our shareholder’s view on it. I personally I want shareholders – I want directors that represent the shareholders. And, you know in terms of my estate you know, with maybe currently $80 billion worth of shares to give to philanthropy, I hope that we have – and we do have a group of directors that I think will be very conscious of doing the right thing.

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  • I read the letter like everybody else over the weekend and was fascinated by so many of your comments, Warren. Specifically, I wanted to ask you, you talk about diversity on boards in this letter. And one of the things I wanted you to weigh in on, if you could, is I don’t know if you saw, but David Solomon, the CEO of Goldman Sachs, on our air actually announced a couple weeks ago that he won’t be taking any companies public, Goldman won’t – unless they have at least one diverse board member and are likely going to push that to two. You know, in the state of California, they put a law into place saying that you needed to have a female board member. And I’m curious what you think of not just the push towards more diversity on boards, but the requirement because I also note in your letter that you have very specific thoughts about what it means to be a board member, what it means to be an independent board member, how wealth is involved in all of that. What are your thoughts?

    Well, at Berkshire for decades we’ve given the three factors in addition to integrity, but for board membership. And we want people who are business savvy, we want them to have a strong personal interest in Berkshire itself. And we’ve got directors who really represent shareholders basically at Berkshire. And I think they do a great job. Now, that doesn’t mean that they don’t think that we should delight our customers, that we should treat associates well, that we should behave well in our community, both local and national. But our directors represent the shareholders.

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  • Anyway, get back to business. I just I’m looking forward to it, Warren. And I know we always have our own personal bet. If I get them all right, you give me Berkshire Hathaway, which would be cool for me.

    I’ll tell you, if you get it all the way, I’ll give you my Berkshire Hathaway shares, all the way to the 64.

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  • They’re peaking. I think they’re peaking. I mean, they’re getting better, and better, and better. The three-point shooting was – I think that one guy was seven for seven at one point yesterday, which is – I’d be, like, seven for 10,000 for three pointers I think.

    Not bad.

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  • Now – well Creighton. It was 70 to 35 at one point and I had Creighton yesterday. I don’t know if you were paying attention to that. Were you watching that at all, Warren? Nebraska plays tonight.

    We pay attention to Creighton out here.

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  • You’re often quoted-- as saying-- that you don’t know who’s skinny-dipping until the tide goes out, who’s swimming naked till the tide goes out, whatever it may be. You get the sense with the high tide right now there’s a lotta skinny-dipping--

    Well, we-- we’re--

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  • You know, you told me a year and a half ago, maybe longer, that when you went out to try and buy whole businesses right now, it just looks too expensive, which is why you started buying pieces of companies, more stocks, particularly--in places like Apple. Is that still the case? Is it still a huge premium to try and buy a company outright?

    There’s quite a premium. And part of the premium is because you can borrow so much money so cheaply in buying those businesses. Obviously, you can pay more for-- a business if you can-- borrow a very high percentage of the purchase price and of the future cash flow committed to it. And you can borrow low rates with very little in the way of restrictions-- restrictive covenants or anything of the sort. I mean, that’s gonna bring higher prices. And the demands of that is huge. And people look at those rates on the 30 year or the ten year and they say to themselves, “Gee, I can’t live on that.” And so they stretch and buy four credits. But that’s-- just part of the human cycle over time. And that-- leads to something else. And that leads to something else. In the end, if you own good businesses at the right price, you’re gonna do fine.

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  • You know, the ten year, speaking of these low rates-- just a little bit ago hit its lowest yield since July of 2016 this morning. I think it was 1.377%. We’re back at 1.396%. But ten year rate’s below 1.4%. Would you have anticipated this?

    W-- it-- it makes no sense to lend money at 1.4% to the U.S. government when it’s government policy to change to have 2% a year inflation. I mean, you’ve got-- you’ve got--the government is telling you, “We’re gonna give you 1.4% and tax you on it. “And on the other hand, we’re gonna presumably devalue that money at 2% a year.” So these are very unusual conditions. And-- classical economics, it-- doesn’t appear-- that, you know, what do people do under such circumstances? Does everybody buy a mattress and stick their money under the mattress or what? And it particularly seems-- unusual when the world is generally prosperous and, you know. But that’s-- the game is always changing. But it always looks logical in retrospect. And it-- - always looks puzzling prospectively. But there’s always things to do that make sense too.

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  • What’s something you guys don’t understand right now?

    Oh-- we--do not understand at all what the outcome will be-- in a world where $13 trillion is being borrowed at less than zero. And even-- Greece went on short term and-- I think Greece, the ten year bond is 1%, for example. And- at the same time, in this country we’re having-- under very good business and market conditions we’re having a 4.5% federal deficit and nobody is concerned in the least. And we’re talking about massive new programs and so on. Everybody talks about-- pay form. But that really-- you know, their deficit’s gonna widen. So we don’t know what world comes out of something where you start with extremely low interest rates and high rates of growth. And then what you do for stimulus-- later on. But the whole game, I mean, the game always unfolds differently than you expect. And that’s what makes it so interesting.

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  • Is there anything you’ve talked to him about recently that you might be able to share? I don’t know if you wanna share the conversations you guys have privately, but anything where you’ve bounced something off of him and he--

    Well, I bounced—I we talk about a lotta things. W-- and we talk a lot-- we talk particularly about things we don’t know the answer to. And-- you know, we find the whole scene so interesting, whether it’s politically or economically, the world. I mean, it’s incredibly interesting to us. And--we’re particularly interested in each other’s view, although I think I’m more interested in his view than he is in mind. And that would be a correct decision to make for somebody overhearing us.

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  • Was there anything that enlightened you or changed your opinion on something? Maybe something--

    No--

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  • Was there anything he said that surprised you this time around? I’m just looking through some of his soundbites--

    Actually, nothin’ Charlie says can surprise me.

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  • Well, you know, we watch pretty closely Charlie’s shareholder meetings at The Daily Journal. We send cameras out, we watch it. I’ve been out myself. Do you watch that meeting too to see what he has to--say

    I watched it all on YouTube afterwards. But my sister and my-- one of my good friends and my niece were all there. And-- no, I end up watching it. And I actually end up reading it-- usually too. But-- I wouldn’t miss it. But I don’t go out for it.

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  • Okay. Let us know what happens.

    Yeah, I will.

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  • That was Berkshire Hathaway vice chairman Charlie Munger about a week and a half ago when he was speaking at-- the annual shareholders meeting for his other company, The Daily Journal, answering questions, giving his-- usual straight answers when things come up as questions. Warren, that was Charlie talking about EBITDA earnings, calling them BS earnings, although he-- said it a little-- more explicitly. You in your shareholder letter for Berkshire Hathaway also wrote about how you don’t believe in gap earnings. What-- how do you guys come about this? What do you think? You still have to report these numbers. But you’re basically telling shareholders don’t listen to them?

    Well, the-- yeah, it’s two different principles. I mean, the gap numbers would show us earning $80 billion, which is more than any company’s ever earned in history. And we explain why that really isn’t the relevant statistic, because a lotta that was just the stock market going up, which now gets counted in our earnings. And Charlie was expressing an opinion we both have. Charlie’s the shy, reticent one of the pair. But-- Charlie is the best partner anybody could possibly have. We’ve been partners now for 60 years. And-- you could not have a better partner. He, at 96-- a woman since that meeting actually-- in the last couple weeks, a woman said to him, “Is it true- Mr. Munger, th-- you have eight children.” And Charlie’s reply was, “So far.” So-- Charlie is very much-- an active partner, we’ll put it that way. Next time I see him, I’ll get an update on to see what-- so far.

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  • Okay. We’re gonna continue our conversation with Warren Buffett coming up in just a few minutes. In the meantime though, guys, we’ll send it back to you in the studio.

    All right. Thank you. What are you doing with your phone right now since Warren Buffett just uses it--

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  • As a phone and nothing else--

    I--use it as a phone.

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  • What do you like best about the phone? And what do you like least?

    Well, I don’t use all its facilities like most people-- I mean, most people are living their lives around it. And-- I use it as a phone.

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  • That’s impressive.

    I mean, you’re looking at-- an 89 year old guy that’s barely beginning to be with it.

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  • One finally stuck?

    Yeah. Yeah, absolutely. No, I- my flip phone is permanently gone. The number’s been changed. Yeah.

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  • One finally stuck?

    What? Pardon me?

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  • When did you get the smart phone?

    I’ve been given several of them. But-- in-- in-- including by Tim Cook.

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  • Are you a consumer of its products at this point? You’ve had a flip phone for forever.

    I’m glad you brought that up. I am now using-- not very often. I’m-- I’m using the latest model. And-- - I’ll give you a little preview of our-- movie for the annual meeting-- we haven’t done it yet. But-- we’ll probably show-- me crushing with my foot my old flip phone, while cozying up to the new smart phone.

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  • There’s a question that came in from-- I guess the handle is @GPG. This is a question that came in on Twitter. And the writer asks, “You’ve said that you can do fair value estimates of companies you follow at any time in your head. So please do one now for Apple. What went wrong with your estimate for IBM? And how was that miscalculation different than for Apple?”

    IBM’s a entirely different business than Apple. I mean, it-- I-- Apple doesn’t resemble IBM any more than it resembles-- but it resembles See’s Candy way more. I mean, it is a incredibly useful product for people. It grows more useful as the number of people-- are involved. I mean, it’s really interesting. You know, we call them smart phones. If you go back and look at the old telephone, that was an incredible, useful product-- it changed my mother’s life and my dad’s l-- it changed lives in every day. And they-- took a long time to become pervasive. And it was very expensive initially. But-- it-changed the world. And the smart phone-- is part of hundreds and hundreds of millions of people’s lives in all aspects of their lives. They-- it’s used for-- has all kinds of utility. It’s a consumer product.

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  • It’s also a high flying technology company. It’s one that’s been at the forefront. But you’ve said in the past you didn’t buy it because it was a technology company.

    I think it’s a consumer product. In fact, I think I said this on the program a couple years ago. I mean, it-- obviously, it’s a consumer product company that uses technology. But we’ve got a lot of products that use technology that-- that-- at Berkshire. But-- it’s an incredible company. And-- I should’ve appreciated it earlier.

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  • W-- how do you read through any of that? What are-- what are you hearing? Do you know more than we do on that front--

    No. I’m. I don’t know one thing more. I--see-- I may see Tim Cook at the annual meeting. I see him in Sun Valley once a year. No, I don’t think-- I don’t think I’ve placed a phone call to Tim Cook in two or three years. Or in-- I-mean, it-- - no, I-- it-- all kinds of things are gonna happen to Apple in the next ten years. The real question is-- you know, what is the degree of pervasiveness and strength of that product five or ten years from now. And I don’t think of Apple as a stock. I think it’s our third largest business.

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  • --what we’ve seen with the slowdown with the coronavirus because Apple is one of the companies that has said it’s going to have an impact, not only with the stores that they’ve closed there, with the behavior of-- Chinese customers, but also what happens with the supply chain.

    Supply chain, sure.

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  • Well, l-- let’s talk about--

    Goes up, but not because we’re--buying

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  • Let’s talk about shares of Apple-- both from-- y-- you just mentioned it with the share buybacks, with it being such a huge holding of yours-- you’ve got more than 5.3% of the company right now?

    I think it’s 5.6%--

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  • So-- with you putting out an ad in the letter to shareholders, does that basically mean you are eager to buy more shares back?

    Depends on the price. But-- we’ll let anybody know if they-- we told them to call us before the opening or after the close. But-- and only if-- only with blocks. And only if they’re ready to do business. Yeah, there’ll be a few people, probably try and call just to see whether we’re buying or not. And we--will-- we will not show a lotta patience with those people.

