저자: 워런버핏 · 외국인
요약 보기
버크셔 해서웨이 제54회 주주총회를 중심으로 한 인터뷰 영상이다. 주요 내용은 다음과 같다. [행사 개요] 이번 주주총회에는 4만여 명이 참석했고, 애플 CEO 팀 쿡이 처음으로 참석했다. 애플은 버크셔의 최대 보유 종목이며 버크셔는 애플의 3대 주주다. 팀 쿡은 주주총회 분위기와 버핏·멍거의 질의응답 태도를 높이 평가했다. [미중 관세 전쟁 우려] 시장이 관세 재부과 소식에 급락하던 시점의 인터뷰다. 버핏은 무역전쟁이 실제로 벌어지면 전 세계에 나쁘고, 범위에 따라 매우 나쁠 수 있다고 봤다. 협상에서 강경하게 말하는 것은 가능하지만 협상 상대의 반응을 예측하기 어려워 위험한 게임이라고 했다. 관세 확대의 파급력은 여러 나라로 퍼져 나간다고 설명했고, 관세 위협이 협상 테이블로 끌어내는 핵폭탄 같은 역할을 한다고 비유했다. [시장 반응과 투자 원칙] 글로벌 증시가 동반 하락했으나 버핏은 시장 반응이 합리적이라고 평가했다. 관세 위험 가능성이 1%에서 10%로 올라가면 시장이 빠르게 반영한다고 봤다. 버핏은 단기 뉴스나 다음 분기 전망을 보고 주식을 사지 않으며, 10년 뒤 좋은 사업이라고 판단할 때 산다고 강조했다. 두려움이 클 때 좋은 기업을 살 기회가 더 많다는 입장이다. 관세 사태로 중국산 제품 재고가 미리 쌓이며 철도 화물 물량이 왜곡됐다는 점도 언급했다. [크래프트 하인즈] 크래프트 하인즈가 2016~2017년 실적을 재작성(restatement)한다고 발표했다. 영향은 조정 이익 기준 연간 2% 미만으로 중요성(materiality)은 낮다고 했다. 회사는 내부 조달 부서 직원들의 부정행위를 확인했으나 경영진 연루는 없었다. 버핏은 회사에 대한 신뢰를 유지한다고 밝혔다. 버크셔가 지분 20% 이상을 보유해 배당이 아닌 지분법 이익으로 잡히며, 1분기 실적 보고에는 0으로 처리했다고 설명했다. 또한 크래프트 하인즈 인수가 과도한 가격이었다고 인정했고, 실수는 누구나 할 수 있다고 말했다. [옥시덴털-아나다코 인수전] 옥시덴털이 아나다코 인수 제안을 수정해 주당 76달러, 현금 78%·주식 22%로 바꿨다. 버핏은 버크셔가 100억 달러 자금 지원을 약속했으며, 제안 조건 변경과는 무관하다고 말했다. 옥시덴털 CEO의 서한이 적대적 인수로 읽힌다는 질문에는 자신이 협상 과정 전반을 정확히 알지 못한다고 답했다. [빌 게이츠 대담 - 영양실조와 비만] 게이츠는 영양실조 문제 해결에 집중하고 있다고 밝혔다. 장내 염증과 마이크로바이옴이 단백질 부족과 결합해 아이들의 영양 흡수를 막는다는 것이다. 값싼 알약 형태의 개입으로 영양실조를 줄일 수 있을 것으로 봤다. 이 연구가 장기적으로 과잉영양(비만)과 식욕 조절 연구로 이어져 약 10년 안에 성과가 나올 것으로 전망했다. [미국 의료비 문제 - 헤이븐] 버핏, JP모건, 아마존이 공동 추진하는 의료 프로젝트 '헤이븐'에 대해 버핏은 매우 어려운 장기 과제라고 말했다. 미국 의료 산업 규모는 연방 정부 세입과 비슷하며, 비용이 GDP의 5%에서 약 18%로 올랐다고 지적했다. 멍거는 싱가포르가 미국의 약 20% 수준으로 의료비를 쓰면서 더 건강하다고 비교했다. 그는 미국 의료 체계가 과잉 시술과 이해관계자들의 이익 구조 때문에 개혁이 어렵다고 보고, 체계가 성공할 가능성을 낮게 평가했다. [독서 추천] 버핏은 멜린다 게이츠의 신간 『The Moment of Lift』를 추천했다.
다듬은 글
This was the 54th annual shareholder meeting for Berkshire Hathaway and while shareholder meetings are known for being lightly attended, staid, and downright boring, this was anything but. More than 40,000 people attended here, including business leaders like Activision Blizzard CEO Bobby Kotick, Quicken Loans founder Dan Gilbert, and Spanx founder Sara Blakely.
And for the first time, Apple CEO Tim Cook was in attendance. Apple is now Berkshire's largest equity holding and Berkshire is Apple's third largest shareholder. We caught up with Cook this weekend and asked him what he thought about it all. I think it's incredible. I've never been to an annual meeting like this before.
You know, I thought ours was lively, but there's 40 plus thousand people here. And I love the fact that Warren and Charlie take every question and of course through all of it, not just the wisdom that they exude, but you can feel the integrity and the humility coming out. I think it's a great learning experience for me and for everybody in the audience, I'm sure.
Joining us now is Berkshire's chairman and CEO Warren Buffett. And Warren, what's it mean to you to have gone through this weekend? It's a lot of fun. I mean, you see who you're working for and they see you and you interact with them and and they come in sort of a Mardi Gras spirit. I would say in the last 10 years was now maybe 40, well, from out of town, not 40,000, but but a great many from around the world.
Uh I just never get a letter of complaint. I mean, I know that somebody misses planes or has a car rental that isn't available or a hotel room, but they they they they just come in the spirit of enjoying it and and and the people in Omaha welcome them that way. So, so people go around with smiles on their faces.
I mean, we have 600 of our own people that come in from our various subsidiaries and and they really work Uh, a couple of days and and I've never seen anything but smiles on their faces. Well, they're unfortunately we're not going to allow you to rest on your laurels this week because we have some major news [clears throat] that's breaking this morning.
You see the markets already down by almost 500 points. The futures here for the Dow. What do you think about the potential for trade tariffs coming back on and what that might mean for the trade talks? Well, I I can't I can't gauge how both sides will play the game and and they're always Some people negotiate different ways and and if we actually have a trade war it will be bad for the whole world and and could be very bad depending on the extent of the war.
But there's times in negotiations when you talk tough. The one thing you can't do though is you can't you can't shake your fist first and then shake your finger later on. I mean that it that is not a technique that works well. So when you do push your head you don't know exactly what the outcome is going to be.
Well, you can't shake your fist first and then shake which finger later. What Well, well, well, you're you're more advanced on this than I am actually. But the Well, that that's what you're worried about is you get the other finger back and and and uh you have to meet it after a while otherwise it doesn't mean anything obviously when you when you do that and you're gauging a response from someone else that also has their own calculus and has their own uh uh uh uh internal political considerations and so on and so it it's it's it's a dangerous game.
Doesn't mean it's a game that shouldn't be engaged in but it's a dangerous game. Uh you negotiate a lot of deals too. Um would this be your tactic? Well, it it isn't mine at all but but uh you know, we can talk about the Occidental deal later on in the oil story, but but but I've had a consistent way of negotiating, and that has its advantages.
By the way, it has its disadvantages, too, but but uh I just say what I'll do, and and uh I don't do anything else. So, uh people really know that's what I mean, and and they can decide whether what I've said is acceptable or not, but they know that I don't go through a a game. Now, there's lots of people in acquisitions that really like to play games, and and they're used to it in their own business, and and it's it's their way of doing it, and and that's fine, but it doesn't work with me.
And I don't want to I I can't afford to spend the time on it. I mean, you know, you don't know whether you're ever going to get there, and you spend weeks and months, and uh it's just it it it it it would be a huge time waste if we did it. You know, I I don't know that this is bluster coming from President Trump, though.
He's already put the tariffs on, and uh I don't know that I would take this lightly and think that we're not going to be seeing 25% tariffs on Friday. you can't, but if you're playing you're playing the game, you have to sound that way. Uh I mean, if you if with some people in negotiations, uh uh the best technique is to act half crazy.
I mean, that that uh You know, with your kids, you can see how it works. You're negotiating things with with your children all the time, you know. I'm going to count to three, and if you don't do this and that, you know, but they know you're not going to shoot them in the end, so they've really got the edge, and and that's that goes on all the time, and uh uh it's interesting kind of with the reputation industry.
We bought a very large uh auto dealership operation a few years ago, and and we did make more or less our kind of deal. We named the price and and probably 20 times since then people come out they say we want to do something and they just we've never found one that we could do the same way. I mean they just it's just part of their lives to to negotiate and it's part of my life not to negotiate so
You mean they come in with a high offer and expect that you're going to negotiate? you say they and I understand that. I mean that's that's the way a lot of things takes take place but but probably a majority of transactions and but it's nice to have a reputation for not doing it because it makes a lot easier.
You save a lot of time. Well, let's talk about what it would mean if tariffs on Chinese goods rose to 25% from 10% on on that $200 worth of goods at the end of the week. How significant is that? What would it mean for Berkshire's businesses? Well, it would mean a lot to the world. It isn't just the countries involved because you know they they take the dollars they receive from us net and they buy goods in other places.
I mean they're they're their their trade surpluses considerably less overall than their trade surplus with us. So everything is everything intersects in the world and and it depends who gets retaliatory with us or with them and it it's it's it's easier to start it than it is to stop it and and the effects would be huge if conducted on a major scale over time.
Just just just imagine Becky that that our Constitution was set up differently and that states could erect tariffs and Michigan will put a tariff in on on on you know that cars and we would have one of corn and then the degree to which trade would contract in this country. The mislocated plants, they the migration of workers that we I mean it would it would be well it sounds ridiculous to talk about it cuz it is ridiculous.
But you've got countries where uh you would have similar effects if you if you get country after country after country because you can't just have it between two countries and then it will it will spread. Now the very fact that it's sort of a nuclear threat is what brings people to the table. So I mean that's that's the way to many play the game, but you don't want to have too many uh nuclear threats out there because someday somebody may feel they have to fulfill one.
Right. Um I obviously that's why the global markets are under pressure. It's not just Chinese markets that are down. You saw that Korea Cosby was down by about 3%. Um markets down at just about everywhere at this point. everything. So that's a you're you're saying the market's reaction is the right one.
It's not an overreaction. rational and and then we'll see what happens next, but but obviously if if you went to bed a week ago and you thought there was a 1% chance of a trade war and then subsequent events make you think there's a 10% chance, markets reflect that very quickly. What would you put in terms of I mean you're you're an actual aerial mind in terms of these things.
What kind of odds would you put on it? When you talk about two leaders of the two major economic powers in the world uh that's not the sort of thing I can lay odds on. I mean you were talking about two personalities who are very much used to getting their way in in in in in in politics and you're talking about uh how they will be perceived in their own country uh in terms of their behavior and it gets very complicated.
It uh uh It There's no way I know how to predict that. Although you've written insurance contracts on weirder things than this. What what would you what would it take for you to ensure that there was a deal done at the end of this? It It would take a big premium. Yeah, this would not be the kind of thing I would look to insure, frankly.
Because it's so unknowable? It Yeah, and and you would have you would need to have a hard time to finding the the the risk precisely because if they lasted for a month and then so you get into the duration of how long it was. You'd have a lot of trouble writing the contract in the but it is the sort of thing not not precisely identical, but it's that we do take on unusual risk, but this is a big one.
