Buffett recently went on a 3-hour interview on CNBC Squawk Box.
Here are my notes in 15 points.
But first, why are Buffett and Greg in Japan?
Berkshire invested a 7.4% stake in each of the 5 largest trading houses in Japan, Mitsubishi Corp., Mitsui & Co., Itochu Corp., Marubeni and Sumitomo.
Buffett said “And they were selling at what I thought was a ridiculous price, particularly the price compared to the interest rates prevailing at that time.” They were there to speak with the management team, build trust and relationship.
Let’s jump straight into the notes.
1. Investing in Japan
BECKY QUICK: People look at this and say, “Okay, Warren Buffett is putting his stamp of approval on investment in Japan,” basically. Is that an accurate read?
WARREN BUFFETT: Well, yeah, it’s an accurate read, but it was an accurate read a couple years ago, too. I mean, I was confounded by the fact that we could buy into these companies and, in effect, have an earnings yield of maybe 14% or something like that with dividends that would grow, that they actually grew 70% during that time. And the people were investing their money in a quarter of a percent or nothing. And a quarter percent, if they put it out for many years, wasn’t going to grow, and the 14% was more likely to grow than not. And if that didn’t look like something sensible to me, you know, that’s as easy as it gets. But it’s turned out to be better than I thought it would be.
Exlcuding the US, Japan is Berkshire’s second-largest place for deploying capital into equities.
2. How Buffett and Greg work together
WARREN BUFFETT: He does all the work, and I take the bows – it’s exactly what I wanted. And he knows more about the individuals, the business, he’s seen them all. And you know, they haven’t seen me at the BNSF Railroad for ten, 12 years or something like that. And you know, Katie Farmer, I mean, she – yeah. Greg is there, and he understands each of our businesses. To have the grasp of what, you know, whether it’s – or the railroad operation, or you name it. It just goes all over. And Greg gets it the same way I get it, but the difference is that he likes to work, and I like to sit around. And I like to allocate capital, and he likes to – he thinks the same way on it as I do, but he also, he likes to meet everybody that’s running the business. And he understands them, and, and he’s probably tougher than I would be in terms of getting things done and everything. And so, it’s improved, it’s already improved dramatically, the management of Berkshire. And we think alike on acquisitions. We think alike on capital allocation. I mean, he’s a big improvement on me, but don’t tell anybody.
3. CEO alignment
Greg recently bought $100 million of Berkshire with his own money.
GREG ABEL: Yeah, obviously, when I monetized the position in Berkshire Hathaway Energy, that provided an opportunity to purchase shares of Berkshire. And had I done that sooner, I would have owned the shares in Berkshire earlier, so that was always the intention. And, yes, I always will continue to invest in Berkshire. I strongly believe in Berkshire. I believe in what’s been created, and I strongly believe, equally, that we have a great path forward.
BECKY QUICK: And—
WARREN BUFFETT: Becky, how many managers in the United States have put $100 million of their own money, not getting a share of the discount, not getting any special deal on it or any of the sort or having an incentive to come, expert to come around and do as instructed, which is to arrange it so that the CEO gets the upside but doesn’t share the downside? Now I can hardly think of a case where anybody’s put anything like $100 million of their own money in and gotten the exact same deal as the shareholder gets. If they make money, they make money. If they lose money, they lose money. And that’s just the way we play it at Berkshire. You don’t find it anyplace else.
4. Fed having to act on insufficient information
WARREN BUFFETT: No, I do not think I could run the Fed as well as Jay Powell’s run it. I think Jay Powell’s been a terrific and part of the job well, look at Paul Volcker back in the 1980s. I mean, people were sending him, you know, I mean, he was he needed Secret Service protection and everything else that but in the end he felt his responsibility was to do the right thing at the Fed, and he didn’t give a damn about what anybody wrote about him or anything else. And I think that he’s one of my heroes, and I think he’s one of Jay Powell’s heroes. And I think Jay Powell is, did the same thing actually in March of 2020 when we went into the pandemic I think at the annual meeting that year I said, you know, that he was a hero, and he is a hero. And you have to, you have to act, and you have to act on insufficient information. And you’ve got a ultimate responsibility to the American public.