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  • Dan Mahoney actually wrote in with a very similar question. He just said, “Is it hard to buy back the shares-”

    It’s hard to buy-- it’s harder to buy back Berkshire shares than, say, Bank of America-- is buying back their shares. Bank of America bought back 8% or 9% of their stock last year. And they can really do it without moving the market. I mean, Apple’s been buying back a ton of stock. They were buying stock at the same time we were buying stock. But it was easier for us to buy Apple stock even though Apple itself was buying a lotta stock, than it is to buy Berkshire. Berkeley is-- well, it’s held by people that are really trying to keep it. They’re-- I think the amount of speculation in Berkshire stock is relatively low compared to most stocks. And s-- and so it’s-- well, we bought $5 billion worth last year. But that’s only 1% of the market cap. And-- I would say with a great many companies, you can buy 4% or 5% of the company fairly easily a year without disturbing the market. American Express has been buying it every year.

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  • You know, one of the things you talked about in the annual letter was-- stock buybacks in Berkshire Hathaway. And for the first time, you told people to call Mark Millard in your office outright if they have $20 million worth of Berkshire shares and they’re ready to sell. That’s a really unusual move. Why did you do that?

    Well, we did it because-- it’s very hard to buy blocks-- in the market. Berkshire, we practically never see blocks-- except we do see them from-- estates or-- occasionally. But if somebody’s gonna sell 100 million share-- $100 million worth of Berkshire and we wanna buy it-- we-- we’d like them to call us and we’ll if it’s-- if we’re buying at that price level, we’ll be buying-- we’ll buy it.

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  • Do you like prices today? Will Berkshire be buying stock today?

    Well, we’ll certainly be more inclined to buy stock today than on Friday, yeah, yeah. Anything we were buying Friday, we would be buying today. And--feeling better about buying it.

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  • Again, we’re sitting down with Warren Buffett. And-- Warren, we’ve talked this morning about the coronavirus. But there are people who are waking up across the country now, kind of tuning in at this hour. So-- maybe we should address this again. With the markets indicated down 750 points-- with concerns about coronavirus spreading and now-- worries about what that will mean for the global economy this year-- I know this is-- not something you look at a day by day basis, but how do you kind of wake up and read this and think through it?

    I don’t think it-- it--makes no difference in our investments. I mean, it-- there’s always gonna be some news, good or bad, every day. In fact, if you go back and read all the papers for the last 50 years, probably most of the headlines tend to be bad. But-- if you look at what happens to the economy, most of the things happen are extremely good. I mean, it’s-- incredible what will happen over time. So if the-- if somebody came and told me that the global growth rate was gonna be down 1% instead of 1/10th of a percent, I’d still buy stocks if I-- if I liked the price at which and I like the prices better today than I liked them last Friday.

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  • Because of the price? Because of the--

    There’d be-- be something to pay more more.

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  • Alan Buckey writes in a letter. He says, If Michael Bloomberg becomes the Democratic candidate, would you consider buying his company?”

    No. I can give you a categorical answer to that.

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  • Over a much broader period of time--

    Certain aspects of the economy. And certain things, he-- you know, I’d like to see done. I would like to see the earned income tax credit change dramatically upward.

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  • But your reservations with Bernie Sanders, I assume, come with your concerns about what it means for the economy. Not over 30, 60, 90 days--

    I--

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  • All right. Let me-- slip in some questions that viewers have written in on this front. Michael Blank writes in-- “Please ask Warren if he thinks the market will sell off it if becomes clear that Bernie Sanders will win the Democratic nomination.”

    I think-- I normally would never make a comment on something-- like that, but I would say that if you had Sanders and a Democratic House and Senate or if you had Trump with a Republican House and Senate-- there would be a significant difference. But I don’t think I would necessarily vote on what-- in fact, I know I wouldn’t vote on what I thought necessarily would affect the market the better. I--think it’s a very poor yardstick. I-- would not want to cast my vote in a presidential election based on which would be better for the market in the next 30, or 60, or 90 days after the election.

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  • There is-- a plan. Let’s talk about some of Sanders’ plans. You said you agree with some of what his intentions are, but let’s talk about some of those actual plans. One of those plans would be to give 20% of company stock to employees and put workers on the board. What do you think about that? That would be for any company-- public company that has more than $100 million in annual revenue or a $100 million balance share--

    Well, I don’t want to get involved in evaluating his whole plan, but I think that would be a particularly bad idea.

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  • And what do you think--

    And--incidentally-- well, I don’t think I want to get into handicapping the race. But-- I-- would say this in terms of Sanders. I actually agree with him in terms of certain things he would like to accomplish. I don’t agree with him-- in many ways. But-- in terms of the fact that-- we ought to do better by the people that get left behind by our capitalist system. I don’t think we should kill the capitalist system in the process. I think we should make sure that the golden goose keeps laying more eggs. And it’s worked wonderfully since 1776. But it doesn’t work as well for people whose talents aren’t-- really geared to a market economy. And I don’t think anybody should be left behind by an economy that has over $60,000 of GDP per capita. And so, I’m a big fan of increasing the earned income tax credit. And-- I’m-- you know, I--think there should be some changes made. But--if given a choice, I would-- certainly vote for Mike Bloomberg as opposed to Sanders.

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  • About a year ago we had asked you about Michael Bloomberg. And you had said that if he ever entered the race, he was somebody you would support. Would you support him? Is he your candidate?

    Well, I would certainly vote for him. I don’t think-- I don’t think another billionaire supporting him-- would be-- the best thing to announce. But-- sure, I would-- I--would have no trouble voting for Mike Bloomberg.

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  • This is what you carry in your wallet.

    Yeah. And I think-- I think we will have some of those available at the annual meeting, too for our shareholders.

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  • For those who can’t see, I’ll show you on this camera right here.

    Card-carrying capitalist. And--

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  • I’ve seen it.

    I don’t know whether-- I’m a card-carrying capitalist, right. I don’t think that’s consistent with-- inconsistent with what I said on politics. Yeah, here it is. Yeah. I don’t know whether that shows--

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  • You are a card-carrying capitalist. You actually have one of those in your wallet.

    Yeah.

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  • You just said that you’re not a card-carrying Democrat.

    It’s true.

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  • Wow. That’s the first time I’ve ever heard you say something like that.

    Well, it’s-- I’ve kept it a secret for all these years, but now it comes out.

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  • We’ve talked about a lot of different issues. For people who are just waking up this morning, I want to once again point out that the Dow Futures right now are indicated down by about 767 points. That’s not the weakest level that we’ve seen this morning. We have seen off more than 825 points at different various times. We’ll be watching this very closely. Of course, this is because of what’s been happening with the coronavirus, with the additional cases that have been picked up in additional countries and what that may mean for-- global growth. We’ll talk more about that with Mr. Buffett in just a moment. We have been talking about that this morning. But, Warren, I want to talk about another issue that we have not touched on that. And that’s politics here in the United States. We just watched the Nevada caucus. Bernie Sanders walked away with the most delegates after that. He-- looks to be-- the clear frontrunner for the nomination for the Democrats this time around. You have long been a supporter of the Democratic Party. What do you think?

    Well, I think I’m going to wait and-- see who gets the nomination. But-- I’m a Democrat, but I’m not a card-carrying Democrat. And-- I’ve voted for Republicans. I’ve contributed to Republicans. In fact, I’ve only run for two offices in my life. One was head of the-- Young Republicans at the University of Pennsylvania, and the other time I was actually on the ballot running for delegate to the Republican National Convention in 1960. But normally, I vote for Democrats. And-- we will see what happens.

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  • Here was the kicker of that Barron’s cover story. He said, ‘There’s reason to think that the company will be a market beater when he’s gone. In the meantime, happy 90th.’

    Yeah, well, it’s-- I-- I hope it is a market beater when I’m gone. I’m counting on it. I’m telling my estate and then the trustees that succeed my executors in the estate-- I’m telling them to keep every share of Berkshire they have until-- they have this pattern of giving it away. I mean, I want them to look back and say, “Gee, we should have made this change earlier.” Because it’s going to determine how much we buy in the way of vaccines, and-- you know, and-- and-- all kinds of things, education and all these things. And I feel terrific about Berkshire after I leave.

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  • All right. Let me test you on your thick skin.

    Okay. Wow.

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  • Yeah. Made the point that it was bigger than your biggest acquisition, Precision Castparts--

    Oh, for sure. It’s our third-largest business.

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  • I know you’ve developed a thick skin over the years, but does it tick you off when people start questioning whether you’ve lost it, whether you can still—

    Well, I-- I’m sure I’ve lost some of it. I mean, I can tell you all kinds of things I’ve lost. No, that happens. But-- we haven’t lost GEICO, or the railroads we own, or the--, Berkshire without me is worth essentially the same as Berkshire with me. I mean, I-- my-- my value added is-- is not high. But-- but I don’t think I’m subtracting value, by the way. But-- the big thing is how our businesses do and what we get to add in the way of businesses over time. And we can add them through marketable securities. I mean, we own 5.5 or a little over percent of Apple. It’s-- probably the best business I know in the world. And we own 5.5% of it. And that is a bigger commitment than we have in anything except insurance and the railroad. So it’s-- it’s our third-largest business.

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  • So that’s why you keep so much cash around. You want to be able to be prepared for a downturn. You want to be prepared for a crisis.

    We want to be prepared for anything, Becky. We want to be prepared for pandemics. We want to be prepared for-- anything comes along. Yeah. That is the chief job I have. I have people’s money that gave it to me 50 or 60 years ago, and some of them still have 100% of their money essentially in it. And the one thing-- and I’ve got the responsibility for five foundations that presently are going to get $80 billion and I think will get a lot more over time probably. We don’t want to permanently lose money. And-- you don’t want to get that so that you go into a shell and don’t do anything. But we have obligations to people on workers compensation claims and auto accidents they’ve had that go out 50 years. And you know, we have to run the place so that every check clears under any circumstances. And that’s why we incident-- we own treasury bills. We don’t-- we don’t own commercial paper. We don’t rely on bank lines or anything. When people get terrified, and they will occasionally, everything freezes, you know? And-- and you’re going to have to stand on your own feet at a time like that. It won’t happen very often, but it’ll happen occasionally.

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  • And-- and-- and Berk-- Berkshire outperforms at that point? Or?

    Oh, we’ll outperform in a down market. But-- but that may not be particularly satisfactory-- to people. But, no, we will because we have these businesses that are making money and that-- I mean, we are-- we are not-- we’re geared somewhat away from full market participation in either direction. But that’s fine. We own-- if you think about it, we’re 80-some-percent in equities. We may show $230 or $240 billion in equities, and that looks like we’re against our market cap, we’re 40%. But we own 100% of these other businesses. Those are equities, too. I mean, we own a railroad. And we-- we own insurance companies. And those are-- those are equities. So, we’re about 80% in-- roughly in equities and about 20% in cash. And I’d rather-- I’d rather have that 20% in other good businesses. But, that is to some extent a curse of size. And it’s to some extent the fact that, it’s very hard. If interest rates stay at this level, we’ll wish we’d-- for the next 10 or 20 years, we’ll wish we’d been 125% in equities. I mean, it-- you know, equities are so much cheaper than bonds, long bonds, that-- you know, some-- something will change in a major way. I just don’t know what. And I want to be prepared for anything obviously.

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  • Berkshire outperforms?

    sometime. There’ll be a big—

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  • There are people-- like there were back in 1999, who have said maybe you’ve lost your edge. It was a similar thing in 1999, where you saw the technology stocks that were the big high flyers that people were pouring their money into, the .com companies and a lot of others associated with that. If you look at the markets again, it’s the technology companies that have big runs. This time, you’re participating in-- in Apple, which is one of those frontrunners. But is this a cyclical thing to you? Do you think there’ll be another market downturn and then—

    Oh, there’ll be a downturn—

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  • Is an investment in the S&P 500 a better investment than at Berkshire?