Um what what will it mean for Berkshire businesses specifically? And I just think on Friday we spoke with Jim Weber, who's the head of Brooks Running. They've already relocated and and and moved a lot of their operations to Vietnam because of this concern. They've been in the process of doing that since these trade talks first kind of appeared.
seen it in in our rail uh car intermodal stuff that arrives on the West Coast. I mean, everybody stocks up ahead of time and it it distorts things just thinking about it. You can imagine the distortion if you get into it. And you really can't predict the speed or the degree of effect because it spreads.
Uh you can't do something between US and China in a big way without it affecting all the major markets as they go around and and uh uh you're starting a game that you don't know the ending of, but you know it isn't a good game. You say you But but like you say, it may be necessary to play another game to avoid that sort of thing.
I mean, that's that's what mutually assured destruction was. I mean, you know, as you felt as long as you had mutually assured destruction, nobody would actually launch a a missile and uh this is a similar can be a similar type game, a little bit of chicken in it. Uh you say that intermodal rail loadings were affected by it, meaning that you saw an increase in in railcar loadings because months ago because people were trying to stock up.
Yeah, they they they people loaded up on inventory that they thought might I mean, if you thought there's going to be a 25% I mean, if I thought there was going to be a 25% tax on Coca-Cola next week, I would have my house filled with Coca-Cola. It would look very good. Sales would look terrific. And guys that transported to my house would be doing great and everything and boom, it'd all end.
Well, that's a big [clears throat] concern. I mean, if we've been looking at this great economy and thinking things are wonderful, but it was really just pulling things forward and then you get into a situation where it stops down. Does that concern you just about economic growth? and I think actually in the GDP figures there was the a big [clears throat] inventory adjustment and and the uh no, if you if you think the flow of something is going to either stop or get more expensive and you need it, you're going to load up ahead of time.
Will this will this change your behavior in any way when it comes to purchasing securities or making deals? No, we will buy the same stocks that we were buying last week. It's just I won't tell you their names. But would you buy more if you get them down 5%? get, the more I buy. But it doesn't mean that you don't think the markets could go down further.
No, I'm not buying them because I think they're going to go up the next day or the next week. Yeah. So, it's something you're watching very closely. Yeah. Oh, uh yeah, but we watch the prices of things we do more than current events. Mhm. Because in the end we aren't buying them because what's going to happen next month or next quarter.
You know, we're we're really buying them because we think they'll be good businesses 10 years now. If somebody came to us with a good business today, we'd buy it. And we buy it regardless of what's going on in the tariff situation. Uh We might have This is maybe the case, but you might we're more likely perhaps to get something when other people are are fearful.
And you see that in a big way instantly in a market you know in the market for businesses. It's But it's it's still there in with people's minds. Welcome back everybody. Uh we are here and news is breaking. There's just an SEC filing that came out from Kraft Heinz. That's obviously a big Berkshire Hathaway holding.
Kraft Heinz says that it will restate earnings for 2016 and 2017 due to misstatements in the original filings. It does not, however, believe that the misstatements are what they call quantitatively material to any individual reporting period. It says that the impact on adjusted earnings is expected to be less than 2% for each year.
Kraft Heinz says that it has now completed an investigation that shows several employees in its procurement operation engaged in misconduct, but none of those were members of senior management. Our guest today again is Warren Buffett. He's the chairman of Berkshire Hathaway which owns a major portion of Kraft Heinz.
And Warren, what do you think of this this news just hitting while we're sitting here? Well, that's more or less what I've heard. I'm I'm not on the board anymore, but but uh Greg Abel and Tracy Britt Cool are on. And so I've heard from them. Uh and uh uh This is This is an update that I heard last night uh that uh and they can't they can't issue the first quarter reports until the 10-K is filed.
And they can't file the 10-K till Price Waterhouse uh signs off on it. And uh and that apparently is going to require a restatement of a few years. Uh, and we could not report any earnings from Kraft Heinz in the first quarter because if we get a dividend from, um, Bank of America, that dividend goes into earnings, but because we have over 20% of Kraft Heinz, we don't report report the dividends.
We report the earnings. So, we received a dividend of about 130 million in the first quarter, but that we don't report that. And, uh, uh, and we expected to get the earnings before we issued our own report, but when the time came to issue our report and we didn't have anything, we just we put a zero in there and and explained it in our release last Saturday.
And, and this is just a further, uh, indication of the facts as they stand now. Uh, at some point, the Pricewaterhouse uh, will need to be happy with the figures they're reporting and that evidently involves restatement. And, uh, at that time, I guess it's the quarterly figures become quite current and that we keep picking up our share of the the earnings.
I mean, this has been a long standoff period between PwC and the company. If they're they've missed all of the deadline to get the numbers to you at that point. What What Yeah, we we didn't we didn't expect it. And, uh, uh, I thought that we would have the earnings on on time. And and Kraft announced their earnings for last year, but they had not been signed [clears throat] off on by their auditors.
So, while they released them publicly, they couldn't file the 10K with the SEC. Uh, subsequently, that's not unusual for companies to announce the earnings before they've actually got the sign-off, but uh, in any event it's just uh you know, we thought we were going to get them this week or next week, whatever it might be, and and then last Saturday came, and that's our time for releasing quarterly earnings.
We did not have them, so we stuck uh nothing in there. Uh and then I had a footnote, and we put it in our press release as well that we just didn't have the figures. If they're restating their earnings, does that mean Berkshire Hathaway will also have to restate its earnings? Uh no, but it would it would [clears throat] be so immaterial by the time you take just our share.
We're a much larger company, so uh there I I I I I don't exactly what we do when we get if it gets into the second quarter. I don't know whether we pick up two quarters in one quarter exactly how that works. Uh they they said that this is the they've wrapped up this investigation. Are you satisfied with what you've heard from that part of the investigation, or do you know the details
know about that. I do know that uh because I've been I've been kept abreast of some of the things that I I don't listen in on directors' calls or anything like that, but but Greg tells me what's in the high points of what or the low points of what's happened. And And we have a terrific head of the audit committee, Jack Pope.
He's an independent director. Uh he he He knows that sort of thing, and he and he and he's put in the hours on it. And uh so I feel very good about about uh the fact that Jack is is is he's really in charge of things from the standpoint of the directors. Does the company have your confidence? The company has my confidence.
You had talked about it over the weekend where you said that what you paid for Kraft was too much in hindsight. Exactly. Not what you paid for Heinz. That's correct. If we just bought Heinz, we it'd be a better investment. And we don't we don't 50 just over 50% of it of the a business that we're doing fine in relation to the what we paid for it.
In a situation where you determine that you've now paid too much, what do you do? I paid too much for stocks. I paid too much for a lot of things. [clears throat] Time usually works it out, but it it it means that capital could have been better deployed in other in other areas. You you can always pay too much for a business.
It and I've done it with stocks many times. I've done it with businesses. We've got we've got at Berkshire we have at least a half a dozen businesses and I can't even use a we there. I got to say I paid too much. So uh and if we make the next 10 deals we make uh there will be a couple where it will turn out that I paid too much.
Warren, there was other news that crossed the wires just last night in another deal that you're involved in. That would be backing up Occidental in its bid to try and take over Anadarko, which is also engaged in talks with Chevron, who's also got a bid out there. Last night Occidental put out its own statement and uh said that it's going to be revising its proposal.
It's now talking about a deal still $76 a share offer, but 78% cash and 22% stock. Um by increasing that cash portion, it allows what they call significant immediate value, greater closing certainty, enhanced creation because with this they no longer have to ask their shareholders for permission on this.
What are your thoughts about where the deal stands and what this latest update says? Yeah, I got a call um uh yesterday after evening. First time I I I talked to Occidental uh actually since uh a week ago yesterday, Sunday. Uh and they told me that they were uh going in this direction, which I like, but I have nothing to do with it.
I mean, we we committed 10 billion, and it had nothing to do with, uh, whether how they frame frame their offer, how much they offered, or anything else that that, uh, all they knew was that they were sure they could get 10 billion dollars from us if they, uh, complete the deal with Anadarko. Um, one of the pieces of the letter that Vicki Hollub, the president and CEO of Occidental, put out in its letter back to Anadarko, surprised me a little bit with just, how it still seems like this is a hostile bid.
There's not good faith talks that seem to be taking place between them based on her letter. She said this, "We remain perplexed at your apparent resistance to obtaining far more value for Anadarko shareholders, which has been expressed clearly through our interactions over the last week." Sounds to me like that is still kind of a hostile bid.
What Well, what it's my understanding, and and bear in mind the first thing I heard about this was a week ago Friday, when Brian Moynihan called and said the people at Occidental like to talk to you, and and I talked to them on Sunday, a week ago yesterday. Uh, my understanding is Anadarko and Occidental had talked, uh, much earlier, uh, well before the Chevron bid.
And we're talking [clears throat] about a transaction, and then, uh, Chevron made an offer which Anadarko accepted, uh, but Anadarko was for sale. I mean, they and so it it entered it held talks about selling itself to to, uh, uh, Occidental. That's That's my understanding, uh, and, uh, so they were talking.
They were they were talking to more than two parties for that matter. I wouldn't know that, but they decided that that that they were willing to sell, I'm sure subject to price, obviously. And uh uh they accepted an offer and Occidental felt they had a better offer. And and uh that's apparently where things still stand, but I don't know
Uh part details. Part of the the idea behind it had been that, well, would Occidental be able to get approval from its shareholders because its stock was under pressure. Um some of the shareholders obviously didn't like the deal. By using your cash instead of issuing as much stock as they had anticipated originally, that will keep them from having to go to their shareholders to ask permission for this.
And and as they're saying in their own level letter, that certainly increases the certainty of this deal taking place and and and removes some of that uncertainty. Yeah. I would I would also think uh that the sh- shareholder if you own Occidental, you're bullish on oil over over the years and and you're probably bullish on the Permian Basin because they were such a significant portion of their assets there.
So the idea that they will reduce use less stock and more cash as part of the deal, although they're getting the cash from from us, but uh I would think net if if I'd been a holder of Occidental over time, I probably would like that kind of a deal. I At Berkshire, I hate to issue stock. So uh uh generally speaking if any company we own uh is buying something, we like it better when they buy it for cash than they use stock because we like their stock.
Uh so I we'll we'll see what the reaction is um to this, but but uh I would just imagine it'd been an all-stock offer uh to begin with. I would I would think people would uh uh net their shareholders, but the shareholders will be speaking out, but I would think that the shareholders would like the the shares to
Andrew's got a question from back in studio, too. Andrew? Hey Warren, I I was just curious whether whether you were surprised that Anadarko hadn't engaged with Occidental on this at this price. And also, if there was a price at which you would think that Anadarko should or rather that Occidental shouldn't pay, meaning if if Chevron were to come back and they're at, you know, five times the size of Occidental, they they could just write a check and this could be over with if they wanted to.
But if the price were to go up, I know you get preferred shares ultimately, is there a price at which you wouldn't look at this favorably? Well, we've committed to the 10 billion dollars, uh 100%. Uh but it we do not have any uh control nor did we want any control uh over what uh Occidental did with our 10 billion in the terms of anything.
There's nothing in our deal that provides that they have to come back to us and request permission uh really to do anything. It's a remarkable deal, but that's the way we do them. And and uh in that respect uh and they uh So, they get our 10 billion if and when they close a deal uh with Anadarko and and uh and they don't have to consult us.
