our special guest this morning is the
chairman and CEO of Berkshire Hathaway
Warren Buffett and Warren we’ve talked
about a lot of things this morning we’ve
got briefly your thoughts on the markets
but there’s been a lot that’s happened
to the markets since the last time we
sat down with you volatility is back in
a big way and that has the average
retail investor kind of questioning what
to do at this point it’s it’s scared a
lot of people what do you think’s
happening right now just in terms of the
return of volatility is it something to
be worried about what’s causing it
well if you own stocks like you don’t a
farm or apartment house you don’t get a
quote on those every day or every week
think you look you look at the business
and the value of American business
depends on how much it delivers in cash
to its owners over between now and
Judgment Day and and I don’t think it
changes in 10% and in a two month period
if you if you’re looking at business now
you’ve got anything can happen in
markets I mean anything can happen to
mark is them that’s why they don’t ever
borrow money against securities that the
markets don’t have to open tomorrow I
mean you can have extraordinary events
so I think to some extent you can get
some of the instruments that people
don’t understand very well that have a
lot of firepower at them yeah and the
idea of people taking a position and
they’re gambling they’re not investing
nobody’s investing when they buy you
know some supercharged index on you know
the VIX does or something like that they
don’t need it and there are it’s an
unnecessary instrument out you know they
will create instruments that the public
will buy and you can just count on that
Wall Street’s been doing that for since
they meant under the Buttonwood tree in
1792 or whatever was on the exchange so
but if you’re investing if I’m gonna buy
a half interest in the MacDonald stand
and you’re gonna run it for McDonald’s
franchise you’re gonna run it I look to
the business to determine whether I made
a good investment and I’m concerned
about you know whether we have new
competition how we do over the year but
it’s the business I look at when you’re
just looking at the price of something
you’re not you’re not investing I mean
if if you buy something Bitcoin for
example or some cryptocurrency
you’re not looking to the asset itself
to produce anything if you buy an
apartment house you’re looking at all
the apartment houses your biopharm you
look at the farm to us if you buy a
whole business you’re looking how the
business does if you buy a part of a
business why shouldn’t you look at how
the business is going to do that people
get charmed by by lots of action and the
fact that things are liquid and all of
that and it does have repercussions back
into the market when you get something
like you know AETN arrangement on the
you know supercharged on the VIX I mean
where you can lose 90 percent of your
money in one day I mean that really
doesn’t belong with the word investment
I mean it’s just it’s a gambling form of
Act although you’ve said yourself you
you talked about this in the annual
letter over the weekend and just even at
the top of the show where when you look
around for a business that you want to
buy you can’t find any and attractive
levels however when you’re looking at
equities you do see that as a good place
the Berkshire has been a net purchaser
of equities this year in 2018 and that’s
because you like the deals that you’re
getting in the market you can buy small
pieces of businesses for less than you
can buy whole pieces of business and a
premium you’d have to pay younger buying
the whole yeah so you get a bargain as
an industrial competitiveness and people
if they just think of stocks as pieces
of business they’d be so much better off
and thinking on those little things that
move around in price and and and I think
with Berkshire we have an unusual number
of people the shareholders we just look
at Berkshire as a business a savings
account that put some money in 20 or 30
or 40 years ago we retain it reinvest
for them but we’re where their savings
account and and that’s the way I look at
my own stock that’s where Charlie looks
at the stock part of the reason that
you’ve been so bullish on equities for
many years at this point is the interest
rate of inflation environment you’ve
looked at interest rates and said
interest rates are gravity on stock
prices and when interest rates are so
low stock prices inevitably are going to
climb there’s been this really weird
thing that’s been happening in the
markets where all of a sudden good news
that we got from a good jobs report made
people start to worry that interest
rates were going to climb and that the
Fed was going to raise rates more than
aunt
dissipated people got really nervous
around that you can still see it every
time we get up on the 10 year back
towards 3% it gives investors or at
least traders I should say some concerns
about what’s happening how do you kind
of a bond if you buy a 30 year
government bond it has a whole bunch of
coupons attached in the old days does
now so electronic but it has a whole
bunch of coupons and coupon says 3% or
whatever it may say and you know that’s
what you’re going to get between now and
30 years from now and then they’re going
to give you the money back what is the
stock a stock is a a the same sort of
thing it has a bunch of coupons
it’s just they haven’t printed the
numbers on them yet and it’s your job as
an investor to print those numbers on if
those numbers say 10% and most American
businesses earn over 10% on tangible
equity if they say 10% that bond is
worth a hell of a lot more money than a
bond that says 3% on it but if that
government bond goes to 10% it changes
the value of this equity bond that in
effect you’re buying you are buying when
you buy it and it’s in General Motors or
berkshire hathaway or anything you are
buying something that over time is going
to return cash – it may be a long time
in terms of Berkshire but it’ll be
bigger numbers and those are the coupons
and it’s up to you your job as an
investor to decide what you think those
coupons will be because that’s what
you’re buying and you’re buying a
discounted value in it that and the
higher the yardstick goes and the
yardstick is government bonds the less
attractive these other bonds look that
and that’s just fundamental economics so
in 1982 or three when the long
government got to 15% a company that was
earning 15% on equity but with no words