    It could be. You know, on balance, I think we’ll do a little better. But it’ll be-- it’ll be minor. Depends on the kind of market we’re in. If we’re in a down market, we’re-- we’re going to beat it. I mean, it’s that simple. And sometimes we will beat. The last 10 years. We haven’t been. But-- over 55 years, it’s worked. And-- and it-- it will continue working. But it-- it will not work at all like it did when we were working with $100 million or a billion dollars. There’s no question about that. But we’ve got good businesses, and we’re-- we won’t be in the bottom quartile, I promise you that, over any long period of time.

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  • Is that because it’s too big? And will it ever be able to outperform the—

    Well, certainly being too big is part of it. And-- but I would say this. During that same time, I mean, last year we achieved-- now, I don’t like-- GAAP earnings very well, but we achieved the highest GAAP earnings of any company in the world has ever achieved-- that’s investor owned. And we have the highest net worth of any company in the world, investor owned. Any company in the world. So, it-- I would say related to safety of principal over time-- I feel good about it. And I feel good about the fact that 99% of my money’s in it and that it will be the source of all the philanthropic contributions that are made for 15 or a dozen years after I die. So-- but I don’t think-- I do not think it will be in the top 10% of stocks performing over the next 10 years. I don’t think it’ll be in the top 15% of stocks performing in the next 10 or 15 years. I also don’t think it’ll be in the bottom 10% or 20% or 30%. So-- but our ability to have a huge edge over the market generally with a $550 billion market value-- it’s just, it’ll be minor, but it’ll be done in a very, very safe manner.

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  • All right. Let’s jump to Berkshire’s overall record versus the S&P. Berkshire has now underperformed the S&P 500 on one-year, three-year, five-year, and 10-year marks.

    Yep.

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  • ‘Why don’t you disclose their record?’ they said.

    Well-- we’re not disclosing-- I think it would be very unusual-- for a firm to disclose everybody’s sales last year among their salespeople or anything like that. I think that’s-- they’re entitled to work in relative anonymity. Our directors know how they do. I know how they do. We’ve made a lot of money with them. I feel very good--I mean, I feel very good about them in all ways. But we’re not going to-- we’re not going to tell you how much each candy store sells at See’s Candy or who was the top-- the top person at any place, brought in in sales or whatever it may be.

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  • Alright, let me-- run to another question that Max0205 wrote in: ‘Have Todd Combs and Ted Weschler outperformed the S&P 500 since they began working at Berkshire? Why don’t you disclose their record?’

    Why don’t I?

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  • But: ‘How will he be able to run GEICO, manage a $13 billion investment portfolio, oversee Haven, and be on the board of JPMorgan?’

    Yeah, well, let’s-- it’ll keep him busy. And we’re-- and we’ve told him he has unlimited use of a NetJet. So--

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  • Eric LeFante writes a follow-up question. He says: ‘Warren, why did you and Ajit decide to appoint Todd Combs as the CEO of GEICO?’ That part you’ve answered.

    Yeah.

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  • In auto insurance, I’m not sure. I might prefer the 80-year-olds over the 20-year-old.

    Well, you might. And-- you-- you certainly would prefer the 80-year-olds to 16-year-olds. I mean—

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  • Right. Charging the right amount for—

    Charging the right amount. If you were in the life insurance business and you thought that 80-year-olds had the same life expectancy as 20-year-olds -- you’d have a big, big problem. And what would happen is you’d write all the 80-year-olds and somebody would write all the 20-year-olds. So, in auto insurance, the same thing. There’s a vast difference—

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  • Correlating risk with rate, meaning—

    In other words, having the proper rate.

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  • Does that suggest Todd is not going to be there for a long time?

    I don’t think he’s--no, no. The plan is not for him to be. I mean, he has not made a permanent career shift. And-- he-- you know, I don’t know how long he’ll be there. We have one important problem, which is, which all insurance companies have. But Progressive has done a better job of managing—of correlating our risk with rate. And that is what we’re focused on now.

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  • Okay. I want to ask you a question about Todd Combs and his new role at Geico. I’ve got several questions that came in from that. And let’s just use this one from Peter Lamperis: ‘During last year’s interview on CNBC after the 2018 letter was released, you were asked about succession at GEICO, and you mentioned that at a recent meeting at GEICO you met about 40 of their top executives. And after each introduced themselves, they stated their length of time with the company. The shortest was 19 years. Please explain why none of these 40 top executives were qualified to take over as CEO after the retirement of Bill Roberts.’ Again, that’s Pete Lamperis from Chicago.

    Bill Roberts took over, not even two years ago. And last-- and he has done a terrific job in connection with Tony Nicely. I mean, GEICO is my first love. Absolutely. I tell the other companies that, you can’t-- you can compete for my second love, but you can’t compete for my first love, which is GEICO. Because it goes back 69 years. And, it did wonders for me. Anyway, GEICO, Bill Roberts took over a little less than two years ago. And then in either October of November last year, he said he would-- he’d like to retire in a year. He would adjust it in any way that made it easiest for us. And, we did not have the person, in my view, to replace him at that point. And Todd Combs, who’s worked with Berkshire now for 10 years, he actually was a product manager at Progressive in the past, and he knows a lot about insurance. Insurance is probably the only business I know something about that we’re in. All the rest of them are total confusion. But I understand the insurance business to some degree. Todd understands it very well at the operating level. And so, Todd is there, and I hope very much that he’s not there very long because I’d like to get him back in Omaha. But our intention always is to promote from within. And-- we would hope to have-- pick out the right person at GEICO. It isn’t that there isn’t somebody there. It’s just you want to have the right one. Because when you put somebody in, you’re going to keep him there for a long time. And-- or her. And—

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  • I know you don’t want to get specific on why you--

    No, I’m not-- I’m not-- I’m not recommending it--it’s what stocks--people have to make up their owns minds on that. But—

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  • Is that why you’ve sold off some of the shares?

    No. Not specifically.

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  • Well, the incentive structure was set up so that some of the employees did make most of the money.

    It was the dumbest incentive system you can think. And as soon as you learn, you can devise dumb incentive systems. We’ve done them ourselves. I mean, you can-- you can cause people to do the wrong thing. Because they will do what they’re incented to do. And they had a—obviously, a very dumb incentive system. People started playing it various ways. And the big thing is they ignored it when they found out about it. I mean, you’re going to do dumb things in business. And we do them every day, you know? But you absolutely have to attack a problem as soon as it occurs, and you know about it. And if that had happened, Wells Fargo shareholders would be a lot better off. But Wells Fargo shareholders did not profit from opening up accounts that were phony accounts that had nothing in them. I mean, somebody was getting paid so much per account. So-- and the practice spread because bad practices do spread if they’re allowed to spread. And they were ignored, which is a total disaster. And look at the consequences. So, two or three years later, who’s paying? The shareholders are paying for something that didn’t do any good whatsoever.

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  • Does this mean that they have kind of finally gotten through that and can move forward?

    I don’t know the answer to that. I know that they’re paying $3 billion because it was announced. I don’t know what else is outstanding. But Wells Fargo’s classic, in terms of one lesson. My partner, Charlie Munger-- he’s-- you know, he says, ‘Whenever we have a problem, you attack it immediately.’ He says, ‘An ounce of prevention is not worth a pound of cure. An ounce of prevention is worth a ton of cure.’ And we’ve seen that time after time. And the interesting thing, I-- and I don’t know the details at all, but the original thing was a bunch of-- whole bunch of phony accounts. Now, I don’t know how if you open up a couple million phony accounts you make any money on it at all. I don’t, the shareholders didn’t make money. People say, “Well, the—

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  • You say occasionally “they do dumb things.” Maybe you’re talking about Wells Fargo with the scandal that it had? It just settled on Friday, with a number of the regulatory institutions that were kind of looking into it, the investing allegations that were taking place, for $3 billion.

    Yeah.

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  • If you’ve been watching the futures, you’re going to see that overall the Dow futures are indicated down by over 700 points. We’ve seen levels of worse than 800 points off this morning. But you see a big part of that comes from the banks themselves. The banks, if you look across the board, are down by about 3%. If you’re looking at Goldman Sachs, Bank of America, Citigroup down by 2.9%, JPMorgan Chase off 3%. Wells Fargo down a little less, it’s down by about 1.9%. Again, we’re with Warren Buffett, the chairman and CEO of Berkshire Hathaway, today. And, Warren, one of the things that people wrote in--a lot of people had questions about the banks, about what’s happening with the banks, what you’ve changed with some of your investments of over time. Jason Goldberg writes in. He says: ‘Please ask Warren about his views on the bank stocks in general and on Wells Fargo in particular. Over the last few quarters, he has sold almost one-quarter of his longstanding Wells Fargo stake. Also, in the fourth quarter, he dumped a third of his Goldman stock--Goldman Sachs shares, although, he still owns over $75 billion in bank equity.’ So, what do you think about banks? Not necessarily the sell-off today, because you don’t look at day by day.

    Well, banking is a good business if you don’t do dumb things on the asset side. I mean, basically. And, it’s a business that the banks we own earn between-- the commercial banks earn between 12% and 16% or so on Net tangible assets. That’s a good business. It’s a fantastic business against the long-term bond, you know, at 2%. If you have a choice between a 2% instrument and a 12% instrument, which one’s going to win over time? So, if you asked me whether I think banks are going to go down when they only earn 3% or 4% on tangible assets, I don’t think that will happen. The question is really whether they do something massively dumb. I mean, which periodically a number of banks have done. And I feel very good about the banks we own. They’re very attractive compared to most other securities I see. And, most of them are buying-- Bank of America’s buying-- a lot of stock every year. So, our ownership of the Bank of America this year probably will go up 7% or 8% without us spending a dime. I’d like to own any business-- any good business where my ownership goes up 7% or 8% every year without me spending any money and on top of it, I get a dividend. So, they’re very attractive, both against interest rates and against-- or against bonds and against other stocks in my view.

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  • All right. We can talk more about succession later, because you did write an awful lot about that in the annual letter, too. But right now, we’re going to send things back over to Andrew.

    Thanks, Becky. We’re going to have a lot more from Omaha and Warren Buffett right after the break. Do take a look, though, at futures. As we speak, we’re back to about being off about 700 points on the Dow. The NASDAQ looking to open down about 247 points. The S&P 500 looking to open down about 77 points. All on additional new fears about the spread of the coronavirus. We’ll talk about that and so much more. The Oracle of Omaha right after the break when we return.

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  • No, decentralized. That’s what I mean. A decentralized headquarters that’s in charge, a conglomerate in charge of all those different businesses.

    Well, you-- we could run-- we have decentralized management as it is. We could have somebody in charge of all the little companies, another one, the big. We could visualize it in all kinds of ways. I think we’d have more overhead. I think we’d have eight different sort of manager. Our managers like running their own businesses. And they like -- they never have to finance their businesses. I mean, we-- and they never have to go to Wall Street. They never-- they probably save 25% of their time. And, I want them to feel they own their businesses. And that’s all they’re responsible for. If we mess up some other way, you know, they still-- they get paid based on how they do. And, there again, we attract managers who like to operate on that basis. We don’t attract managers particularly who think they’re going to keep moving step by step through various divisions and eventually run the whole place.

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  • Alright. Not to mix metaphors, but can you have a decentralized central office running both the French restaurant and the hamburger place?

    Well, they aren’t trying-- we’re not trying to have railroad management run the utility here.

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  • So, you get the shareholders you deserve.

    Exactly.

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  • Do you think the people who are newer--relatively newer shareholders, buying the B shares, have the same mentality as the people who have been in it for 50 years in the A shares?