They certainly don't need our vote. They don't uh It was a matter of courtesy I got the call yesterday, but it was not a matter of necessity on their part. And that that's one of the advantages of dealing with Berkshire. I mean, we can do things that other people don't like to do or their lawyers don't like them to do.
And this is not a deal that our lawyers would have written. Is this deal a bet on the Permian Basin and on oil prices or is this just a bet on it's great to have an 8% preferred? Well, that's great to have an 8% preferred than any oil. No, it's a bet on it's a bet on oil prices over the long term more than anything else.
It's also a bet on the fact that that that uh the the Permian Basin is what it's cracked up to be and all of that sort of thing. But but it oil prices will determine uh will determine uh whether almost any oil stock is a good investment over time. Uh whether it's Exxon or some wildcat driller. I mean it uh uh If oil goes way down, n- a- you don't solve that by
by hardly anything. And if it goes way up, you make you make a lot of money. And uh uh and it it's not what it does next next week or next month or next year. You're buying reserves that go far out in the future. So you you have to have a view on oil over time. And and uh Charlie and I have got some views on that not not too specific because we're not that well informed, but that they are uh We we feel good about about doing the financing.
Why don't you just buy it yourself? It's only a $35 billion deal and you've got $110 billion in cash sitting around. Well, that might have happened if Anadarko had come to us, but but we we wouldn't jump into some other deal that we just heard about through somebody coming to us and seeking financing.
We wouldn't uh No, we we hope we hope people come to us [clears throat] uh to our businesses, but I had no idea that this transaction was going to happen. I mean, we could go Friday when I got the call from Brian Moynihan. Uh Well, I had read in the paper uh about the deal, but I didn't I've never had any contact with Anadarko of any sort.
Uh David Faber reported last week that you had said you would offer up to $20 billion, double the $10 billion that you did do on this deal. Is that the case? If they needed it uh uh but I think they I mean they have a arrangement obviously with the Bank of America who called us. I don't know anything about that deal.
I just know that that that that that B of A is is arranged that that financing uh if there were a different sort of thing. But what I'm what I meant to some extent with that is I'd be also very happy if somebody calls tomorrow and needs $20 million. Occidental just needed the $10 million. Okay. But but you like doing these deals at bigger sizes, not smaller sizes.
Is that Exactly. Okay. Um back to Andrew's point this is there for forever. It doesn't matter if [clears throat] the bids go up. Doesn't matter what happens along the way. Your $10 billion is is in this deal for whatever happens. Yeah, there is the lawyers don't write deals like this, but we tell them to.
Uh the there's no material adverse change. There's no if the stock market closes, but the deal closes uh we're there. We're there under all all circumstances and uh uh we don't we have not written any outs into it and uh uh but that's part of the attraction of doing business with Berkshire. And and besides that, we do it all ourselves.
So it isn't something that's parceled out among 10 parties and each one comes in and has to get their permission to make changes and all that. Uh when when they came to my office at 10:00 on on Sunday, we got all Sunday. Uh uh they knew that if we agreed uh which we did by 11:00, they knew Berkshire was 100% in.
Now they had their own board of directors meeting the following evening. Uh uh but they they could say to their board you're going to get $10 billion from from Berkshire when this closes and you don't need to give a thought to it. Obviously, many stocks are under some pressure of from what they were seeing from these Chinese trade talks, what the implications are from all of that.
One share that is one stock that is under pressure today shares of Apple. If you want to take a look at the chart, closed on Friday at 211.75. This morning the bid's at 204.91, the ask is at 205.10 and that's because China has been such a huge component for Apple. Tim Cook talked in the last earnings last week about how things seem to be really improving there.
Tim Cook also traveled to Omaha this weekend. He was here for the Berkshire Hathaway annual meeting. It's his first time coming here, but for for Berkshire, Apple is now the biggest investment that they have in their equity portfolio. It's also Berkshire is also the third largest investor in shares of Apple.
So when we sat down with Tim Cook this weekend, I got the chance to ask him what he thought and how it found out that Berkshire was first buying into shares of Apple. Listen in. I found out probably like you did, which is the 13F gets filed and somebody tells me about it and oh, this is really cool.
Warren Buffett is investing in Apple. You know, we we welcome all shareholders, but we run the company for the long term. And so the the fact that we've got the ultimate long term investor in the stock is is incredible because our our interests are aligned. And then but I I knew Warren before then, but I we had no idea they were looking to company.
They did all that obviously secretly and have their own method of doing that. And it's it's been a privilege and I'm super happy they've been accumulating. [snorts] Um what happened when you found out? Was there a around the office? Were there any high fives or was it a oh boy, now what? What It It seemed like a It seemed like recognition in a way and a in a like an honor.
Uh and a privilege and and I don't mean that in a lighthearted kind of way. I mean, wow, it's Warren Buffett is investing in the company. And uh yeah, and so it it felt great and I think for the whole company. Uh because we knew that he didn't uh he's been very clear he didn't invest in technology companies, in companies he didn't understand.
He's been totally clear with that. And uh so he obviously views Apple as a consumer company and uh in a in a different kind of way and I think that's the that's that's really special. Uh Warren, what did you think hearing this because when I told you we were going to tell you how he found out, you said, "Oh good, I'd like to hear the story." You've never talked to him about that?
I didn't Not not about that specifically, no. I I've I've known Tim a little over the years. I don't see him maybe at least once a year maybe maybe [clears throat] twice a year and I've talked to him on the phone a few times and sent him a letter. I sent him a Martin Luther King speech some years ago that was kind of lost to history that was perfect and I thought he'd enjoy, but uh uh no, I didn't I didn't call him up while we were buying.
I I try to keep as quiet as I can when we're buying anything. China though is a huge issue for Apple. It's why the stock had been under pressure earlier this year at the end of last year. Um last week on the earnings call it certainly sounded like they thought China the situation there was improving.
What What does this news today mean for the for for you? Well, the important thing is really what the relationship is with China. Three years, five years, 10 years, 20 years from now. At uh this I mean, this all enters in and certainly it it's hard for me to imagine that two most important countries in the world would do dumb things over a long period of time, but they could.
I mean that the possibility always exists that you get miscalculations or egos or or national pride or whatever it may be and that things do escalate. I don't think that will happen. I know it shouldn't happen. Uh I think it's a low probability, but but uh but that would be bad. It'd be bad for everything Berkshire owns.
It I mean it isn't a question of Apple or uh it have a very negative effect on our economy, other world economies and and and there's there's a chain reaction of sorts that type of thing. So, I don't think it'll happen, but I don't think it's zero the probability. Uh you you say it would be bad for virtually all the businesses that Berkshire owns, but Apple's in in a pretty unique position because it is so front and center, because it's already come up um as a potential target for some of these things.
Do you think Apple runs a special risk or not? Well, uh it would have I mean obviously in terms of our electric utility in Iowa, it's going to would have a very minor effect relative to other types of businesses, but the ripple effect if you if you get a recession uh and the it it hits everything almost eventually.
So, I I think it's very unwise. It's kind of like having a if you have a nuclear war you don't want to say "Ha ha ha." you know, if you're in Canada because they'll be attacking the United States or something. It it it it it it be it's impossible to contain it if you have two superpowers in in trade
Mhm. uh involved the and and and you can't predict exactly how it spreads. Apple shares are down 3% this morning. Just looking at the chart. Yeah. That's good. Why? Well, because they're repurchasing shares and when they repurchase shares our interest goes up and we don't lay out a dime. I love it, you know, and and obviously it's better to buy it at X and 2X.
Uh they've said they'll purchase they've reauthorized up to 75 billion dollars in additional shares. You're behind that? You're you're you're in favor of that, I should say. Wildly in favor of it. We're going to talk [clears throat] a little bit more about share repurchases, not just with Apple, but more broadly because it is a question that came up pretty frequently this weekend at the annual meeting, too.
Repurchases can be the dumbest thing in the world or the smartest thing in the world. And I've seen both. Uh but they're just repurchases by the company are just like purchases by us. They're dumb at one price and they're smart at another price. And I like it when companies I like it when we're invested in companies where they understand that.
Many companies just repurchase and repurchase and you know, it's the thing to do and and and they're encouraged to buy some shareholders and by their brokers and uh repurchases can be dumb, they can be smart. At Apple, they've been smart. Warren, we we did talk at the top of the last hour about what the China tariffs potentially mean for business and what they mean for Berkshire, but you're looking at the markets down almost 500 points this morning.
And for people who are just waking up and just kind of trying to figure out what this means for them, for their portfolios, for their businesses today, I'm sure they've got some questions. What What What can you tell them? What What do you say when you look at the markets, I guess down 460 points right now for the Dow?
Well, I'm saying if you own a farm and you're worried about selling your farm because you read the newspaper this morning or if you own a a perfectly decent business in your town and you're worried about selling your you think you should worry about selling your business today because of that then you should think about worry about thinking about about selling stocks.
But if you look at stocks as businesses as you own little pieces of why in the world should you uh sell it based on on headlines of any sort. I mean that if you expect a business if you expect a farm to be a good investment over 10 years if you expect an apartment house to be a good investment over 10 years and if you own a marketable security which is an interest in a business and you expect that business to be a good business over 10 years uh it's nonsense to get feeling good or bad about what stock prices doing a day unless you have extra money and they go down and then you feel better because you can buy more of them cheaper.
Just like if you could buy the farm right next to you cheaper you'd you'd you'd love that if you were a farmer. You know usually that's an analogy that I understand and agree with but this time around a farm in particular I would be pretty worried if I was a farmer trying to figure out if I should be planting soybeans or if I think I'm going to be able to make enough money to get things back this time around.
Tariffs have hit the farmers particularly hard and a lot of them have said they're behind the president. They want to see us get to a better situation but many of them are also in a position where look they've already asked been asked to give a lot. They thought we were about to reach a deal and they're hoping that that when they're making decisions for this planting season they have some clarity.
Well it is true that business generally has improved markets have improved everything and the farmer has not participated in that. So this has been a very good economy for a long time. I mean that we've been coming back for eight or nine years and businesses kept getting better. Uh interest rates have been low for business.
Uh stocks have gone up and the farmer has not participated uh the same way. Uh so maybe I shouldn't have used that example but they if you have a decent business I mean you you buy into a business. You don't buy a stock that wiggles around you know and and, and people understand that. But, then they behave as if it's bad news when the business the price goes down.
If If you had a half interest in a wonderful business, and then person who owned the other half came in and they were depressed by these headlines today and they said, "Oh, so to you my my share of the business a lot cheaper than yesterday because I think this whole thing is going to just end the world." You'd just say, "Here.
I wish you weren't so depressed, but but if you're selling me to be cheaper, you know, the business is going to be here 5 years from now and 10 years from now. And all headlines You don't know what the world's going to look like in 3 years or 5 years or 10 years. What you do know is that the United States is going to grow over time and the businesses are going to generally do well.
And if you own decent businesses, you'll make money. That That's a great long-term perspective. But, for the shorter term, not just for stock prices, even for companies that are trying to think about their quarterly earnings or trying to figure out how they're going to be able to pay for some items or figuring out how the relationship with the suppliers going to work at this point.
It It could be an impact pretty that's fairly have to run your I mean, we should do our own subsidiaries. Obviously, where they thought that terrorists could be increased, they loaded up more on inventory. I mean, you know, you you you make business decisions, but you don't make a decision about whether to buy or sell the business if you've got a good business.