no more than Book value under those
circumstances because you could buy a 30
year strip of bonds and guarantee
yourself for 15% a year and a business
that earned 12% it was a subpar business
then but a business in turns 12% when
the government bond is 3% there’s one
hell of a business now and that’s why
they saw were very fancy prices so 3% is
a long way from 15% of Georgia
I watched it go from 3 to 15 Oh – right
is there an inflection point on that way
because people think oh my gosh we’ve
gone from 2.4 percent to 2.9 percent
difference historically speaking that’s
still the way we should be measuring
these things not on the absolute
movement or the percentage gain movement
over time 2.4 to 2.9 is nothing if
you’re comparing it with businesses a
turn 12% on equity and reinvest and the
SNP you can just look at the vigorous
for decades has earned on tangible
equities earned a lot more than that and
it translates into more higher prices
and it should
is there a tipping point along the way
or is it a gradual decline in internal
body knows yeah but it’s it is gravity I
mean if if you told me interest rates
were going to be 15% next year on bonds
you know there’s a lot of equities I
worked one home now and I wouldn’t I
would I would buy a lot of governments
at 15 and I kind of wish I had in 1982
but I didn’t yeah if I told you that the
long bond was going to trade at four and
a half to five percent next year it
makes a difference but it’s been idiotic
don’t long bonds during the light you
know I talked about this in the report
in German smart it’s just been idiotic
and big public pension funds and all
that they sat there and they owned bonds
now they may have bought them on a four
or five percent basis but if they go to
a three percent basis there’s something
way above par the the way people think
about it is they do some very silly
things
I mean you lay this out in the annual
report but a lot of investors are told
retail investors are told that they
should have a certain percent of their
portfolio in bonds maybe they’re told
60/40 maybe they’re told 70/30 stocks to
bonds that’s something that you should
do and that’s the safe way of doing it
what am I missing
some people should not own stocks at all
because they just get too upset with
price fluctuations if you’re gonna do
dumb things because your stock a stock
goes down you shouldn’t own a stock at
all what are dumb things selling a stock
goes it goes down I mean it it you know
if if you buy your house at $20,000 and
somebody comes along next day says I’ll
pay you 50 you don’t sell it because the
quotes 50 you look at the house or
whatever
but some people are not actually
emotionally or psychologically fit to
own stocks but I think they’re more of
them would be if you get educated on
what you’re really buying which is part
of a business and the longer you hold
stocks the less risky they’ve become
whereas the longer the maturity of a
bond the more risky it becomes do you
feel like that’s a message that is
getting through to people it’s one that
you repeat again and again and I always
feel like I was watching a lot of the
Olympics and I felt like what they do in
the Olympics is so easy these guys
sailing through the air and doing
massive spins on the ice and turns and
then I read your annual letter and I
think oh it’s really easy to invest and
then I walk away and realize it’s not
that easy it’s not easy psychologically
for many people but I’ve been I’ve been
teaching since I was 21 I know our first
class on investment and I had a class
last week but with 11 schools 220
students and and some of them get it and
some of them don’t people would rather
gamble I mean the idea that you can
double your money in six months that
that’s just going to it’s why people go
to the races why they go to Vegas you
know whatever it may be they they they
even know the odds are against them and
they still do it I mean it’s a strong
instinct to want to get rich fast and I
don’t know how to do it Joe has a
question that he’d like to ask to Joe
Buffett you haven’t tweeted since April
of 2016 then is that true I didn’t
really tweet that I’ve got I’ve got a
friend that’s tweeted about seven times
you know Warren you were coming on
squawk box this morning for three hours
it would kill you to say I’m gonna be on
squawk box for three hours and tweet
that out that as a favor to Becky and me
I mean make me an offer I have never
actually tweeted myself and I don’t
really know how to do it and I don’t
know how to look up somebody else’s
tweets but I’d still you look at will
you look into it baby life you know what
I’m gonna tell you something more III
Becky over the weekend I was trying to
figure out I mean I get so irritated did
I don’t need
you know not not from people send it but
now from looking at what other people
are tweeting and retweeting I get Agadir
de and I’m trying to figure out a way to
still get the info that somehow
sometimes I get but just without me
being actually part of it as a party
could be if you got away I can do it but
then I’d still be following these
annoying people I don’t know to me if we
go to the final game if we go to the
finals of the n-c-double-a and we’re
together in these great seats up better
deliver for you yep because great is in
it I will have you tweet for me during
the game careful what you offer or how
would you like the keys to the castle
with that you don’t be the designated
Twitter god there’s a lot I’ve never
read a tweet you know what I’m taking
Creighton and Xavier right to the now
I’m really gonna be rooting uh really
you know I love it hi unblocked someone
today that appealed to me through email
and I’ve never done I had to figure out
how to do it but it’s on a probationary
basis at the board of discretion of the
at the stress discretion of the board
but I’ve never done that before so yeah
if someone got back in but so you get to
do things like that if you come on warm
I’d rather read to engage don’t realize
how dangerous that offer is you just
made because Joe and I have joked around
about getting ahold of somebody’s
Twitter account or their their
information when they leave it logged
onto a screen that we sit down at the
things that you can tweet out things
that you can so dangerous rating is what
people are pretended to be me on
Facebook and Twitter I mean have you
guys gone after the people we did it for
awhile just there’s just so many of them
it’s all kind of hopeless every time you
stamp one out yeah exactly
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