    Well, we try to because that’s who we encourage. I mean, in effect, we don’t want everybody to buy our stock. I mean, there’s only so many seats. There’s about a million, six-hundred-and-some thousand A shares out. All the seats are filled. I love the shareholders we have. I don’t want to go to Wall Street and try and get some new shareholders that are going to replace the people we have. So, look, we want to have people in those seats that are in sync with us. You can run a French restaurant, or you can run a hamburger stand. And if you serve good hamburgers, you’ll do good business with hamburgers. And, at the French restaurant, you can do the same thing there. But you can’t run the French restaurant and then serve hamburgers inside, and you can’t run the hamburger stand and serve French food inside. So, we advertise in our deeds, in our words, in every way we can what we’re about. And we’re looking to have the seats filled at our church by people who are in sync with us. And we do have them there. We get the same people every Sunday. And I see no advantage in going out and telling everybody on Wall Street we’re going to do wonderful things and having those seats replaced. Because the only way you can get a seat is to throw somebody else out of that seat. There’s only so many seats, and they’re all full. And you want them filled with people who are in sync with the policies at the company. And therefore, you have to explain those policies and you have to live up those policies. And for 55 years, we’ve tried to.

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  • You said: Key to my only Berkshire—or, key to my Berkshire-only institutions is my faith in the future judgment and fidelity of Berkshire directors. They will regularly be tested by Wall Streeters bearing fees. At many companies, these super salesmen might win. I do not, however, expect this to happen--at Berkshire.

    That’s exactly true. And I think by writing it, it helps it a little, too. No, there’s no question that Wall Street would love to come along and sell anything that we’ve got. I mean, there’s a fee every time that there’s a transaction. And, they are big fees. And, there’s fees for the NASDAQ. I mean, there’s—so, we’ve had all kinds of people snoop around. And they know they’re not getting it done with me, but they’re not-- they won’t-- it won’t get done later on either. I am leaving-- every share of Berkshire I have goes to charity, and it’s 99% of my net worth. So, I’ve got-- nobody cares more than I do about getting the most money to those philanthropies over the years following my death. And that’s going to take place over 15 years. And I say keep it all in Berkshire. But if I thought that it was going to be run in a way responsive to Wall Street, I would instead do something else, and have the money distributed to these philanthropies, and not have it all tied to Berkshire. But Berkshire has a very usual shareholder base. I mean, we have individuals that own Berkshire. And a lot of them have owned it 50 years just like-- it’s-- people buy it to own for a lifetime. And we’re going to run it in a way that they won’t be disappointed.

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  • You made a point of talking about this in the annual letter.

    Yeah.

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  • Let’s talk a little bit about Berkshire Hathaway. We were in the middle of a conversation when we had to go to a break before. But there has been this question raised, not only about Barron’s and the cover story there but by other places, too, about whether Berkshire Hathaway would be worth more if it were split up.

    That’s a good question. And I will tell you that-- that if you were to say--and let’s say the stock market didn’t change for two years and interest rates didn’t change. So, if you had a two-year period and you said, ‘We’ll sell off all the businesses,’ I don’t think-- I mean, you have the expenses of selling them. Now, if you sold them all to people who leveraged them up to their maximum, you might get a little more than the stock is selling for. It would be very tax inefficient, very tax inefficient. Interestingly enough, up until 1986 it wouldn’t have been. I mean, there was as general utilities doctrine that governed corporate breakups. And so, you could dispose of businesses or securities-- if you did right, you could dispose of securities or businesses that are depreciated without a tax at the corporate level. That was done regularly in various ways up till 1986. They revised the tax code big time. They killed general utilities. You can’t do that now. Now, you can go-- you can have spinoffs, this business or that business. You probably have to lie a little in terms of your purpose in order to get the best tax ruling. And it takes time. But you cannot break up-- you cannot dispose of the entire business, business by business, without having very substantial tax liability. It would not produce a gain. On the other hand, having them together produces—there are some very valuable synergies in there. Now, we don’t use leverages much as the people who would buy them piece by piece would do. So, we could leverage Berkshire up to the sky. I’ve promised people we won’t. Because we have insurance promises to people out 50 or 100 years and we’ve got shareholders who are going to own the stock for 50 years, and they do not want us to leverage to the sky. But there would not be a profit if we were simply to announce that over the next 24 months that you could come in and buy any business we had, and we’d sell them to the highest bidder.

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  • Have-- I mean, maybe this is more than you know. But do you know if they have put human resource out either into China or other places where there’s—

    I don’t know that. I don’t want to comment on that. But I know that they’re--that is-- something they’ve always spent, they’ve been very involved in, is human health. And, even particularly this. Bill knows a lot about vaccines.

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  • Is money going from the Gates Foundation to try and find a vaccine?

    I’m-- I’m sure they are expending human and financial resources.

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  • I’m actually asking for Bill’s opinion, not yours.

    Yeah. Well, I shouldn’t-- and I shouldn’t really quote him, but I do--he’s the guy I ask. And I did talk to him just a few days ago. And, he loves to talk science. And he can make it so I could understand it, which is-- quite a trick. Well, at the Gates Foundation, they’re taking it very seriously. I’ll put it that way.

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  • Do you know why?

    But I don’t know. And-- you know, you shouldn’t be ask—I shouldn’t be offering my opinion on it. Because I pass along things I hear from people I think are smart, but—

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  • What are Bill’s concerns, as somebody who spends a lot of time traveling around the globe, as somebody who is trying to help medicine in some of the less developed parts of the world?

    Yeah. The Gates Foundation is very active in trying to be helpful on this. And Bill says the CDC is the best in the world. And, I mean, we’ve got terrific resources in this country. But a pandemic is a pandemic. And, there’s just no evaluating. And--but I have heard that the summer is not likely to cause the end of this.

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  • That you didn’t anticipate.

    Well, we own airlines, for example. No, it-- it affects businesses now. Actually, my dad used to tell me stories. He was 14 in 1918. And and he told me what went on in Omaha, you know, during the big Spanish flu epidemic. I mean, it was-- it was something in those days. And, pandemics will occur in the future. Now, what they hope to get is a universal flu vaccine. But, that’s a long way off. It isn’t impossible. I mean, I asked my-- my own science advisor is Bill Gates, so I talk to him, I call him. I talked to him the last few days about it. And he’s bullish on the long-term outlook for a universal prevention of it. But, this is not going to come, you know, for -- it’s not going to be here in 10 years.

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  • Some of your own fully owned businesses--

    Sure.

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  • And, again, you did talk about it earlier. It’s something that you see in the results of the businesses. Even—

    It’s true.

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  • Will be here for that?

    Yeah. And-- and that certainly will be affected. And, incidentally, I mean, flu is particularly tough on old people. You are going to have two guys on the stage whose combined age is 185. So, we’ll-- we won’t be looking for people that show are getting signs of contagion. But that’s one of the problems with this, is it does have a long gestation period. And it’s highly transmissible.

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  • We’ve got questions from viewers asking just that. Will the annual meeting be any different this year, particularly because you have a large Chinese contingency of shareholders who—

    Yeah, I don’t think—

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  • Yeah. I guess this one’s particularly frightening because it’s new. So, there’s no natural immunity that’s built up in any of the populations. And you wonder what happens, particularly in areas where there’s not the same health care structure that we have in America or in some of the developed nations. I guess that’s a big part of the question, too.

    Yeah. And it’s—well, I think about it in terms of our annual meeting. I mean, which is May 2nd. I mean, it could very well affect-- by that time, it could affect—

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  • 1918. You know, if you look at the numbers of what happened in that pandemic when it came around the globe, up to 50 million were killed in that. It was a third of the planet’s population that was infected. It was 500 million people that were infected at that point. 675,000 Americans died at that point. So, inevitably, your mind kind of goes back to what’s happened in the past. Because, as humans, we always look back to history to try and predict the future. Doesn’t always work. It’s not always prophetic. But it does give you something of what to kind of play out if this were to get worse and worse. Now, Andrew brought up the idea that it’s warm weather. We’re approaching spring in a lot of parts of the country or a lot of parts of the planet. That may be good news. We just don’t know if this time around if this is one of those viruses that does die off in warmer weather. Wait and see, and kind of hope.

    Well, I, actually--I think this, from what I’ve heard from people that know a lot more about viruses than I do that, unfortunately this will make it through the summer. And, in terms of having a vaccine, it’s, you know, a long ways off. So, you’ve got-- you know, it is scary stuff. I don’t think it should affect what you do in stocks. But, in terms of the human race, it’s scary stuff when you have a pandemic.

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  • Because the customers don’t like it.

    Because the railroads apparently – railroad customers like us better. And over the long-term we’ll see. But it isn’t like it’s something we can’t do.

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  • Who worked with Bill Ackman at the Canadian Pacific—

    Yeah, he worked with BNSF if you go back far enough. And there’s a book about it. It’s very interesting. But he did – at the Illinois Central, the Canadian National, the Canadian Pacific. And then he was going over to the CSX. He developed a method of railroading where the customer does adapt more to the railroad. And improved margins dramatically. Our margins are close to what the better railroads – well, there’s only a few you get from precision railroading. I mean, and we’ve gained share—

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  • And for those who don’t know what that is, it’s something that kind of irritates customers because it makes things a little more rigid. But it does improve –

    Yeah, it makes the customers adapt to the railroad more than the railroad adapting to the customers. And practically everybody’s done it. And a fellow named Hunter Harrison was enormously successful—

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  • Do you believe in precision scheduling railroading?

    Well, we’ll see. I mean, we’ve watched it plenty.

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  • There’s a viewer question that came in from Ben Comston and he asks, “it was recently pointed out by Bill Ackman that some subsidiaries like Geico, BNSF lag their peers in some areas. Would you agree with that? And how can your successor push improvement in subsidiaries while maintaining a decentralized management structure?”

    Well, at Geico we bought control in 1995. We had about 2.5% of the market for auto insurance. And we’re at about 13.7% of the market. So, we’ve gone from 2.5 billion of premium volume or thereabouts to 35 billion of premium volume. We’re number two now to State Farm. We were number six or seven at that time. So I would say that not due to Berkshire at all, but due to Tony Nicely during almost all those years. Geico’s been the envy of every other company in the auto insurance business expect for Progressive. They’ve done a good job too. But Geico is worth tens and tens and tens of billions more than when we bought it in addition to all the earnings we’ve gotten, just a good will value. So that’s been extraordinarily well-run. And with Burlington, I think we paid a dividend of $5 billion last year. And we paid $35 billion for it. So, it’s gained in market share and its business. Its operating margins have improved but they haven’t improved as much as some other railroads.

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  • However, you also have a situation where you have gotten some activists who have been interested in the stock, including Bill Ackman. He’s built up a stake. Hasn’t said too much about it. But I think he has made some comments about how maybe Burlington Northern Santa Fe’s margins could be improved. You could look back at Bill Ackman’s experience with the Canadian Pacific Railway and kind of wonder if he’s building up a position because he would like to see you take a more active role there.

    Well, we notice what other railroads are earning and when their margins are better. I mean, and we certainly put way less pressure on than Wall Street might who would want them next week. But our managers are well aware of what’s going on in other industries. And we’ve made changes where we don’t think some businesses are performing as well as they should. But overwhelmingly, we’ve got managers there that are very, very good. They’ve got capital available to them for anything that makes sense. And we decide how much they distribute, where the capital moves. And sometimes it moves from one industry to another. And in certain industries, a consolidated tax position really is very helpful to us.

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  • Okay, outside of the idea of them not having to report to individual shareholders or the investment community, what’s the advantage of having you there? The capital allocation part of it?

    Well, yeah, we can move capital within – if you move capital from one stock to another and you got a gain – particularly, I mean, you pay a tax. And then they pay a dividend tax or if you sell part – but there’s a lot of taxes incurred in moving from one business to another. Either at the corporate level in some cases but certainly at the individual level. And we can move capital, well, just take See’s Candy again. We bought that in 1972. We’ve moved a several billion dollars from the candy business to other types of businesses. And we’d love if it we can use it all in the candy business. But it just isn’t that sort of business. And in addition to that we free up our managers from all dealing with Wall Street, dealing with bankers, dealing with all kinds of things that are what I regard as a less productive use of their time.

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  • The difference with an S&P 500 index is it’s 500 different companies run by 500 different management teams who are all focused on their business. Maybe not having a centralized operation that is loosely running all of those businesses.