You've got to If you're going to own a business for 10 years, you're going to see a lot of terrible headlines. Mhm. I bought into my first business in 1942. They didn't notice that I didn't But, just imagine all those headlines at that time and the world, you know, the the Philippines were falling. I mean, we were losing the war and uh but the United States is going Your kids are going to live better than you did and your grandchildren are going to live better than they do.
And And generally speaking, productive assets are going to be worth more in this country. And if you own a diversified group of of productive assets, uh you'll do fine as long as you don't read the papers. Although you did say an hour ago that the sell-off when the Dow was down by about 500 points was not an undue sell-off, was not overdone at that point.
If we actually get into raising tariffs by Well, it maybe it may not be undue. I mean, in in in the day or the week, but uh You shouldn't be I don't have the faintest idea how to buy and sell stocks for a day or a week or a month. I know how to buy businesses for a long period of time. I'll be wrong on some of them.
You won't be wrong on America. In terms of that, when you look at the markets today, if you see cheaper prices, would that mean that you would buy more of a stock that you might have bought last week? Yeah, well, some of them will hit levels that I might have been below it. I will always react well to declining prices.
But that I'm If I like If I like the buy a business, you know, if If I could buy this hotel we're in and they drop the price, is that good news or bad news for me? I mean, if I like to buy hotels. So, uh but the fundamental point that some people get and some don't, but when you are buying a stock, you you're not buying something that wiggles around or is on a charter or has a target price.
You're buying part of a business. If you're right about the business, you don't pay a crazy price. You be You can be right about the stock as long as you don't do dumb things yourself. Um over the weekend, a lot of questions came up about share buybacks. Uh people were asking specifically about Berkshire.
Why don't you buy back more shares of Berkshire, especially when you have $110 billion in cash on hand? What What's your answer to that? Well, we want to buy We will only buy Berkshire if we think that the shareholder the next day is or that same day is wealthier after we've bought the stock. In other words, we bought it for a shade less or maybe a lot less, but but at least a shade less than it's actually worth.
And we don't set out to buy any given amount. We set out to buy stock at prices below intrinsic value per share. Now, intrinsic value per share is not something that is is precise to the penny or anything. It's probably a band of 10% or something like that. And my partner Charlie Munger, if you asked us to give you a slip of paper with intrinsic value per share on it, it would not be the same figure, but it'd be close.
And we both would have have a band or something of the sort. If you're buying it below that figure, you know, if I'm if we've each got a dollar and you'll sell me and we put it on the table and you say and you can't reach it for a while, you say, "Well, I can't reach it, so I'll sell you my share for 95 cents." I'll give you 95 cents, you know.
You say a dollar, too, you know. So, no dice. So, it it's not complicated. Maybe it may be beyond my ability to figure out the intrinsic value of certain kinds of businesses. But with Berkshire, I've got a reasonable idea. I try to give the shareholders the same information that I regard as important in calculating that.
Now, it can change. Presumably, it you want it to change upward over time because we retain earnings and we should be building more value. But But that's the equation. First of all, you have to have the cash you need to run the business. I mean, that's Steve Jobs called me one time. I mean, he called me I don't know how many years ago, but but uh he was he was thinking about repurchasing shares and I said, "Steve, there's just two questions." I said, "You know, A, do you have all the business all the money that you need to develop the kind of business that you've got in your head uh for the next 5 or 10 years?" And oh, he says, "We got plenty of money." And then I said uh uh then the second question is, "Is your stock selling for less less worth?" And he said it's Oh, yeah, it's selling for a lot less than it's worth.
And I said, well, you've answered your own question. And but if he'd answered we need we need the money we've got here actually to fully develop our business and we've got opportunities to do it. I said forget about it, you know, build the new plants and do that and maybe the casual come in later where you can buy the stock.
And secondly, if he said the stock isn't really cheap, what's the reason for buying it in? Did he buy back shares after that? He didn't like buying back shares. I think he was hoping I was going to get a different answer. He He didn't argue with the the logic of it, but [laughter and clears throat] I think maybe I think he was hoping for a different answer.
It's interesting that you say that because Tim Cook, the current CEO of Apple, was here this weekend and we got the chance to ask him about share buybacks, too, because share buybacks have been such a big deal for Apple. They've deployed so much cash doing that and just announced last week at the earnings that they'd be buying back an additional $75 billion worth of Apple shares or at least they've authorized the repurchase of that much.
Again, we sat down with Tim Cook this weekend and here's what he had to say about that, too. Listen in, Warren. This is a funny story a bit is back in 2012, I I've been in the CEO spot maybe a year or so. We were we had a a growing amount of cash. I think we had crossed the $100 billion kind of mark if my memory is correct.
And I was and I was getting lots of input from a lot of different people as you you can guess. And I when I don't have experience in something, I always make a list of the people that I think are the smartest people that I can contact to talk to them and get advice. And Warren was on the top of the list, as you can imagine.
I'd never met Warren before. And so I get his number, I call out in to Omaha and I'm think I I wasn't sure he'd take the call. You know, I'm just sort of calling out of the blue. He doesn't know me from Adam. And but he took the call and I had a great conversation with him and that was the first time that I'd met Warren and he was very clear to me.
I still remember he said he goes, "Let me just cut through it. If you believe your stock is undervalued, you should buy your stock." And I thought that was just the simplest way of looking at it. So here's what we do is we first and foremost take care of our people and we take care of the company and the future of the company.
And we've been investing a ton in both this country and some others. We're we're going to spend $350 billion in the United States and in building new sites and we're just announced new expansion in Austin so forth. So all of that is number one, right? And then if we have money left over, we look to see what else we do.
Part of what else they do, he said, is to make acquisitions. And what I didn't realize is he said they're they're making an acquisition every week or two. Yeah, they they make make a lot of small acquisitions. they've made 20 to 30 acquisitions over the last 6 months. Small acquisitions that they don't really talk about and don't tell people things about.
You knew that? If you look at the 10-Q and you know, you can see, but they they they they make a lot of acquisitions. Yeah. And and I said, "I hope Berkshire makes a lot of acquisitions and I'd rather buy a an attractive business than buy our own stock at its intrinsic business value. If our stock gets well below that, I've still got this strong and I can do both fortunately, but but why how an executive can pay say we're going to spend $10 billion buying stock and then not paying any attention to the price at which they buy it.
They wouldn't buy any other business that way. And and so we're price sensitive on it. On the other hand, when the price is right, there's no easier way to make money for your shareholders. You say you like Apple buying back shares, so you think the price is right there. Well, they've done a terrific job of it.
They've done a terrific job. They've made their shareholders a lot wealthier because Tim has done that aggressively when the price was right. What I mean, how do you know in hindsight Do you know in How can you tell when a company's doing a bad job repurchasing? You have to be able to figure out how to value the business properly.
It's easier than you're making it sound. Yeah, the truth is if you look back and I was director of the company, but Coca-Cola kept repurchasing their shares at a time when it didn't make sense if you look at it in in the years earlier. They just they They they had a terrifically good idea of repurchasing when the com- company only had a market value of, you know, in the in less than $10 billion and and they bought a lot of stock and they were aggressive about it.
And but they fell in love with the idea and and I was a a director at the time and and but they're one of many. I mean, the same thing happened to Gillette to a degree. It it it's interesting. Uh Uh Sometimes it's difficult for CEOs to be objective about their own stock price. And they think this They think the higher it sells the better.
You know, and Uh And it's a fine way to feel except if you're repurchasing it and you repurchase it at prices up to the sky. When Coca-Cola was buying back shares and it turned out it it at too high of a price and you were a director. Did you know that at the time? I had a pretty good idea. Why didn't you say something?
Well, I I I I may have I I I may have made some comments, but I the management has done a sensational job. I mean, that's one of the reasons it got so high. They've done a terrific job. They've made me a ton of money uh and and uh if you belch too often at the dinner table, you don't get invited to parties anymore.
[clears throat] Which is the difficulty, I think, with probably any board. It's It just It uh you don't get to be a director if you're unless maybe you're an activist or something, but uh people don't like it if you speak and some some CEOs like it a whole lot less than others. Some CEOs actually encourage a fair amount of dialogue and others, you know, make sure that all the important stuff comes up at 5 of 12 when you have to leave at 12 to catch your plane
and the next plane is at 6 hours later. Huh, that's interesting. Boards are managed in different ways. [clears throat] Uh Have you known every board you've been on which has been managed well and which has not? Well, some were managed well in some respects and they could be dumb financially. I mean, you have some some managements that really have a money sense and then you've got others that that they're very good managers, but uh but they're not good at uh I always love it when I hear a management, you know, and I ask the guy what he's doing with his own money and he says, "Oh, I couldn't possibly, you know, evaluate stocks and everything.
I turn that over to somebody else." And and then he goes out and makes a $5 billion acquisition of something he doesn't really know anything about. We're just buying a whole lot of stock. Uh So- Some are good at it, some aren't. That's true of our managers. Uh We have terrific managers. Some of them are good at bolt-on acquisitions and some of them would be terrible.
Do you let the ones who would be terrible at it go ahead and make a bolt on acquisition? Some of them some of them don't have They have great operational sense. They don't have a money sense exactly. They you know that They're A lot of you talk to a lot of managers CEOs and They don't want to run their own stock portfolio.
Well, those are Those are decisions and those are capital allocation decisions and they know a lot of they know a lot about businesses and they know how to value things. You think they'd be good investors but but uh I used I there one fellow who was a big partner in back when I was running a partnership a long long time ago and he had stock options in his places and he would regularly exercise and take the money and buy Berkshire.
Well, he actually wasn't so dumb about it but it wasn't exactly what the options were supposed to incent. You know that but that's unique to have somebody who understands both operations and the money side of things. some some really do and uh I'm thinking of I would I would I would say Tim Cook for example does.
Extra he has a real grasp of I mean he has he has a operational mind and he has a money mind as well. What about Greg Abel and Ajit Jain? I don't want to get into that. Going through the alphabet on this. No, I ask it because you know Berkshire's in a unique position and you have people who are doing all kinds of things.
Some who are managing money, some who are managing operations. Yeah. Can somebody do all of that? both of those guys happen to have extreme money sense but I don't want to get started going through the list. Understood. Understood. Can't help but try. Well, well you got to you got the answer but the two important ones.
Welcome back to Squawk Box. President Trump tweeting just minutes ago the United States has been losing for many years 600 to 800 billion dollars a year on trade. With China we lose 500 billion dollars. Sorry, we're not going to be doing that anymore. Take a quick look at the futures continue to be down close to 500 points.
471 point 472 Nasdaq down 161 S&P down down 50. I I I guess Becky if I were to pose a question to Warren it would just be that those trade deficit numbers you can you know we get bogged down in talking about whether they're good or bad or how to fix them and it's a symptom of really what it's a symptom more than a cause of what what happens with China.
I was just wondering Warren you've done great over the years with the status quo with how the United States has approached China. And China trade Berkshire has done great. We've all done great. Everything's fine. Do you wish that Trump hadn't confronted China at all and we just aren't addressing any of these long-term problems with intellectual property or you know take your pick of which issue we're trying to solve but do you just wish you'd left it alone and and just let Berkshire do its business the way it's been doing or do you think there's some rationale to to confronting China?
China and the United States for the next 100 years I can tell you two facts about it. They'll be the two superpowers of the world and we'll always have some tensions with them and and uh can well be about intellectual property certainly has over the last you know 20 years or thereabouts 30 years and it will be about trade.
It will be about policies that they're carrying out you know in terms of their neighbors or where do they There's no way you can have two countries so dominant in the world without them having conflicts. You you just don't you know there're going to be tensions. There're going to be negotiations and sometimes we'll both come away thinking we lost uh but it's inevitable.
So I I and how you play the game if you're negotiating uh with some people that are tough negotiators on the other side. I mean uh it's it's not Those are not easy decisions to make. I I mean, if you're dealing with a labor union, nobody really wants to strike. It's bad for both sides, but it's Sometimes things develop to that point.
So, I I think I think you should get very used to the fact that if you're a young person, that you're going to see a lot lot of different tensions over time. It It will depend on the individuals involved and a little bit on the specifics of the situation. But, every time we sit down, you know, it it won't be like a garden party.
Warren, you um you mentioned that there are going to be times where both sides walk away and feel like they lose. Are there times that both sides could walk away and feel like they win because that's usually the sign of a successful negotiation? both sides to feel like they won at the end. And and uh you know, the idea of a negotiation is to to take something that that uh that you have the other person needs and and and and in in a sense trade that for something that they have that you need and and and uh it's it's going to be constant.
And and and there's times when it's going to be tense. Uh it's just the nature of things. I mean, you have that at a much different level when you're when you're negotiating nuclear arms reductions or something of the sort. I mean, we know it's in the interest to get the nuclear stockpiles down and all of that, but that doesn't mean it's easy and and you you you you try to come up with deals that are good for both sides, but that's that's not always easy.
I mean, I I I try and think about that in this scenario, and it it may be particularly difficult difficult in this scenario because for a long time we've been dealing with China as if they were still not a superpower, as if they were still So, we've been giving them better sides of deals. It's really hard to all of a sudden say we're taking some of the that back.
What What do they get out of this deal when we are trying to change a negotiation that we think has been unfair to this country? Well, it's it's It's difficult for us to accept the fact It was difficult for us to accept the fact after World War II that that that the Soviet was a superpower in terms of military power and and and there were all I mean, as you know, obviously there all kinds of tensions involved in that and negotiations and it's still a worry that you have to We have the two big nuclear stock piles in the world and and you worry in terms of of mistakes being made.
I mean, it it it's a big game and with China it's overwhelmingly an economic game and it's an economic game we game we didn't think we'd be in 40 or 50 years ago. I mean, the Chinese the rise of their economy has been extraordinary and they do some things we don't like in connection with that and and uh sometimes you have to get tough to to make changes and we do some things they don't like, but it but it's a reality now and it's going to be a bigger reality as the years go by and uh uh and it it's very easy for it to become a huge political issue.
I mean, it So, you'll have people fanning the flames for their own person interest in politics or their own interest in in business and it it's it's not easy to navigate. But but leadership as that's the job of leadership is to take on the tough problems. Having said that, the economy has held up very well
Sure. in the face of any tensions that we've seen to this point. Jobs report, incredibly strong on Friday. The last GDP report was very strong, too. So. You can't stop America. You can't stop China though, either. Uh but you can't stop America. I mean, we're uh we live as a country. You know, it's extraordinary what we have compared to 30 or 40 years ago.
That uh uh uh uh even in agriculture it makes it tough in agriculture because we get more productive all the time and and and that that tends to depress prices. But this this country is going to move forward. I mean, there isn't any question about that. But China's going to move forward. And the way to try to do it is to do it that maximizes what both countries can do well and and and and more trade is better.
But trade in specific industries can hurt specific industries here. And that that's the huge problem that the the president the heads of both countries have to be the educators-in-chief and they have to explain why trade is good for the populace as a whole and it can be terrible for people in certain industries.
And then a rich country takes care of those people that become roadkill in the process of producing a better life for 330 million Americans. Uh lots of people on Wall Street are not going to be as sanguine about this news today. I've been reading some reports last night. Goldman Sachs saying that this is not only rapidly increases the odds that we don't get a trade pact with China, but also increases the odds that you could see Trump announce that he's going to pull out of NAFTA, or that he's going to put auto tariffs on European uh imports.
Um what do you think of that and what would that mean? It's the problem of escalation in in anything. We have the problem of that with with nuclear weapons. I mean, the escalation and and it gets more and more dangerous as people become feeling more and more threatened and their own local political situation demands more and more action.
I mean, that's that's the dynamic that you are facing anytime you get to these major problems and between countries and that requires the the wisdom of the leaders but to some extent it requires requires the wisdom of the people. And how how the leaders convey it people and how they conduct themselves.
But we will have this sort of thing happen. We've had it happen obviously and occasionally would turn into wars of the past. We can't do that anymore in a nuclear world. You you can't get to that point and and any sane person realizes it but you don't want to you don't want to get too too close to that tinderbox.
USMCA also better known as new NAFTA that deal is out there but now I think Pelosi is saying that they're not going to bring it for a vote at this point. What are you in favor of the new NAFTA deal? Well I was in favor of the original one. I We are very very lucky to have Canada and Mexico bordering us.
I mean that and then oceans on the other side. I mean it's it's geographically it's a a very attractive position compared to other countries are situated around the world and and we've got lots and lots and lots of common interests and and and we are the big guy in the game and as the big guy in the game we should we should do more than our share of making sure that our neighbors are growing and and prospering at a rate that's consistent with ours.
Doesn't mean they're equal but but the the the when we live better they live better and trade with Mexico and and and Canada is enormously important and we should treat them as as neighbors and not not adversaries. We We live in Omaha where we've been talking for the last hour and a half plus with Warren Buffett, who's the chairman and CEO of Berkshire Hathaway.
Right now, we're joined by Charlie Munger, who's the vice chairman of Berkshire Hathaway. He is also the chairman of the Good Samaritan Hospital in Los Angeles, chairman of the Daily Journal, and he's on the board at Costco. And Charlie, thank you very much for being here with us this morning. Glad to be here.
It's great to see you. We are coming off of the annual shareholders meeting, and obviously we're going to talk to you guys about the news of the day. But first, I'd like to take the opportunity while I have the two of you here together just to talk a little bit about what your partnership has meant to each other.
How many years, Warren, have you been partners with Charlie? I met him in 1959, and we instantly became partners in thinking. And then over the years, we developed all these financial relationships, but uh I knew immediately upon meeting Charlie that that we were going to be uh we were in sync, and we've lasted a lot longer than I thought we would, but
but uh we have had an incredible fun together. We've we've uh done all kinds of things. Some worked, some haven't worked, and uh we've never had an argument. We We We disagree on things sometimes, but we've never We've never had an argument, and he never second-guessed me. I try not to second-guess him.
I It It It's a great relationship. Charlie, 60 years. Did you know at that first meeting that you'd have a partnership like this? Well, I knew that we were on the same page, but it's been very lucky that a little company became as big as it did, and that we've had the run we've had. What's it like we're very talented and all that, but we've also had a tailwind of good luck.
What's it like in terms of how how you all kind of use each other as sounding boards? How does that work? Well, I think it would be If two people collaborate in their own way, they're better off. Einstein would not have been able to do what he did if he didn't have other people to talk to. It's more fun, too.
Yeah. The ideas are are better in that, but it's also more fun. And when we disagree, Charlie says, "Well, you'll end up agreeing with me because you're smart and I'm right." For example. And he he is right. That's the element. Not always. [clears throat] You're You're both pretty You both act pretty unilaterally, though.
You both kind of do your own things and then come to each other after the fact or something. He knows what I'm thinking. I know what he's thinking. And and either one of us would ever do anything we we thought the other one was opposed to it. We might We might feel like we had a little selling to do.
But we we we are in sync. Let's talk about a deal you did recently, Occidental. Right. Where you agreed to back them up. You You cut that deal and and then you called Charlie, but you knew what he was thinking already. I didn't want to wake him up. He's on Pacific Coast time. I thought it'd be very unfair if I
Warren knew I'd be for that deal. Sure. I knew it. How How How did How did you know that? How How do you know so much about each other and how you think alike? Well, Occidental's in my part of the world. And of course, I've followed to some extent the developments that are interesting. And what do you think of the Occidental deal?
Why do you like it? it. Why? I think it's got potential. Because? Well, because I think that Occidental is right to want to do it. To buy into the Permian Basin to get more assets. Absolutely. And what is it about the Permian Basin that you like? It's got a lot of oil in it and gas. I don't like a desert just for its own sake.
I I I Warren this earlier today. If it's such a great deal in the Permian Basin is such a great deal, why didn't you just buy Anadarko? I know what he asked us to. Yeah. Well, incidentally, that may sound strange, but but who knows if they'd come to us, you know? We do we do usually wait till people come to us.
So, it isn't like we if we wanted to buy into the field, we necessarily didn't, you know, start dialing and flying around and everything. That Occidental knows a lot about the basin and we don't. Of course, actually like having somebody with us that knows something about it. Yeah, when we were at Salomon, we had something called Anglo-American.
It's something promotional operation. What? Was it Anglo-Persian? Something like that. Anyway, but there was it was Yeah, yeah, Anglo- Anglo-British or something. Whatever it was, it was neither. It was neither. Anglo-Swiss. It's actually Anglo-Swiss. They came to the directors and had this big plan for drilling in Russia and and we were going to put up a lot of money and send it to Siberia and hope that we got oil back and uh Charlie said, you know, who's Anglo and and and and uh Who's Swiss?
Who's Swiss? And and of course none of these people were I mean, so they were lying in the name of the company and and that did not go over so well with the Salomon board when Charlie pointed out that we sent a lot of money to Siberia and they brought one barrel out of oil and I got one little vial of oil.
The guy came to see me one time after after I'd become chairman, and he showed me this magnificent, you know, exactly the kind of oil they wanted. And that's the only oil we ever saw. And and it was producing 50,000 barrels a day toward the end. They just kept it all. Yeah, Anglo-Swiss. Anglo-Swiss.
Let me Let me No Anglos and no Swiss. Just lies all the way down. Let me ask you though about Occidental and the deal in particular. If you like the Permian Basin, but you've also both commented on times when you think you've paid too much in the past. Is there a number that would hit that you would think, okay, this is paying too much for the Permian Basin, too?
Charlie? Of course. All the time. We always think that way. Yeah. But it's not anywhere near it the price that they're paying right now. You can still go don't know. Maybe the last dollar. All we know is we're willing to do it. You both have made some comments about recently to us that you think prices are very high in terms of what you have to pay for a premium for buying a company outright.
Is that still the case? competition for buying companies by people who are using other people's money and therefore have less sensitivity to price and who are willing to borrow a whole lot more and are being offered the ability to borrow a whole lot more uh with less in the way of covenants and so the competition is tough on it.
And they get part of the upside No, the I mean not none of the downside. In fact, they make money on the downside. Yeah, so that that is really terrible competition for us. And it gets worse every year. Is Is that why you're sitting on such a big pile of cash at this point? Part of the reason, of course.
It's residual. On the other hand, uh you know, I would much rather own many common stocks uh than uh than bonds. And of course, that's I think stocks compared to bonds and you have to compare uh they are the ultimate. We've talked about bond yields and in fact being gravity and when they're very low, there's very little gravity to pull down stocks.
And and uh that condition that's exist today, I you know, we'd so much rather own the business of America Mhm. than get a 3% for 30 years from the government that and people were making those choices all the time in the investment world that stocks actually in many cases uh it looked like perfectly intelligent investments.
Charlie, you agree with that? Sure. Let's talk about some of the IPOs that have been coming to market recently because there has been a bit of a fervor. Many of these IPOs have done very well, although not all of them. Lyft shares are under pressure. Uber comes to market this week and Warren, you mentioned this weekend and you talked once again about how you had looked at Uber about 18 months ago and and passed on that.