    Well, we’ve got – our businesses are run by separate people. I mean, we just finished Valentine’s Day. And I did not select what pieces went in the boxes. And it’s probably been ten years at least since I’ve been to a See’s Candy factory. Now, you know, I get the figures every month. But I don’t know how to make chocolate. You know, anything of the sort. I don’t pick out the new locations. We have managers for our businesses that are very much like the managers we have for the businesses that we own pieces of like American Express or Coca-Cola. And there’s a couple things we can do. We can determine the dividend policy of our subsidiaries. We can control their capital allocation to some extent. But on most capital allocation whether buy new equipment or anything like that they make the decision. The BNSF railroad is going to spend $3.5 billion on – I don’t approve a single dollar of that in terms of capital expenditures. They know what they need to do, where they need to lay track, how many locomotives they need – whatever it may be. So, our managers are I would say in a sense they’re almost more independent than the managers of the S&P 500 who go around and report to Wall Street week after week. They go to investor relation meetings and they’re always explaining what they’re doing and trying to get the approval of the analysts and all that sort of thing. And we just tell our managers to do what makes sense.

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  • I was trying to figure out what you were talking about.

    Yeah, well, 500 businesses all put together. I mean, that’s the ultimate conglomerate, isn’t it? I mean, I recommended index funds to lots of people and when they do it they’re buying into 500 businesses. And they’re going to have 500 businesses a year from now and five years from now. And they think that group of businesses will do very well. And I think our group of businesses will do okay.

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  • Okay. Let’s talk a little bit about a Barron’s cover story that was just out last week. The good news on the cover story is they think that Berkshire is worth more than it’s selling for right now. The bad news is they said think that’s in part because it’s got a big conglomerate discount. And they think if you weren’t running it that it might get broken up. What your response to that line of logic?

    Well, conglomerates have had a bad name and for good reason over the years. I mean, I closed my partnership up at the end of the 1960s. And there was a run, a very abusive run in conglomerates where they played with numbers and they had dirty pooling as they call it of accounting. They wanted to have their stocks up and put out stories to do it so they could issue more stock. They were kind of chain-letter arrangements. There have been a lot of bad conglomerates. And probably disproportionately so compared to sort of honest to God single-industry businesses over time. We don’t think we’re that kind of a conglomerate. We’ve certainly never wanted to issue shares. We never touted shares. You know, it’s done for business reasons in our case. The interesting thing is, of course, is the American public has been going wild in their enthusiasm for conglomerates in the last few years, if you think about it. I mean, it’s been an incredibly popular area. But they call them index funds. You buy 500 businesses—

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  • Does that mean Berkshire will be buying stocks today?

    Well, we certainly won’t be selling. And yeah, we could easily be buying something, sure.

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  • All right, we’re going to have much more with Warren Buffett when we come back. We’ll talk a little bit about conglomerates and whether Berkshire Hathaway is being discounted in the market because it’s a conglomerate. But, guys, right now I’ll send it back over to you. Hey, Joe, thanks very much. Warren, again, for people who are just waking up, they’re tuning in and they want to know what you think about this sell-off this morning. To see the DOW down 700, 800 points in the morning, what’s your reaction when you see something like that?

    Well, my reaction is that I like to buy stocks, so I don’t wish ill on anybody else. But I like to – if they want to sell them to me cheaper, I prefer it. So that’s you know, roughly a 3% decline or thereabouts. I don’t know how many 3% declines I’ve had in my lifetime but there have been a lot of them. And I can’t think of one that you shouldn’t have bought on. You know, basically – not as many stocks are going to go up or down next week or next month or next year. But if there’s something – if you like to own American businesses, you’re getting a chance to buy it 3% cheaper. I don’t consider that a lot cheaper. I mean, but how can it be bad news unless you have to sell stocks? Now if you have to sell them for some reason, you’re worse off. If you don’t have to sell them, I mean, somebody can come around and offer you a quote on your house today. And it could be 2% less than they offered you yesterday. But if you like the house it really doesn’t make any difference to you.

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  • Is that an argument for the federal reserve or I’m sorry, for the treasury department here issuing longer notes?

    Well, yeah, but I would’ve said the same thing five or six years ago and been wrong. But if we – under the present slope it still would cost more to lengthen it out. But you’re lengthening it out at very, very low rates. And it would be what I would be inclined to do if I were secretary treasury. But I would have missed a lot of bets in the last ten years too.

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  • You know, that’s the downside of low interest rates, pensions, savers, anybody who gets left in a raw position of that. On the alternate side of things, if rates were to rise rapidly or maybe not even so rapidly, what does that mean for the federal debt?

    Well, it depends on the average maturity of the debt. But our maturities are fairly short. They’ve got lengthened a little. But if you take 20 trillion and you’re borrowing at 2%, you’ve got 400 – what have you got? Two trillion – 200 billion. I mean, you got 40 billion of the expense. But close to 5% you got 100 billion of the expense. I mean, no at 5% you got a trillion of expense. I’m sorry. We are benefiting enormously in our national budget by the fact that inverse rates are very low. And so, interest cost has not gone up as you would’ve anticipated if you were looking at the scene 20 or 30 years ago with the increase in national debt. You know, Wall Street issued 100-year bonds. You know, but 2% or thereabouts. And then they’ve gone way, way up and that – maybe they yield 1.1 or something like that. I don’t know where they are now. But it’s great if you’re a borrower, gee, maybe everybody should refinance their mortgage.

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  • Consequences that could have a big market impact?

    Depends how far it goes. Yeah. Yeah. it’s something that – things that get built in slowly, people going crazy and tech companies in the late 1990s. It could take a lot longer than you think. But eventually you get to midnight and everything turns to pumpkins and mice.

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  • Do you think though that’s what should be happening. Do you think that there is more risk-taking place in the insurance market as a result?

    Sure. And you see that in – they call leverage loans and weaker covenants. No people are reaching for yield. There’s no question about that. And that’s stupid. And it has consequences over time. But it’s very human.

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  • Are insurance companies being forced to make riskier and riskier bets?

    Well, they shouldn’t. I mean, the answer – if you need to get 3% and you’re only getting 1%, the answer is to quit giving 3%. It’s not to try and get the one up to three and do more dangerous things. You should always adapt your consumption to your income. You shouldn’t try and adjust your income to your consumption. That’s a basic principle for individuals, businesses and everything else. And reaching for yield is really stupid. But it’s very human. I mean, and I understand it. People say, “Well, I’ve saved all this money all my life and now I can only get 1%. What do I do?” The answer is you learn to live on 1% unfortunately. And you don’t go and listen to some salesman come along and tell you, “I’ve got some magic way to get you 5%.”

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  • Bad for insurance companies and what happens to the insurance companies as a result? Are they getting more – are some insurance companies going to push out risk?

    Well, the ones that really get hurt on it are either life or annuity companies that have promised returns. Property casualty business doesn’t promise returns. It still holds money, so it hurts them. But if you promise somebody an annuity that’s clearly to pay them 3% or 4% and now you find that you’re reinvesting your money at 1% or something, you know, you’re going to disappear.

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  • You made a point in the letter of saying that you don’t know how long these interest rates will last. You and Charlie never try and figure these things out. But we did have St. Louis Fed president Jim Bullard on the program last week. And he said that he expects to see these low interest rates for a long time to come. That does raise a lot of questions. If that happens about what this means for the stock market, what that means for banks, what that means for insurance companies, which you touched on in the letter too.

    It’s bad for insurance companies. But it’s good for stocks.

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  • That’s a good way of looking at it.

    If somebody came to you with a stock and said, you know, “This is a terrific stock. It sells at 70 times earnings. The earnings can’t go up for ten years,” you’d say, “Well, explain that to me again.” But no – we’ve never seen a situation like this in the world. Literally. I mean, you can go back and read Keynes and you can read Adam Smith and you can read, you know, all the great ones. And they don’t talk about negative interest rate. It never crossed their mind. Always supply and demand and all these marginal costs. But brilliant economists never really anticipated that you would have negative – you’ve got 13 trillion or something like that – worldwide at negative interest rates. And we don’t know what that means. And we’ve got a lot of people that can speculate what it means. But ten years from now or fifteen years from now we’ll look back and say, “Well, it was obvious what would happen with that, and we’ll see it.” But it is not a normal situation. And well, interest rates are the basis of all value. I mean, you know, if you knew interest rates we’re going to be zero for 100 years you would think 1% was a great rate of return. But you also would know if you bought something was yielding 1% or that was what it paid and rates went to 8% you’d lose practically all your capital. So, it’s an enormous factor. And we don’t know the answer, central banks don’t know the answer. All we know is that it’s been useful in stimulating things, and particularly asset prices now for ten years and what we thought was temporary in 2008 and ’09 in the way monetary policy to stimulate we’ve just put our foot on the gas even further. The whole world has.

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  • If you were talking about the curve that we’re looking at this morning, the five-year, two-year is inverted. Two-year ten is not right now. But the ten-year’s below 1.4% this morning.

    And think of it, the ten-year at 1.4% that means you’re paying 70 times earnings for something that can’t increase its earnings for ten years.

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  • I know that, but—

    Generally speaking, but there are a lot of other variables too – but the banks are going to make more money if there are higher rates with a steeper curve. The curve makes – is more important than there was the ten year versus short-term rates. They make more difference than the absolute level. But American banks have made very good money with very low interest rates. Around the world, if you look in the U.K. or Europe or Japan even lower rates have made it pretty tough for banks. The returns on equity are not as high. And they have to use more leverage to even get the same returns and I don’t like that as well.

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  • All right, let me ask you a broader question that comes in just on interest rates and the impact that they might have as well. Varun Jain writes in on Facebook, “Hi, I’m a huge fan and student of Mr. Buffett. Please ask him what impact does the zero-interest rate environment across places like Japan and Europe have on their banks, whether the business is still good. And does the prolonged low-interest rate regime in the United State hurt the prospects of American banks like JPMorgan, etc.? And in such circumstances do Indian banks which have high return on equity look attractive to Mr. Buffett?”

    Yeah, well, I can’t comment on that, but–

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  • Ok. I’ll try one more from Tony Dickinson just because I think I got 15 or 20 different questions on this. “Berkshire owns 32.58 billion of Bank of America and 17.39 billion of Wells Fargo, one position’s been increasing while the other’s been decreasing. Does Warren like Bank of America twice as much as Wells Fargo? And how should shareholders see the holding?”

    Yeah, well, I think they’ve sees that we’ve bought Bank of America and we’ve sold some Wells Fargo.

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  • Can I ask why? Only because I did get a number of questions about--

    Yeah, well, I can understand that. But we don’t want to give any advice on what we’re doing because I could change what I’m doing tomorrow. We talk about everything except we don’t give stock advice.

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  • I think it’s 8.4% was the last—

    Yeah. That sounds right. And now we sold Wells Fargo in the fourth quarter and we sold earlier.

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  • They’ve sold well more than that.

    Yeah, we’ve sold – more than that.

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  • All right, well, let me ask a question that came from Tony Dickinson. He said, “In the fourth quarter Berkshire sold 55 million shares of Wells Fargo. Should shareholders view this as a lack of confidence in the new CEO turnaround plan? And what is Warren’s future outlook for Wells Fargo?”

    Well, I won’t give him any advice specifically on Wells Fargo. But it’s absolutely true that we’ve sold down our position. Some of it was sold down to avoid being over 10% because then you do have some filings with the Fed and so on, but—

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  • But fair to say--

    But it’s fair to say that anything that we own we like. You know, and there’s very few stocks that we own and I look at them as part ownerships in businesses. There’s very few that are selling at some price where I would sell them a little higher.

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  • You thought about that for a second.

    All of a sudden, I feel my jaws lock up.

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  • Are you buying more of any of those stakes right now? Apple shares –

    I get pretty closed mouth when it comes to what we’re buying.