What do you think about Uber coming to market now? Because I looked at it, I really don't want to that discuss Uber and I don't have any special feelings about it than any other coming to market. But we I would say that in in 54 years uh well I don't think Berkshire's ever bought a new issue. I mean, the idea of saying the best place in the world I can put my money is something where all the selling incentives are there, commissions are higher you know, the the animal spirits are rising.
That that's going to be better than a thousand other things I can buy where there is no similar selling enthusiasm and the desire to get the deal done and extra commissions. That that's the single best thing to buy on a given day. I mean, it's it's and I can't think of a time we've ever done it. Yeah.
Ever bought an IPO? Yeah, never will. No. How how can it be they don't even call us? Yeah. But how can it be the best single thing to use your money for on a given day is a something that you've got they've got everybody in the world out pushing it. It just doesn't make any sense. I mean, I'm not saying that necessarily what we're buying is going to work out better, but there there have to always be better things uh than one single issue if you make one decision on investing.
If you can't find something among all the choices we see that is better than something that that and like I say that you know the commissions used I they've come down I think now on this but I mean the highest commission thing that is that salesman could sell a security was the new issue. You know so you have all this push by the we like to buy things where nobody's making a dime so I can do this.
Charlie just specifically on some of these companies and and I won't talk about Uber versus any of the others but a lot of these companies are coming very late in the cycle. They've had massive private capital that's been put to work to this point and they they still have massive losses and the need for more capital.
What we It's even worse than that. Some of them have preference for each round and so the rounds aren't really fair rounds. There's a lot of lying in modern finance. So you're not in favor of any of these big like lying. What what do you think of these I I ask this because we have a lot of retail investors who watch and who are looking at this and they feel the excitement behind it.
Well I didn't get any wonderful advice from us about happy hours. Whenever you buy a stock, let's say you're buying General Motors. 1.4 billion shares out. We'll say the stock's 40. It's a little below that. You should be able to take out a a a a one-page sheet of paper and say I am buying the General Motors company at 56 billion dollars because and if you can't answer that question, if you can't write that out, then you all go on to something else and if you're buying Berkshire, you have to say I am buying Berkshire Hathaway at 500 billion dollars because and if the answer isn't something you can write, you can't say I'm buying it because my neighbor thinks it's going to go up or because you know everybody's talking about it on on CNBC this morning or whatever it may be.
Or I like to ride around in an Uber. Yeah. No. You you have Yeah, that's the question you answer. Now when you buy, you know, buy groceries, buy everything else, you can answer that question. Mhm. if you can't answer it on something that you're involving your savings in you know many years for, why in the why in the world should you why should you be doing it?
Let me ask you gentlemen about a about a topic that came up over the weekend at the annual shareholders meeting and that's shares of Wells Fargo and and just the company to this point. I got a lot of questions that were sent to me by shareholders questioning why you all have been standing behind Wells Fargo without saying more about what went on there.
Charlie, what do you think? Well, I think it's a fine company. So, they made one bad decision about an incentive plan. I regarded it as an honest mistake, not as some deep moral failure. Nobody was being malevolent in the high ranks of of Wells Fargo. They just had a blind spot. They had a blind spot.
It got cleared up very quickly though. That's the problem. Yeah, that if Yeah, but you don't you don't They lost their jobs over a blind spot. And uh But I don't think Tim Sloan had a blind spot. I think he just lost his job because life is hard. You thought uh Dick Kovacevich like it. You thought Dick Kovacevich had a blind spot.
Yeah, sure. And And the following guy. John Stumpf? Yeah. But you don't think there was any criminal activity. not. Well, the criminal activity was people below and that was forgivable. [snorts] They were under a crazy incentive system. Is the problem fixed now? I think so. Uh I think a very a very very high percentage of what would be it.
Certainly the intent is to correct it. I mean, it's it's cost the shareholders you know a lot of money and and uh they want to correct it. When I went into Solomon, I wanted to correct it too. I never could quite say it was over though. People kept asking me, "Is over?" I don't know. I wanted to be over and I hope it's over and I'm trying to make it over and I'm looking for things, but uh you have 200 and well, they have 260 or so thousand people.
It's it's it's a scary job to be running a city of 260,000 people with no cops. And we have something we have some things wrong at Berkshire now that I don't know about. The The Charlie beats this into me all the time. That you know As soon as you find a mistake do something about it. And and sometimes that's unpleasant.
But I've got to do it. I mean it I may have people that are deputized to do it, but it's my ultimate responsibility. do it too fast. Yeah. Is Wells Fargo different because it's a shareholding and not an actual Berkshire company that you own outright? Well, of course we we don't have any control over
Yeah. what they do. Who should be the new CEO? Charlie? Well, I've been thinking it would have been Tim Sloan. But now they're going to get somebody. Sometimes a new person is better and sometimes worse. About I think it's about half and half. Yeah. That's something. Yeah. I met two weeks ago or thereabouts with four people and and and including Betsy Duke, the chairman and and and I I never talked That was first time I met met her in my life or talked to her and and but uh we talked about it and and it's it's a tough position to fill.
What what did you tell you you talked to the chairman chairwoman of Wells Fargo and told her that you think what about? No, they they they called me. I didn't call them. I mean so I I didn't jump into it, but they they just asked what I thought. That's the first time they had asked what I thought about it and and I I gave them a suggestion or two and and but but that's not
Well, do Did people have names? Uh But I suggest I well I suggested publicly that that you know not be somebody from Wall Street. Not because there aren't plenty of good people on Wall Street. I just think that that politicians are looking for the next one to beat up on and that it's good television and it plays right into the campaign and and you need somebody running at that does not bear the extra baggage of of having a label on their forehead that says Wall Street which will cause half the viewers to cheer for whoever's doing the beating up of.
You heard at the top all of this concern about China. Um this is spooking the markets a little bit today. Joe's right. It's a decline of under 2% for the Dow but still down 460 points is a number that catches your attention. And when you look at China's markets down 5 and 1/2% and down 7%. That is certainly something um that is catching their attention today, too.
I can't think of three better people to talk about this this morning. Uh Bill, you've spent so much time going back and forth with China. You know the Chinese leadership very well and can understand maybe what they're thinking on some of these things. Charlie, you've spent so much time um getting excited about investing there and Bill, you've invested there as well.
Warren, same thing. All three of you have traveled there and spent this time. I just wonder what you're thinking about this morning as you hear these headlines. And Bill, you're the new one at the table today. So I'll ask you to start off with this. What are your thoughts on what you hear with this tweet and the potential for a a real trade war?
Well, I think good trade relations are incredible win-win uh for both countries. And it's dangerous if people think this is a a zero-sum game. Uh And so I'm hopeful uh that despite uh the latest announcement, there is a trade agreement and the the two countries can find ways uh to work together. It's the most important relationship in the world.
Both sides bring a lot of strengths. Um So, it's I I understand why markets are a little bit worried that that the these tariffs are going to get higher and higher. When we first got the tweet, uh there had been some initial reports that Liu He and the delegation from China might not be coming here.
That's what we were hearing last night. This is the first I've heard just a moment ago that the the Chinese have confirmed that they will be sending that delegation this week. That in itself is is good news, but how do the Chinese kind of deal with this when when they're forced when they're faced with a real force, um like I think that tweet yesterday was?
Well, I'm not an expert on negotiation, uh but it creates a a dynamic where both sides could start uh escalating against each other, uh which would be a a lose for both sides. So, you know, the you know, this week will be it'll be interesting. Uh you know, they they even though China's not a democracy, the the political dynamics don't allow them uh to look like they're caving in uh to a unilateral position.
And Charlie, you are an expert in negotiation. What do you think? Well, hardly, but well, if you go back, we we we put a tariff on trucks and we were in the Japanese from totally squelching the whole American auto industry. And that lasted a long time. It wasn't the end of the world. So, if we end up with some trade settlement that involves some tariffs on both sides, I don't get excited about it at all.
I regard it as part of normal life. Generally speaking, I think a good settlement is better than a lovely world war. You know. Um some tariffs are one thing. 10% We seem like our our economy has gone along just fine even with the 10% tariff that existed on those 200 billion dollars to date. Is 25% tariffs on potentially all 500 billion plus of the imports coming in.
Would that concern you about the American economy? Well, I don't think we want a full-scale tariff war. It's just as high as both sides can make it. That would be massively stupid. And if both of them are a little disappointed with the negotiations and feel a little roughed up, that's the That's what they should feel.
What do you mean they should feel roughed up? Well, if both sides sense that settlement is so much better for than a war, trade war, for both sides, they ought to just get used to having a little loss of face and make some kind of a settlement. And I think they will. What do you think about us taking a stance, us being America taking a stance with China to this point?
Well, I don't think Trump is totally crazy to say that in some occasions you put a tariff on to save some domestic industry. Is he right that we have been on the losing side of the deal for some time? There's a lot of Americans who feel that. I think he thinks of it more as a loss that we've got a trade deficit.
And I I don't think that's at all automatic. So, I don't totally agree with him, but I agree with Trump in part. Warren, what do you think in terms of who pays the tariffs? I mean, it has boosted the US Treasury, but a lot of those tariffs are being paid by the companies that import the goods and then passed on to consumers.
Yeah, they're a tax on consumers. And and [clears throat] you know, as such that it changes what people buy. It changes where things are produced. I mean, it uh it readjusts You can readjust the world and in a um through tariffs and and uh generally speaking, I mean there's obvious exceptions for key equipment, military equipment or you know, but I generally think that a world that adjusts to something very close to free trade more people will live better than in the world that was significant tariffs and shifting tariffs over time.
I mean it was a subject of constant negotiation and that sort of less chance of war too if there's heavy trade on both sides. Yeah. Not not a trade war, you mean a real real war, yes. Because [clears throat] You but you got to remember that the our country, the United States ran on tariffs for the first 150 years.
That was the all the revenue we had. This is not like some novel new thing is coming in. This is an old subject. Is it a good thing or a bad thing? Well, of course I'd rather have a total goodwill and everybody getting along. But I don't think it's the end of the world there's some little tension on the subject.
There has been since the start of the country. Uh Bill just now said he's not surprised by the market's reaction. Warren said the same thing earlier this morning. What about you? Well, what do I care about a brief temporary reaction over some uproar over trade negotiations. Does that mean They're all all so many little ripples in space time to me.
Look, if you look at Chinese stocks in one market down 5 and 1/2% and the other in the Shenzhen market down by over 7%. Our our futures are down, but that's still a decline of less than 2% this morning. Does that mean it's more painful to China than to us? Well, I don't think China likes its market going down as a consequence of a trade uproar.
I think the people are more like this, settle the thing because they had this uproar the other day. The settling is is sounds like a a great alternative, but it there have been a lot of friction along the way. The biggest one may be just how do you enforce it and the feeling at least among many of the trade negotiators and the negotiators in the United States that when we've cut deals with China in the past, they say things and then don't follow through on it.
How do you make sure that if we have a deal, it's actually enforceable? I think China by by and large is is a pretty good place. It certainly worked well for the Chinese and I think it's desirable that it's worth [clears throat] that it works well. We want China to prosper. Yeah, we really do. If you postulate a world where in the next 50 years, China or for that matter the United States feel like they're being abused and the word isn't being kept and they ask for one thing and then you want to ask for one thing more.
I mean, you're going to have always have tension between the two countries. You'll always have disagreements, but you can't you can't really turn it where it gets into something where it gets out of control and things can't get out of control sometimes. But I guess I'm going back to try and figure out who which side you think is right.