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  • So, is it fair to say you like these stocks and you would own more if it wasn’t complicated?

    Well, we – to go beyond 15% in any company we’d have to go in on – I mean, there’s a lotta rules as you increase your ownership. Obviously almost anything we own we like to own more of.

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  • There’s been a lotta speculation. In fact, some of the questions that came in over this weekend-- were questions about those airlines. Wondering if you would buy any of them outright. Have you considered buying any of those companies outright?

    It’d be very unlikely that we would do that. I’m not saying it’s impossible. But-- it’s complicated.

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  • not as much as Delta. I think you own-- north of 11% of Delta at this point?

    Well--

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  • You-- you mentioned the airlines. And you own stakes in all the major airlines but--

    All.

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  • All right, tell us more about what’s going on just since you like knowing about those things.

    Well, I-- as I say-- you know, the-- certain businesses depend on weather to quite an extent. In retail, for example, in given months-- but the big trends you see are going on, I mean, in terms of movement-- to online commerce. And, I mean, the big stuff-- keeps moving. But we’ve got a big investment in airline business and I just heard they’re-- even more flights are canceled and all that. But flights are canceled for weather. It so happens in this case they’re gonna be canceled for longer because of-- Coronavirus. But if you own airlines for ten or 20 years you’re gonna have some-- ups and down in current business. And some of them will be weather related and s-- they can be all kinds of things. The real question is you know, how many passengers are they gonna be carrying ten years from now and 15 years from now and what will margins be and-- what will the competitive position be? And-- but I still look at the figures all the time. -- I’ll admit that.

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  • But you still watch things like railcar load--

    Oh yeah.

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  • Why--do you think business was down, let’s say, the last six months? Is it-- a decline in confidence or is it coming off of levels where there was unusual activity ahead of that?

    Well, it isn’t really down. It’s just-- it leveled off and a little softer maybe now. But, look, tariffs the-- tariff situation was a big question market for all kinds of companies. And--still is to some degree. But that-- that was front and center for a while. Now Coronavirus is front and center. Something else will be front and center six months from now and a year from now and two years from now. Real question is-- where your-- where are these businesses gonna be five and ten and 20 years from now? Some of them will do sensationally, some of them will disappear. And overall I think America will do very well-- you know, it has since 1776.

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  • When you look at the economy and how things were kind of chugging along, let’s say, beginning of this year, when-- first things-- first picked up, how would you gauge the U.S. economy at that point?

    Well, it-- it’s-- strong but a little softer than it was six months ago. But that’s over a broad range of-- you look at car holdings-- railcar holdings, that-- that’s moving goods around. And there again, that was affected bythe tariffs too because people front-ended purchases, all kinds of things, all-- a lotta variables. But-- business is down. And-- but it’s down from a very good level. So I would say that looking at our 70 businesses-- and that actually-- they represent hundreds-- in addition-- they’re a little softer. And on the other hand I was out with the fellows from the Nebraska Furniture Mart just Saturday night and--their business was up quite a bit in February. But that’s because weather was good. So you have a lot of variables that hit.

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  • What are the momentary implications that you’ve seen from Coronavirus? What’s an example of the business--

    Well, an example-- is that we have maybe 1,000 Dairy Queen-- franchises in-- China here. And they’re just treat only, so they’re-- the old type of-- food. But-- a great number of them were closed. But the ones that were open weren’t doing any business to speak of. And-- Apple is-- I mean, a much bigger holding is Apple. We own 5.6% of Apple. And-- the company came out and said that it’s affecting not only its stores but all kinds of things, supply chain and I find that certain of our companies have got supply chain arrangements that are being affected that I didn’t even know I had those.

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  • Well, there are a lotta questions that are coming in from viewers that have been hitting here today. They’re waking up this morning, looking at the stock market indicated down by almost 800 points for the DOW. We’re actually off our worst levels of the morning which is something to say when you’re still looking at the DOW down by about 786 points. But people have a lotta questions about the economy. They’re wondering what’s happening right now, particularly with the Coronavirus out there. You have a lotta economic data at your fingertips because not only are the many businesses that Berkshire owns but the businesses you own pieces in. What-- are you seeing right now around the globe?

    Well, it-- affects various businesses. I would say that I received commentary-- I get some commentary monthly with-- from-- from almost all of the companies. And-- a good many of them had some comment about how it was affecting them and how it was affecting them at-- that time I’m sure it’s sure it’s accentuated. But they’ve been affected by-- they were affected by tariffs, they’re affected by taxes, they’re affected by-- the most thing is they’re affected by competitors and supply and demand over time. And I don’t have the faintest idea what our businesses will be doing six months from now or 12 months from now. I do think that not only our businesses but American business generally will be doing fabulously better 30 years from now or 20 years from now. And the-- long-term is very-- in my view is very easy to predict in the general way. But an important way. I don’t think there’s any way to predict what the stock market will do ten minutes from now, ten days from now or ten months from now. So I work on what I think I-- I’m able to do. And as desirable as it might be to know what was gonna happen ten minutes from now that’s just-- not something I’ll ever be able to master. So fortunately I can come to a pretty firm conclusion that 20 or 30 years from now American business and probably all over the world will be far better than it is now.

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  • Good morning, everybody. And welcome back to Squawk Box here on CNBC. I’m Becky Quick, I’m live in Omaha with Warren Buffett, the chairman and CEO of Berkshire Hathaway. He’s just released his 55th annual letter to shareholders over this weekend. We’ve been taking questions from you. We’ll be getting some of those questions in through this morning. We are here, Warren, with you at Berkshire Hathaway’s headquarters building. This is upstairs in the room that’s called the cloud room. And this is a room where you often take students, kinda talk to them about questions they have when they come to visit you. You also do some other things up here too, other presentations.

    Yeah, I-- have students here for dozens of years. And-- for many years, 40 schools would come in. They’d come in groups of eight-- at-- five days I’d spend-- a year. And they-- come from all over the world. We have them from Peru, we have them from China, we have from Israel. And-- we have a good time obviously. Ag-- I’ve given it up now. I-- but I-- started teaching when I was 21. And I-- when I got to about 88 I thought I’ll take a rest.

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  • All right, we’re gonna talk more about that in just a little bit. When we come back we have much more from Warren Buffett. Right now though I’ll send it back to Joe and Andrew. Guys, back over.

    All right, thanks, Becky. Much more to come-- from The Oracle.

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  • You’ve also got more than $125 billion in cash sitting around.

    Yeah, well, that’s-- we’d like to buy more businesses.

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  • Okay. But this is not a time like that?

    We own $240 billion worth of stocks now. We look at that as $240 billion worth of businesses-- that we own parts of. But-- I love owning those businesses.

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  • Because you thought it was too expensive.

    Yeah.

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  • But you wrapped up your partnership at one point too.

    I wrapped up my partnership once because of that.

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  • You said-- just a few minutes ago when we asked you on worldwide exchange, right now Berkshire Hathaway is a net buyer of stocks. You are in a net buying position?

    We’ve been a net buyer of stocks-- or I’ve b-- actually been a personal net buyer of stocks ever since I was 11, every year. And-- there’s been 15 American presidents in my lifetime, more than 1/3. I’ve lived under 1/3 of the I didn’t buy stocks under Hoover. I was only about six months old then. But there’ve been seven Republicans after that and seven Democrats. I bought stocks under every one of ’em. Now I haven’t bought stocks every day. There’ve been a few times I’ve bought stocks where-- were really quite high. And I’ve even written an article once or twice. But that’s very seldom.

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  • Would you repeat that this time, if trouble’s coming would you still say buy stocks right now?

    I would say buy stocks if you get enough for your money. You know, we buy a few stocks. But we don’t look at-- we’re not buying the stock market. We’re saying I am buying-- say American Express. We own American Express. There’s 815 million shares out. And sells at-- this morning it was $126 or something like that. So it’s selling for roughly $100 billion. Now the real question is whether the company’s worth or more less than $100 billion. It isn’t what the stock is gonna do tomorrow or next week or next month.

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  • Charlie said recently-- Charlie Munger, vice chairman at Berkshire Hathaway had his daily journal meeting just a couple weeks ago. And at that meeting he said that there’s a lot of wretched excess out there and that there’s a lot of trouble coming as a result. Do you agree with that?

    There’s always trouble coming. Yeah, there was trouble coming in 1942 when I bought that first stock. All kinds of trouble. Phillipines were gonna fall pretty soon. there’s all kinds of trouble in 1949. There was trouble-- certainly trouble in 2008 when I wrote an article for The New York Times. I said, “Trouble is coming.” But I said, “Buy stocks.”

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  • And-- but that leads us to today. I mean, if his premise was that stocks are always going to be a better-- a better investment than bonds that’s kinda what you hear today which we’ve been hearing for a while is TINA, there is no alternative. Right? You have to buy stocks because bond yields are so low because interest rates are so low.

    Well, if you look at the present situation, we’ve talked about this before, that you get more for your money in stocks than bonds. That doesn’t have to be the case. I mean-- but it’s usually been in the case in America. Very usually been the case. And-- if you buy a 30-year bond today with yield 2% you’re paying 50 times earnings for an investment where the earnings can’t go up for 30 years. Now if somebody said to you, “I wanna sell you a stock that’s at 50 times earnings. The earnings can’t go up for 30 years,” you’d say that doesn’t sound very good. Stocks are way better than 30-year bonds. I mean, it’s--that’s clear. And--that’s one of the alternatives people h-- people really have three basic alternatives, short-term cash which is an option of doing something later, long-time bonds or-- long-term stocks. And stocks are cheaper than bonds.

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  • That-- led Keynes to actually say that this was an important book. People paid attention to it. But you’re right, it added to the frenzy that built up to 1929.

    Well, that is true because you can get-- an old boss Ben Graham told me very early on, “You can get in more trouble with a good idea than a bad idea,” because the good idea works. I mean, it’s a good idea to buy a home, for example. And then people go crazy sometimes. A good idea works and it works and it works. Stocks work out better than bonds most of the time. And after a while, people forget that there were some other limiting conditions. With Edgar Lawrence Smith’s book it was that when bonds yield the same as stocks, which was the case then, that stocks are gonna outperform because they have this retained earnings. So stocks started going up in the ’20s. And all of a sudden they were selling at five or six times the prices as when he bought the book. And the original correct-- perception on his part had experienced changing conditions. But people just looked-- they-- they got their confirmations for the stock price. And that’s what happens in bull markets. People-- start out thinking stocks are cheap and then they start thinking stocks have gone up. And-- a stock can be a good buy or a bad buy. A bond can be a good buy or a bad buy. It depends on price.

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  • You-- made a point of that in a letter this year where you-- highlighted a book that was written by Edgar Lawrence Smith back in 1924. And you said until he came along nobody really realized the compound interest effect of buying stocks. Not just buying businesses but buying stocks themselves.

    Edgar Lawrence Smith changed the world with that book. And people have forgotten all about it now. Although in the 1920s it became more and more gospel as the boom went on. But Edgar Lawrence Smith set out, “I’d like to write a book on bonds versus stocks.” And he said-- he went in with the idea that bonds would be a better investment in times of deflation and stocks would be a better-- investment in times of inflation. And the first line of his book was to say that he’d been wrong. But he had enough sense to look at his evidence. And, I mean, I think Darwin said if you found evidence that was contrary to what you already believed write it down in 30 minutes or your mind will just block it out. I mean, people have a great resistance to new evidence. And he said, “If a stock yields 4% a bond yields 4%,” which is what he was talking about then, “The stock was going to outperform the bonds because there were retained earnings that we’re building beyond that yield.” And that’s-- that has been true for a long, long time but nobody paid any attention to it. We don’t get rich on our dividends that we receive. While we happy to receive them. We get rich on-- the fact that the retained earnings are used to build new earning power, repurchase-- shares which increases your ownership in the company. And- Berkshire has retained earnings ever since we started. That’s the only reason Berkshire is worth a lot more as we retain earnings.