Nobody wants to say that. Does anybody have a feeling Well, they're both right to be as concerned as they are and I predict they'll settle it. Would you all agree with that same prediction? Bill, what do you think? Uh You know, the it's a dilemma uh when it appears you're reacting to a an ultimatum.
Uh You know, in the in the Chinese case, there's no elections scheduled. Uh so their leader uh won't be unelected simply because they've had to take a tough stance on on trade negotiations. Um you know, I I markets up until recently were assuming this deal would get closed. So that's a little bit why you see the delta uh the rational thing would be for a deal to get closed.
And I you know, I'd still rate that as as likely. Um I agree with you. Deadlines are tricky things, though. I mean, they produce reactions in people and they they can particularly if you're responding to public opinion, they can they can inflame people and then they start reacting to their own They're tricky things on the other hand.
Sometimes it's the best way to get things done. A good sign though maybe that they they just said that the Chinese delegation will continue to come because I had real questions about that or doubts about that myself after seeing that yesterday. You want to conduct a negotiation so it doesn't look like the other guy has to cave or something like that.
The ideal thing is to make a hero out of them and still get the deal you want. Over the weekend at the annual meeting, you two had an aside on stage that a lot of people kind of picked up on. You didn't follow up on it, so I thought we could do that here. You were talking about Dairy Queen and how your presence in China is not large, but you do have a presence in China.
Yeah, we're all over China. For Dairy Queen, it is a very large presence, but not for Berkshire Hathaway. But you made the comment Warren that you would have been a much larger presence had a had a big deal gone through. You made it in as a side to Charlie, but it was over the mics. Well, we looked at bigger than it had have to do with Dairy Queen.
No, no, no. I figured not. We are not turning the Dairy Queen into some global giant or The the Yeah, we we we we've looked at good-sized things in China and we you know, we've done a couple things in China and Charlie's done more individually and and uh uh it's logical. I mean, with the kind of capital we have the big markets up outside the United States are going to be the place where you're most likely to do something and certainly China's going to be the biggest market and and uh outside the United States and uh there should be opportunities there but uh and I think we are someone at Berkshire, I think that that if they're looking for capital around the world uh we're a very logical prospect.
Why did that deal not work out? Was it because of the trade tensions? Uh there's I can't go into any details on that. Thought I'd try. Uh You'll be the first to know. In in [snorts] terms of what you do with your businesses, do these trade talks have any impact on you, on your investments, even your own personal ones because you all have a large individual portfolio that you do and Charlie, I know you focus a lot on
larger than others. WELL, CHARLIE, I KNOW you focused a lot on China. Does this diminish your enthusiasm for Chinese investments in any way? No. No, it doesn't really. If we got a call today from some business we understood and liked from China and they and they were looking for a lot of it was big.
You know, we would be delighted to get that call. Mhm. And we would follow through and we'd see whether there's something happened, but that that would be that would be very interesting to us. Bill, how about you? Well, certainly, uh you know, there is, in parallel with the trade talks, talks about uh what the technology export regime will look like uh terms of things like artificial intelligence.
Right. And so, I have some concerns about whether that will try and partition, you know, Chinese students from American students. Uh the general sentiment towards China right now is uh has gone down a bit. Uh and so, there are businesses or business deals that have to go through uh a new process, and they're talking about even making that tighter.
Um CFIUS or beyond? The So, I you know, I'm I'm worried about uh even the sort of intellectual cooperation uh being slowed down. We'll We'll see where that goes, but uh it's a concern. If they take our intellectual property at Dairy Queen, though, we can handle it. We've uh talked an awful lot on our air recently about socialism versus capitalism, defending capitalism, all of the different political pressures that are kind of being brought as we get into another election year, and I thought maybe we could talk about that this morning, too.
Over the weekend, several questions came up about defending capitalism, and Warren, you you did step out and and say that you're a card-carrying member a card-carrying capitalist in front of everyone. What do you think about the attacks that we've seen to this point on capitalism? Well, I think I don't think people exactly even know what they're talking about.
It isn't that capitalism is perfect, uh but if you look at what was here in 1776 and look at what is here now, this country has an incredible job in terms of the deployment of resources and and and and human ingenuity. And and that is a a product of the system. Now, uh does that mean that every decision should be made simply by open market uh determinants?
Well, there there's need for regulation, obviously, and there are things that have long-term costs and might not get built in. But, the idea of people unleashing their potential, using the resources they have to create what we have now from what was here 240 [clears throat] some years ago, it's it's it's it's absolutely a miracle.
And it what all three of us have seen during our lifetime. And uh if you compare that with any centralized plan economy, I you know, I think we win hands down. And I I think uh uh I think we've just started with what capitalism can produce in the United States. But, I do think it obviously it it it it needs certain rules and regulations.
Well, you did an interview in Davos with someone and I you made a pretty innocuous statement that you looked around, you thought capitalism was the best system. And you got attacked online from all these people who came up with these crazy statements about how could you say things like that? And I mean, what do you think about the climate when you see things like that?
Well, it some people think when you defend capitalism, you're defending the tax rates we have today and saying that higher absolute tax rates or more progressive tax rates that you disagree with them. And I I don't think uh Warren and I are disagreeing that you could make the taxes more progressive.
In fact, we've been very explicit in some areas like the estate tax and saying we think that would be a good thing. Socialism You got your wish, you came back. Socialism used to mean that the state controlled the means of production. And a lot of people who are promoting socialism actually aren't using that classic definition.
So, what we're going to have is capitalism with some level of taxation. Um most people really aren't arguing against capitalism. There may be a few, but most people are are just saying that that the taxes should should change. Although you do have someone who I think is pulling the second highest in the Democratic Party right now who was a socialist until very recently, Bernie Sanders.
Well, whether or not he was a socialist by the full term of that. Now, there there is some money areas when you start to say there shouldn't be any billionaires, that you have some cap on wealth or something like that. That goes uh beyond what I think uh and you could say I'm self-interested, but Really?
We We will exempt the president one second. No, but government needs to reallocate some resources. I mean, the extreme case would be in World War II. I mean, that's the closest we've come to socialism. You had an office of price administration, you had a war production board, and you had I mean, but during peacetime uh you're always prepared for war and you do that through government.
Uh Government Government needs to reallocate some resources. But the the market system which exists [clears throat] under capitalism is a extraordinarily effective way and has proven it of of using resources, human and other kinds uh to produce incredible goods. And Henry Ford could learn uh devise a system that could turn out a couple million cars a year, but he could only use half a dozen himself or his whole family could use 50.
I mean, he had to turn out a a couple million cars that other people got to use. And that that would not have in my view I I could I think if you'd set up a government bureau in 1850 and given them 100 years to build a car, I'm not so sure that they'd have ever come up with anything like the assembly lines of Ford and all of the things that have happened.
I I Human ingenuity is incredible and you want something that maximizes its use and and then curbs a few of the ideas that some of those people may have to sort of have it all for themselves. Charlie, you've made the same point. The great proof of the how capitalism works is China. When China copied Singapore and let the farmers own their own plots and let the manufacturers own their own businesses and so forth China's productivity increased many times and they went from rural poverty to modern extreme wealth.
And they did it by adopting a fair amount of capitalism. Now, if a Democratic politician doesn't understand that, he's nuts. You've made the same point though, Charlie, that you think private sector does it much better than the government sector. However, a lot of these people who are running also want to make government much bigger.
Do you have a quarrel with that or no? Well, as they say, if you love your post office, you're going to love socialism. It doesn't Yeah, and they don't necessarily want to make it bigger in terms of redistribution. They may want to The market system is brutal. And it leaves behind people who are perfectly wonderful people who don't have market-related talents.
Or who are [clears throat] just unlucky. Yeah, just plain unlucky. And in a rich society uh believe me, if we have a war or something like that, we we call on those people and you know, pay them practically nothing to go fight for us and uh you know [clears throat] and it we want goods flowing, but it's going to displace the textile worker that we used to have as on.
So, so the the function of government is not necessarily to get bigger. It may be in an important way to take care of people who for one reason or another get left behind in a market system that you also regard as the as essentially this huge source of wealth and and and goods and services. So, how how do you fix the problems or at least the perception of problems, which there's a huge perception out there in the American voting right now voting public?
it would help if our government were wiser. And it would be wiser if the two sides didn't hate each other so much. Anger drives out reason. And there is absolute cold fury between politicians on one side and politicians on the other. It's quite counterproductive. For that reason, I don't allow myself to get angry at politicians.
How would you fix it? Well, I just don't let let myself get that angry politicians. I don't expect them to you Berkshire has worked better because Charlie and I have never been mad at each other. Yeah. it just does. I mean, way better. If we got mad at each other, I'd you know, I'd try and kill his deals, he'd try and kill my deals.
It just doesn't work that way. We don't need a couple of alpha males blustering at one another over this stuff. They ought to just cool it and take a little reputational hit and get get the feathers ruffled. We ought to dial We ought to worry about the people that don't fit into the system. We want the system and a lot of people are are getting left further and further behind because as as capitalism gets more advanced, it gets more specialized and there actually is greater difference between the haves and the have-nots.
And the haves can take care of the have-nots. Interestingly is both parties and basically agree on that. They just Yes, they how you get there [clears throat] that that that gets complicated. income tax credit can make a huge jump in that direction. I mean, and all social security all that we we've done various things.
Over the years we have improved. We've improved the public school systems. We've improved the things that do give people more of an equal chance and take care of people who fall by the the wayside. Uh we just got to keep doing it. Bill, you've spent a lot of time on education in this country trying to figure out how to fix it and how to make things work.
What's the answer if that's one of the problems that we're we're not getting people the advantages they need before they get into that system. What How do How do we fix that aspect of it? Yeah, I think better education is so key to the United States living up to the dream of equal opportunity. And particularly as more and more of our students are in the inner city, uh coming from low-income households, we really uh have to to take the best teachers, understand what they do, and spread that further.
Uh that is the best path to uh a a a stronger form of equality. The progress has been pretty modest, but uh there's a lot of uh you know, smart people. Uh it's not just technology. Uh it's helping the the teachers uh finding out the ones who are are doing things super well and spreading that around.
Um even the college system, we still have very high dropout levels and and the way you you catch kids early when they get off track, uh some use of online. I'm hopeful in the education area, although the progress has been slow. Surprisingly slow? Yes. E- when we compare the improvements in global health, which is the other big area for the Gates Foundation to the improvement in education, uh education's proven to be tougher uh to make big gains uh over the last decade.
Was that was what you expected when you got started? No, it's actually the opposite uh because global health involved going out to poor countries whose governments uh are really weak uh and there's not even stability, there's some corruption. Uh we thought that would be the slow area to work in. But very important that we've been surprised by how uh how much progress there've been in the overall statistics like cutting child to death in half.
In education, although there's some points of light, some great schools, some are charter schools, some are using new curriculum, uh the overall figures, US math scores, dropout rates have moved only slightly. Charlie, just getting back to your idea of people not hating each other so much and getting along, how do we make that happen?
How do you try and push towards that cuz it seems like things have gotten worse and think you have to do it one relationship at a time. And of course, I think it would help if both parties did not commit suicide in the primaries. If we get these extremists on on sides and they take over each party. It's just awful.
The California legislature has two kinds of people, right-wing nutcakes and left-wing nutcakes. They've kicked everybody else out. This is not a good system. Why did it wind up like that particularly in California? Hatred. Lots of hatred. Is it redistrict I mean how would you Well, there was redistrict districting is part of it, but mostly it's just the wonderful product of hatred.