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  • You don’t but if I worry that the economy is gonna slow down, not just for the quarter but for the year that would impact how many cars I think they might be able to sell or even produce.

    I guarantee you cars are gonna slow down some day. They-- and-- in 1932 General Motors had 19,000 dealers. That’s more than all the auto dealers in the United States today. There are only 125 million people. But they had 19,000 dealers. They produced-- or sold and-- there was one month I think when they sold less 1/10 of a car or right at a 1/10 of a car per dealer. That was a terrific time to buy General Motors. And-- forget about the market, if you can put a good market, you know, you don’t even have to read balance sheets. You don’t-- you don’t even need-- you don’t even read any-- you certainly can’t predict the market by reading the daily newspaper. That is for sure. And you really can’t-- you certainly can’t predict the market by listening to me. But you’re buying businesses. And if you plan to buy a local service station yesterday and it was closing today I don’t think you’d tear your hair out or anything like that. You’d have already looked at it where it was located, the contract that they had with the suppliers and made a decision on competition. People-- because they can make decisions every second in stocks, whereas they can’t with farms, they think an investment in stocks is different than an investment in a business or an investment in a farm or investment in an apartment house. But it isn’t. If--- you get your money’s worth in terms of future earning power over the next ten or 20 or 30 years you’re gonna have made a good investment. And you can’t pick them from day to day. If you can do that you can, well, I haven’t met anybody yet that-- that knows how to do it.

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  • Although there are a lotta people who look at the market and say, “Look, I wanna buy but I don’t wanna buy when the market’s sitting at new highs, when it’s been hitting new records every day. Maybe it’s off 800 points this morning but maybe there’s more of a decline to come because the effect of the Coronavirus is going to be an impact on the global economy.” IMF said that over the weekend. You are going to see weakness as not only China but other countries try and address this. You’re right, it may not change things over the five or ten-year span of things. But if I think I can buy something for potentially 10% cheaper, maybe more than that if I wait a week or a month, maybe that’s what I’m sitting around--

    Well, if you think that then you gotta-- you’re gonna get fabulously rich if you’re right. All you have to do is just keeping buying in ten-day intervals and keep making your ten-day prediction. If I knew what the market was gonna do obviously. But you-- don’t-- I don’t think anybody knows what the market’s gonna do. I think you know-- do know whether you’re making an intelligent purchase at a given price. Everybody when they buy a stock, if you’re gonna buy, say, General Motors that has a billion-- 400 million shares out, you should be able to take a yellow pad like-- there and on one page say-- let’s say it’s selling for 30. It isn’t selling that low but that’d be $42 billion. You should say, “I am buying the General Motors company for $42 billion because--” and you should get it on a piece of paper. And then if you wanna have a separate piece of paper that says, “I think I know what the stock market’s gonna do so I know whether it’ll be higher or lower in a week,” but you don’t. You don’t have that--

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  • It’s good to see you. I wanna talk about the letter-- obviously one of the things that you touch on the level-- on the letter is when people should be buying stocks. We’re gonna dig into a lot of it. But when you’re looking at the futures down about 818 points this morning, I think probably the first thing viewers wanna hear from you are your thoughts on what’s happening with the Coronavirus, if this is a reason to panic and if you were worried about this.

    Well, I-- don’t know if I have any special thoughts beyond the news on the Coronavirus. The very first day I bought stocks was March 12th, 1941 ’42. And-- the stocks were down about 2% that day as it turned out. Unfortunately I bought in the morning. So when I came home in the evening and my dad told me the execution price it was down 2%. If you’re buying a business-- and-- that’s what stocks are, businesses, in fact, people would be better off if they say, “I bought a business today,” not a stock today because that gives you a different perspective on it than presumably good and buy a farm, if you buy an apartment, a house, if you buy a business you’re gonna own it for ten or 20 or 30 years. And the real question is is has the ten-year or 20-year outlook for American businesses changed in the last 24 hours or 48 hours? And we’re gonna-- you’ll notice many of the businesses we own-- partially own, American Express, we’ve owned it for 20 years, Coca-Cola, we’ve owned it for 40 years-- but those are businesses. And—you don’t buy or sell your business based on-- on-- today’s headlines. And-- if it gives you a chance to buy something that you like and you can buy it even cheaper then it’s-- you’re in good luck basically.

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  • Is that why you've sold off some of the shares?

    No. Not specifically.

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  • You say occasionally “they do dumb things.” Maybe you're talking about Wells Fargo with the scandal that it had? It just settled on Friday, with a number of the regulatory institutions that were kind of looking into it, the investing allegations that were taking place, for $3 billion.Does this mean that they have kind of finally gotten through that and can move forward?

    I don't know the answer to that. I know that they're paying $3 billion because it was announced. I don't know what else is outstanding. But Wells Fargo's classic, in terms of one lesson. My partner, Charlie Munger-- he's-- you know, he says, ‘Whenever we have a problem, you attack it immediately.’ He says, ‘An ounce of prevention is not worth a pound of cure. An ounce of prevention is worth a ton of cure.’ And we've seen that time after time. And the interesting thing, I-- and I don't know the details at all, but the original thing was a bunch of-- whole bunch of phony accounts. Now, I don't know how if you open up a couple million phony accounts you make any money on it at all. I don't, the shareholders didn't make money.

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  • Not to mix metaphors, but can you have a decentralized central office running both the French restaurant and the hamburger place?

    Well, they aren't trying-- we're not trying to have railroad management run the utility here

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  • Let's talk a little bit about Berkshire Hathaway. We were in the middle of a conversation when we had to go to a break before. But there has been this question raised, not only about Barron's and the cover story there but by other places, too, about whether Berkshire Hathaway would be worth more if it were split up.

    That's a good question. And I will tell you that-- that if you were to say--and let’s say the stock market didn't change for two years and interest rates didn't change. So, if you had a two-year period and you said, ‘We'll sell off all the businesses,’ I don't think-- I mean, you have the expenses of selling them. Now, if you sold them all to people who leveraged them up to their maximum, you might get a little more than the stock is selling for. It would be very tax inefficient, very tax inefficient. Interestingly enough, up until 1986 it wouldn't have been. I mean, there was as general utilities doctrine that governed corporate breakups. And so, you could dispose of businesses or securities-- if you did right, you could dispose of securities or businesses that are depreciated without a tax at the corporate level. That was done regularly in various ways up till 1986. They revised the tax code big time. They killed general utilities. You can't do that now. Now, you can go-- you can have spinoffs, this business or that business. You probably have to lie a little in terms of your purpose in order to get the best tax ruling. And it takes time. But you cannot break up-- you cannot dispose of the entire business, business by business, without having very substantial tax liability. It would not produce a gain. On the other hand, having them together produces—there are some very valuable synergies in there. Now, we don't use leverages much as the people who would buy them piece by piece would do. So, we could leverage Berkshire up to the sky. I've promised people we won't. Because we have insurance promises to people out 50 or 100 years and we've got shareholders who are going to own the stock for 50 years, and they do not want us to leverage to the sky. But there would not be a profit if we were simply to announce that over the next 24 months that you could come in and buy any business we had, and we'd sell them to the highest bidder.

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  • What are Bill's concerns, as somebody who spends a lot of time traveling around the globe, as somebody who is trying to help medicine in some of the less developed parts of the world?

    Yeah. The Gates Foundation is very active in trying to be helpful on this. And Bill says the CDC is the best in the world. And, I mean, we've got terrific resources in this country. But a pandemic is a pandemic. And, there's just no evaluating. And--but I have heard that the summer is not likely to cause the end of this.

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  • Do you believe in precision scheduling railroading?

    Well, we'll see. I mean, we've watched it plenty.

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  • it was recently pointed out by Bill Ackman that some subsidiaries like Geico, BNSF lag their peers in some areas. Would you agree with that? And how can your successor push improvement in subsidiaries while maintaining a decentralized management structure?”

    Well, at Geico we bought control in 1995. We had about 2.5% of the market for auto insurance. And we're at about 13.7% of the market. So, we've gone from 2.5 billion of premium volume or thereabouts to 35 billion of premium volume. We're number two now to State Farm. We were number six or seven at that time. So I would say that not due to Berkshire at all, but due to Tony Nicely during almost all those years. Geico's been the envy of every other company in the auto insurance business expect for Progressive. They've done a good job too. But Geico is worth tens and tens and tens of billions more than when we bought it in addition to all the earnings we've gotten, just a good will value. So that's been extraordinarily well-run. And with Burlington, I think we paid a dividend of $5 billion last year. And we paid $35 billion for it. So, it's gained in market share and its business. Its operating margins have improved but they haven't improved as much as some other railroads.

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  • outside of the idea of them not having to report to individual shareholders or the investment community, what's the advantage of having you there? The capital allocation part of it?

    Well, yeah, we can move capital within – if you move capital from one stock to another and you got a gain – particularly, I mean, you pay a tax. And then they pay a dividend tax or if you sell part – but there's a lot of taxes incurred in moving from one business to another. Either at the corporate level in some cases but certainly at the individual level. And we can move capital, well, just take See's Candy again. We bought that in 1972. We've moved a several billion dollars from the candy business to other types of businesses. And we'd love if it we can use it all in the candy business. But it just isn't that sort of business. And in addition to that we free up our managers from all dealing with Wall Street, dealing with bankers, dealing with all kinds of things that are what I regard as a less productive use of their time.

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  • Let's talk a little bit about a Barron's cover story that was just out last week. The good news on the cover story is they think that Berkshire is worth more than it's selling for right now. The bad news is they said think that's in part because it's got a big conglomerate discount. And they think if you weren't running it that it might get broken up. What your response to that line of logic?

    Well, conglomerates have had a bad name and for good reason over the years. I mean, I closed my partnership up at the end of the 1960s. And there was a run, a very abusive run in conglomerates where they played with numbers and they had dirty pooling as they call it of accounting. They wanted to have their stocks up and put out stories to do it so they could issue more stock. They were kind of chain-letter arrangements. There have been a lot of bad conglomerates. And probably disproportionately so compared to sort of honest to God single-industry businesses over time. We don't think we're that kind of a conglomerate. We've certainly never wanted to issue shares. We never touted shares. You know, it's done for business reasons in our case. The interesting thing is, of course, is the American public has been going wild in their enthusiasm for conglomerates in the last few years, if you think about it. I mean, it's been an incredibly popular area. But they call them index funds. You buy 500 businesses—

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  • Does that mean Berkshire will be buying stocks today?

    Well, we certainly won't be selling. And yeah, we could easily be buying something, sure.

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  • or people who are just waking up, they're tuning in and they want to know what you think about this sell-off this morning. To see the DOW down 700, 800 points in the morning, what's your reaction when you see something like that?

    Well, my reaction is that I like to buy stocks, so I don't wish ill on anybody else. But I like to – if they want to sell them to me cheaper, I prefer it. So that's you know, roughly a 3% decline or thereabouts. I don't know how many 3% declines I've had in my lifetime but there have been a lot of them. And I can't think of one that you shouldn’t have bought on. You know, basically – not as many stocks are going to go up or down next week or next month or next year. But if there's something – if you like to own American businesses, you're getting a chance to buy it 3% cheaper. I don't consider that a lot cheaper. I mean, but how can it be bad news unless you have to sell stocks? Now if you have to sell them for some reason, you're worse off. If you don't have to sell them, I mean, somebody can come around and offer you a quote on your house today. And it could be 2% less than they offered you yesterday. But if you like the house it really doesn't make any difference to you.

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  • Is that an argument for the federal reserve or I'm sorry, for the treasury department here issuing longer notes?

    Well, yeah, but I would've said the same thing five or six years ago and been wrong. But if we – under the present slope it still would cost more to lengthen it out. But you're lengthening it out at very, very low rates. And it would be what I would be inclined to do if I were secretary treasury. But I would have missed a lot of bets in the last ten years too.

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  • You know, that's the downside of low interest rates, pensions, savers, anybody who gets left in a raw position of that. On the alternate side of things, if rates were to rise rapidly or maybe not even so rapidly, what does that mean for the federal debt?

    Well, it depends on the average maturity of the debt. But our maturities are fairly short. They've got lengthened a little. But if you take 20 trillion and you're borrowing at 2%, you've got 400 – what have you got? Two trillion – 200 billion. I mean, you got 40 billion of the expense. But close to 5% you got 100 billion of the expense. I mean, no at 5% you got a trillion of expense. I'm sorry. We are benefiting enormously in our national budget by the fact that inverse rates are very low. And so, interest cost has not gone up as you would've anticipated if you were looking at the scene 20 or 30 years ago with the increase in national debt. You know, Wall Street issued 100-year bonds. You know, but 2% or thereabouts. And then they've gone way, way up and that – maybe they yield 1.1 or something like that. I don't know where they are now. But it's great if you're a borrower, gee, maybe everybody should refinance their mortgage.

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  • Consequences that could have a big market impact?

    Depends how far it goes. Yeah. Yeah. it's something that – things that get built in slowly, people going crazy and tech companies in the late 1990s. It could take a lot longer than you think. But eventually you get to midnight and everything turns to pumpkins and mice.

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  • Do you think though that's what should be happening. Do you think that there is more risk-taking place in the insurance market as a result?

    Sure. And you see that in – they call leverage loans and weaker covenants. No people are reaching for yield. There's no question about that. And that's stupid. And it has consequences over time. But it's very human.

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  • Are insurance companies being forced to make riskier and riskier bets?

    Well, they shouldn't. I mean, the answer – if you need to get 3% and you're only getting 1%, the answer is to quit giving 3%. It's not to try and get the one up to three and do more dangerous things. You should always adapt your consumption to your income. You shouldn't try and adjust your income to your consumption. That's a basic principle for individuals, businesses and everything else. And reaching for yield is really stupid. But it's very human. I mean, and I understand it. People say, "Well, I've saved all this money all my life and now I can only get 1%. What do I do?” The answer is you learn to live on 1% unfortunately. And you don't go and listen to some salesman come along and tell you, "I've got some magic way to get you 5%."

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  • Bad for insurance companies and what happens to the insurance companies as a result? Are they getting more – are some insurance companies going to push out risk?

    Well, the ones that really get hurt on it are either life or annuity companies that have promised returns. Property casualty business doesn't promise returns. It still holds money, so it hurts them. But if you promise somebody an annuity that's clearly to pay them 3% or 4% and now you find that you're reinvesting your money at 1% or something, you know, you're going to disappear.

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  • All right, let me ask you a broader question that comes in just on interest rates and the impact that they might have as well. Varun Jain writes in on Facebook, "Hi, I'm a huge fan and student of Mr. Buffett. Please ask him what impact does the zero-interest rate environment across places like Japan and Europe have on their banks, whether the business is still good. And does the prolonged low-interest rate regime in the United State hurt the prospects of American banks like JPMorgan, etc.? And in such circumstances do Indian banks which have high return on equity look attractive to Mr. Buffett?"

    Generally speaking, but there are a lot of other variables too – but the banks are going to make more money if there are higher rates with a steeper curve. The curve makes – is more important than there was the ten year versus short-term rates. They make more difference than the absolute level. But American banks have made very good money with very low interest rates. Around the world, if you look in the U.K. or Europe or Japan even lower rates have made it pretty tough for banks. The returns on equity are not as high. And they have to use more leverage to even get the same returns and I don't like that as well.

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  • Ok. I'll try one more from Tony Dickinson just because I think I got 15 or 20 different questions on this. "Berkshire owns 32.58 billion of Bank of America and 17.39 billion of Wells Fargo, one position's been increasing while the other's been decreasing. Does Warren like Bank of America twice as much as Wells Fargo? And how should shareholders see the holding?

    Yeah, well, I think they’ve sees that we've bought Bank of America and we've sold some Wells Fargo.

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  • All right, well, let me ask a question that came from Tony Dickinson. He said, "In the fourth quarter Berkshire sold 55 million shares of Wells Fargo. Should shareholders view this as a lack of confidence in the new CEO turnaround plan? And what is Warren's future outlook for Wells Fargo?"

    Well, I won't give him any advice specifically on Wells Fargo. But it's absolutely true that we've sold down our position. Some of it was sold down to avoid being over 10% because then you do have some filings with the Fed and so on, but—Yeah, we've sold – more than that.we sold Wells Fargo in the fourth quarter and we sold earlier.

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  • Are you buying more of any of those stakes right now? Apple shares –

    I get pretty closed mouth when it comes to what we're buying.But it's fair to say that anything that we own we like. You know, and there's very few stocks that we own and I look at them as part ownerships in businesses. There's very few that are selling at some price where I would sell them a little higher.

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  • So, is it fair to say you like these stocks and you would own more if it wasn't complicated?

    Well, we – to go beyond 15% in any company we'd have to go in on – I mean, there's a lotta rules as you increase your ownership. Obviously almost anything we own we like to own more of.

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  • There's been a lotta speculation. In fact, some of the questions that came in over this weekend-- were questions about those airlines. Wondering if you would buy any of them outright. Have you considered buying any of those companies outright?

    It'd be very unlikely that we would do that. I'm not saying it's impossible. But-- it's complicated.Well, for one thing, they're regulated and-- there's an interplay. I'll just give you an example, not that we would be doing. But with Delta we own 18% of American Express and American Express is a bank holding company and bank holding companies have limits as to what they can do. And we're a passive holder of a bank holding company with American Express. But instead we own an airline that was tied up with them they'd have lots of arrangements. There's-- a lot of complications because it's--a regulated industry. Anytime you get in a regulated industry you-- have more complications and---- in transactions.

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  • I think you own-- north of 11% of Delta at this point?

    our largest position is in Delta-- three of the four positions are mine. One of the positions is one of the other fellows-- the four positions. But we own a very roughly ten-- close to 10% of-- the four largest airlines.

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  • All right, tell us more about what's going on just since you like knowing about those things.

    Well, I-- as I say-- you know, the-- certain businesses depend on weather to quite an extent. In retail, for example, in given months-- but the big trends you see are going on, I mean, in terms of movement-- to online commerce. And, I mean, the big stuff-- keeps moving. But we've got a big investment in airline business and I just heard they're-- even more flights are canceled and all that. But flights are canceled for weather. It so happens in this case they're gonna be canceled for longer because of-- Coronavirus. But if you own airlines for ten or 20 years you're gonna have some-- ups and down in current business. And some of them will be weather related and s-- they can be all kinds of things. The real question is you know, how many passengers are they gonna be carrying ten years from now and 15 years from now and what will margins be and-- what will the competitive position be? And-- but I still look at the figures all the time. -- I'll admit that.

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  • Why--do you think business was down, let's say, the last six months? Is it-- a decline in confidence or is it coming off of levels where there was unusual activity ahead of that?

    Well, it isn't really down. It's just-- it leveled off and a little softer maybe now. But, look, tariffs the-- tariff situation was a big question market for all kinds of companies. And--still is to some degree. But that-- that was front and center for a while. Now Coronavirus is front and center. Something else will be front and center six months from now and a year from now and two years from now. Real question is-- where your-- where are these businesses gonna be five and ten and 20 years from now? Some of them will do sensationally, some of them will disappear. And overall I think America will do very well-- you know, it has since 1776.

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  • When you look at the economy and how things were kind of chugging along, let's say, beginning of this year, when-- first things-- first picked up, how would you gauge the U.S. economy at that point?

    Well, it-- it's-- strong but a little softer than it was six months ago. But that's over a broad range of-- you look at car holdings-- railcar holdings, that-- that's moving goods around. And there again, that was affected bythe tariffs too because people front-ended purchases, all kinds of things, all-- a lotta variables. But-- business is down. And-- but it's down from a very good level. So I would say that looking at our 70 businesses-- and that actually-- they represent hundreds-- in addition-- they're a little softer. And on the other hand I was out with the fellows from the Nebraska Furniture Mart just Saturday night and--their business was up quite a bit in February. But that's because weather was good. So you have a lot of variables that hit.

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  • What are the momentary implications that you've seen from Coronavirus? What's an example of the business--

    Well, an example-- is that we have maybe 1,000 Dairy Queen-- franchises in-- China here. And they're just treat only, so they're-- the old type of-- food. But-- a great number of them were closed. But the ones that were open weren't doing any business to speak of. And-- Apple is-- I mean, a much bigger holding is Apple. We own 5.6% of Apple. And-- the company came out and said that it's affecting not only its stores but all kinds of things, supply chain and I find that certain of our companies have got supply chain arrangements that are being affected that I didn't even know I had those.

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  • Well, there are a lotta questions that are coming in from viewers that have been hitting here today. They're waking up this morning, looking at the stock market indicated down by almost 800 points for the DOW. We're actually off our worst levels of the morning which is something to say when you're still looking at the DOW down by about 786 points. But people have a lotta questions about the economy. They're wondering what's happening right now, particularly with the Coronavirus out there. You have a lotta economic data at your fingertips because not only are the many businesses that Berkshire owns but the businesses you own pieces in. What-- are you seeing right now around the globe?

    Well, it-- affects various businesses. I would say that I received commentary-- I get some commentary monthly with-- from-- from almost all of the companies. And-- a good many of them had some comment about how it was affecting them and how it was affecting them at-- that time I'm sure it's sure it's accentuated. But they've been affected by-- they were affected by tariffs, they're affected by taxes, they're affected by-- the most thing is they're affected by competitors and supply and demand over time. And I don't have the faintest idea what our businesses will be doing six months from now or 12 months from now. I do think that not only our businesses but American business generally will be doing fabulously better 30 years from now or 20 years from now. And the-- long-term is very-- in my view is very easy to predict in the general way. But an important way. I don't think there's any way to predict what the stock market will do ten minutes from now, ten days from now or ten months from now. So I work on what I think I-- I'm able to do. And as desirable as it might be to know what was gonna happen ten minutes from now that's just-- not something I'll ever be able to master. So fortunately I can come to a pretty firm conclusion that 20 or 30 years from now American business and probably all over the world will be far better than it is now.

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  • You said-- just a few minutes ago when we asked you on worldwide exchange, right now Berkshire Hathaway is a net buyer of stocks. You are in a net buying position?

    We've been a net buyer of stocks-- or I've b-- actually been a personal net buyer of stocks ever since I was 11, every year. And-- there's been 15 American presidents in my lifetime, more than 1/3. I've lived under 1/3 of the I didn't buy stocks under Hoover. I was only about six months old then. But there've been seven Republicans after that and seven Democrats. I bought stocks under every one of 'em. Now I haven't bought stocks every day. There've been a few times I've bought stocks where-- were really quite high. And I've even written an article once or twice. But that's very seldom.

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  • Would you repeat that this time, if trouble's coming would you still say buy stocks right now?

    I would say buy stocks if you get enough for your money. You know, we buy a few stocks. But we don't look at-- we're not buying the stock market. We're saying I am buying-- say American Express. We own American Express. There's 815 million shares out. And sells at-- this morning it was $126 or something like that. So it's selling for roughly $100 billion. Now the real question is whether the company's worth or more less than $100 billion. It isn't what the stock is gonna do tomorrow or next week or next month.

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  • Charlie said recently-- Charlie Munger, vice chairman at Berkshire Hathaway had his daily journal meeting just a couple weeks ago. And at that meeting he said that there's a lot of wretched excess out there and that there's a lot of trouble coming as a result. Do you agree with that?

    There's always trouble coming. Yeah, there was trouble coming in 1942 when I bought that first stock. All kinds of trouble. Phillipines were gonna fall pretty soon. there's all kinds of trouble in 1949. There was trouble-- certainly trouble in 2008 when I wrote an article for The New York Times. I said, "Trouble is coming." But I said, "Buy stocks."

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