Gentlemen, just taking a look at what we've been watching with the markets today. Obviously, things are under a little bit of pressure today, but we have been looking at much higher markets if you go back to the Christmas Eve low and the concern that about what would the Fed might or might not be doing.
Since that time the Fed has sounded much more dovish. And I just wonder if you can talk a little bit about your own take on the markets. And Bill again, I've spoken with with Warren and Charlie earlier about this a little bit. So, how about your take when when you hear that the Federal Reserve is probably not going to be raising interest rates anytime soon.
How does that change your outlook on equities or equities versus Treasuries? Well, the interest rate is like gravity and all these valuations are dramatically affected by it. Um at the start of the year people didn't think the 10-year bond would be where it is today and that's uh provided a lot of lift.
So, it was a big first quarter uh for US equities. We still if you look forward are at these very high valuation levels. And so uh it's hard to see that the market will uh be gaining a lot uh over the next few years. I think people should have fairly modest expectations uh on what what their portfolios will make in the the year the years in front of us.
Have you changed your your positions in your own portfolio as a result of this? Have you done any major No, it's it's a very uh equity oriented portfolio. Uh it's overweight in the US even though it's got uh a lot of uh overseas exposure. Um You know, it's a it's a bullish portfolio that the American economy over time will do well.
You know, fortunately even if we have a few years here where markets aren't are doing that well, you know, we've been lucky. We have a cushion. The foundation can continue to spend generously. Um But uh I'm imp- I'm amazed at how high the valuations are if you look broadly. Charlie, do you think that?
Well, sure. I think that if you drive interest rates down to zero and all the countries print money like crazy, it's lifted the asset boat for everybody. And I think it really is a they didn't have anything else to do in the great recession. And so they took the only weapon they had and used it aggressively.
I don't think we should quarrel with that. It did cause the people who were already rich to get richer. And uh but that wasn't a done purpose or anything like that. And I think that will correct automa- automatically. Do you think we should still be using that weapon aggressively, which is what President Trump would like to see happen?
He wants them to cut interest rates again. I think he said by 1% and also push up quantitative easing once again, build up the balance so afraid of a democracy getting the idea that you can just print money to solve all problems. And eventually I know that will prevail. Singapore, which has a marvelous economy, has zero debt.
If I were running the world, I would like the United States to be in that position. That is not the typical That's That's nobody's position. All these politicians in Europe and America have learned to print money. And if we keep at these extraordinary measures for the Fed, I guess not just the Fed here, but central banks around the globe.
Yes, but who knows when money printing runs out of control? And we At the end, if you print too much, you end up in something like Venezuela. You're not suggesting that happens anytime No, but I I don't like the idea. And both parties, you have politicians who say, "What we've learned is we can print all the money we want."
Right. We don't have to raise taxes, we just print. Warren, do you share those concerns? Yeah, it it I probably could not have conceived of a world uh as recently as 10 years ago. I I I would not have conceived of a world where you would have full employment five uh percent budget deficits uh with actually the probability of those rising from that level.
And at the same time have the long bond at 3%. I would have said that that uh couldn't happen. And then then people now you have this modern monetary theory, which there's no question you should borrow any country should borrow money in its own currency. I mean, that that that is not like it's some great discovery.
It's something's been announced, but No, but it can be overdone. Yeah, but and that's and that's the point. I mean, it it it That doesn't solve that just to say what it's much safer to borrow money than your own currency. Uh Uh but the convergence of these factors would have seemed impossible to me and generally if I feel something is impossible, it's going to change over time.
I don't know in in what way, but I don't think we can continue uh to have these variables in this relationship. Now, if we can, then stocks are ridiculously cheap. The one thing I will say though is this is a conversation I feel like we've had for at least four or five years. Right. Um where you're watching and continuing to wait for these interest rates, the yields to rise.
We're still sitting at 2 and 1/2% on the 10-year, which is shocking. and we're sitting with very very little inflation with a Federal Reserve that put a target for 2% on it not that long ago. And it looks like Nirvana. It looks like we follow found the promised land where we just uh essentially money doesn't cost anything and uh uh you can print lots of money and have full employment and no inflation.
And I would have thought that something would have happened before now. I don't know what would have happened, but I didn't I wouldn't think you could have these things in in uh at these these levels the long-term rates inflation rates budget deficits and have that be a stable situation for a long period of time.
And I still believe that, but I so far I'm wrong. So, in the meantime you haven't really changed how you I think stocks are ridiculously cheap compared if you believe that you're going to have the 3% interest 30-year bonds make sense. That's a big if though. So Well that's what makes going to work interesting.
Well, this three somethings comfortable if everything goes down like by 90%. So, we're not a fair cross-section. I'm sorry, Charlie. What was that? [snorts] this three somethings comfortable if everybody if everything goes down by 90%. Oh, certainly. That's what he's nervous about. Yeah, but we wouldn't want that kind of a world happening to everybody else.
Right. Um can we talk a little bit about healthcare because you all have have spent plenty of time focusing on healthcare in the United States and and abroad. Bill, you're probably the foremost authority on on global healthcare. Your foundation has spent billions and billions of dollars on it. I think more than $13 billion just from inception through 2017 on global healthcare initiatives.
What What's the progress? You You touched on it a little bit earlier that that you've seen more progress here than in the education front in the United States. What How How's that kind of shown up? Well, it's phenomenal that [clears throat] by taking the uh new vaccines and getting them out to more kids and a few other tools like malaria bed nets uh that uh we've gone from over 10 million children dying every year uh to now less than 5 million.
Uh now 5 million still a lot. Uh we need a few more tools, but actually the pipeline of innovation looks very good. Uh so um you know, this is a a phenomenally positive story uh that that those deaths are way down and that that'll continue. What's the thing that brings you the most hope or gives you the most hope about advancements that you've made or research that you found?
Well, one that we're uh we we're working on is to reduce malnutrition because if a kid is growing well, their ability not only to avoid these diseases like diarrhea killing them, but also the degree to which they'll develop their full mental and physical capacities and therefore contribute for their own life, for their country's well-being.
Um dramatic reduction in malnutrition would be a huge thing and uh we we're now gaining understanding uh that we think uh that that will be possible. It's been a long scientific journey having to do with the gut and inflammation and the microbiome, but uh uh now we see uh that uh we'll get more of those kids on their growth path and uh so I'm super excited about that.
is not just them not having the food to eat. Even in cases where they do have the food to eat, there's a problem That's right. What happens is that because their their diet uh doesn't have much protein in it, their gut, their intestines get into an inflamed state and uh that means you get a a set of bacteria in there uh that don't let them absorb nutrition.
And so that's a downward path. Uh and so you can see even two twins, one will get that and not be growing and the other one will uh achieve normal growth. And so an intervention that stops the inflammation shifts the microbiome to a more healthy mix, that would uh get rid of malnutrition for that child.
So what is a really cheap intervention where you can see the problem and stop it. With probiotics or something that you can build something kind of thing. Although those tend to be broad spectrum. Here we're going to be uh to make it scale it up and have it be a cheap uh probably a pill um it'll probably be uh a couple of vitamins and drugs.
Does that translate to things that could be useful here in in the United States and other developed Well, the basic understanding [clears throat] of your gut and will finally lead us to understand not just malnutrition but overnutrition. Why is it so hard to control um people's hunger. Uh over time people have tried to have uh pills to control hunger.
I'd say over the next decade that we'll finally succeed. So, even though that's not the foundation side, we're focused on malnutrition, the science of the gut and the microbiome has a lot of companies working on uh things that will reduce overnutrition. Warren, back here in the United States, one of the big problems is trying to figure out how to pay for health care and and stop some of the costs.
That's a problem you've been focused on at Berkshire along with JP Morgan and Amazon. What what have you found? We haven't gotten any updates recently other than the name of this new organization is going to be Haven. Where where where are you on that process? Well, we are taking the first step on what is bound [clears throat] to be a very long journey.
I mean, it I would say it's not more difficult than I expected, but I expected to be ungodly difficult. And uh you have an industry which basically is about the same size as the US government's receipts. And uh everybody always says every dollar in the budget, you know, has a constituency and every dollar in in an industry expenditure has a constituency and uh we've got the right person.
We've got the right partners. Uh Capital isn't the key part to it, but we've got people who are willing to spend the money. But uh What We'll spend whatever money it takes if we're making progress. And and uh uh it is going to be a long, tough pull to make major uh journey to make major changes. And there's you know, it's it has no guarantee of success, sure, uh at all, but there's nobody I think that's in a better position in terms of number of employees and um ability of the people that are partnering to get along and all all kinds of things.
Uh uh to perhaps come up with something that makes the system more efficient. And and uh uh uh you know, we're going to we'll try, but it it's nothing will happen quicker or sooner. There's no There's no revolutionary uh uh move or anything of the sort. And there there will be lots of opposition to any change.
In interviewing people to run the place, we we interviewed people in all aspects of the medical uh uh profession and uh activity. And and they all agreed 100% in them. This system needs change, but of course not my part. And that's that's very understandable. We expect that. And uh we'll find out what happens.
But I I know this, I would rather have the private sector come up with a solution than throw it all to the government. And and if the private sector doesn't come up with some solution to the increase in cost, quality is you know, many ways is unbelievable. You just hearing Bill talk about the advances that can be made.
But uh The cost 5% of GDP in my lifetime or even even my adulthood up to 18%. It's The federal budget has stayed kind of constant around 17% everybody thinks it's out of control and all these terrible things and here federal receipts I should say and now this has gone from 5 to 18 and and nobody really thinks it's going to stop.
Charlie, you've been go ahead and you've been at Good Samaritan the chairman there for how many years? A long 40 years. The um if you take Singapore which is tends to have an intelligent government do things right they spend about 20% of what we spend on health care and they're healthier. And there all kinds of abuse and and the kind of predatory activity they don't have in Singapore that we do have.
And Warren is right we're in a hell of a time getting into Singapore's direction because human beings are profiting over the existing system. Right. If you know it may look like an unnecessary operation to me in fact it does but to them it looks like God's work. Where would you suggest after your years at Good Samaritan where would you say focus here first?
I think we this system is out of control. The deductibles in ordinary corporate health insurance are ridiculous. If you're a poor family and you get a $5,000 bill for a baby that you don't have medical insurance they just change the system. And and well let's say and then if you take the utterly unnecessary treatment that where people find a way to tap into these government streams of money and do a lot of unnecessary work like prolonging you know inevitable death and all kinds of ghastly things they do.
It's it's I would say we have a pretty disgusting system. On the other hand it's the best in the world in terms of its ultimate scientific capacity. Mhm. But if you take all the unnecessary operations and all the unnecessary procedures and all of rackets in the thing which Singapore has pretty well taken out.
It's discouraging. When I look at Singapore, I look at the United States and I say, "How in the hell do we get from where we are to there?" And if you ask me what's going to happen, I think we're going to fail to get to an to an intelligent system. Well, on that cheery note, we are just about out of time.
If I can ask you gentlemen, we have about a minute left. If I can just ask you what you're reading because that's something we hear back from our viewers often. Warren, what are you reading right now? I I've just finished reading very recently. I read it in one sitting and it captivated me so much. Book by Melinda Gates which just came out very recently and uh
It's a best seller. The The moment of lift. It It is a terrific uh It's a story but but it's it's it's it's learn much about the world uh that you should know and I and I would say most people don't know. I mean uh This is a story of her experiences is experiences absolutely sensational. Uh Warren took all your time. Bill, I guess you're not upset about that. I love the book.
Comments 0