And it doesn’t mean you can stop recessions. It doesn’t mean that you can turn bad loans into good loans or anything else. But it does mean that you gotta keep the system working. And the system came close to stopping. And if you read a book called Trillion Dollar Triage, you can get it on a day-by-day account and people don’t know how close it was. And Jay Powell did not call for studies or position papers and, you know, lengthy debate and everything. You just don’t do it. You act. And that’s what Paul Volcker did, and I thank heavens, you know, Jay Powell was there. I mean, you could’ve gotten a very different result in March of 2020 after the pandemic broke out.
5. I didn’t ever want to be the Chairman of the Fed. It’s a very, very, tough job
BECKY QUICK: All right. I’m going to ask you one more time, because I don’t think you want to answer it. I know you don’t want Jay Powell’s job, but if he asked you if he should keep raising rates, what would you say?
WARREN BUFFETT: I would say he should do whatever he thinks is in the best interest of the United States.
BECKY QUICK: And if he says, “What do you think is in the best interest of the United States?”
WARREN BUFFETT: Well, I’d say that that’s why I didn’t ever want to be Chairman of the Fed. I mean, it’s a very, very tough job because you have to deal with Congress. You have to deal with banks. You have to – I mean, the biggest problem is in the end, Congress can torpedo your job. And I’d hate to have a job or something that somebody else can do– can essentially nullify any actions I take. And, you know, Paul Volcker faced that and I looked at him one time in the 1980s. I look up like that because I mean, he was even bigger looking in person. And I said, you know, “What can you do under that clause,” or whatever that was in the – and Paul effectively said, “I’ll do what I need to do.” You know, he says, “What are they going to do, come down and arrest me,” you know, basically? And take me to the Supreme Court, going to put me in jail, or something,” You know? I mean, he felt that it was his job to do what was right. And I think Jay Powell feels exactly the same. And actually, I feel most people in that job, overwhelmingly, they want to do it, but I think some of them haven’t been as smart about it as others.
6. Thinking about risks
Warren Buffett has seen risks far off on the horizon before anybody else.
Becky Quick asked if Greg and Buffett have discussions about risk management.
WARREN BUFFETT: It’s my job to think about risks that nobody else thinks about. I’m I it’s very easy to read a little thing in the front of the 10-K of every company about the risk. It’s the ones that aren’t in there that are that— in one way or another, are gonna bite you. And I’ve get 99 and a fraction percent of my net worth in Berkshire, but I’ve got all my relatives in. I’ve got everybody in. If I thought that I wasn’t going to be able to do a decent job of managing the risk, a better than decent job, I’d be crazy to take on that responsibility.
Why in the world do, you know, I’ve got all the money I need, so why should I do something that could destroy me internally, and my sisters, and my cousins and all these people unless I felt that I could do the job of managing risk really as well as anybody can do. And it is a complex organization, and I worry about things nobody else worries about. But I can’t solve ’em all. I can’t solve if the pandemic starts but anything that can be solved, I should be, I should be thinking about that. And Charlie thinks about it, too. I mean, we’ve talked about it forever.
7. We run business so that we will be the last man standing
WARREN BUFFETT: Well, I know what a lot of different businesses are doing. And I just got report from one of them that happens to be in the retail-related business. And in any event, you know, it was -22% in February from a year ago.
BECKY QUICK: In sales?
WARREN BUFFETT: They didn’t think that was going to happen.
BECKY QUICK: Sales, you mean or in profit?
WARREN BUFFETT: In sales. Profits are down a lot more than that. On the other hand, some of our businesses are still doing fine, but they all are reporting that the new, you know, some of them are living off of orders that were placed months earlier, and that sort of thing. But it’s a tougher world out there in a great many businesses. Not in the insurance business. Insurance business should be better this year than last year. That doesn’t mean it will be because we can’t predict how everything happens. But on a probability basis, it should be better than last year. And the railroad business is down in carloads carried. I mean, it isn’t dramatic and, of course, we’ve got a utility business and that doesn’t read very much with things. So but overall, I think people that run our businesses that do have any sensitivity to the economy are surprised at where they are now compared to where they felt they were going to be six months ago. That doesn’t mean the world is coming to an end or anything because – 58 years I’ve been running Berkshire, I mean, we’ve run into all kinds of problems. But that’s what business is about. And we run our business so that we don’t depend on everything being hunky-dory always. We run it so that we will be the last man standing. And that’s the way, if millions of people are going to give me their money and tell me to take care of it, we’re going to try and take care of it. And if we don’t make as much money as we might’ve if we’d leveraged more or done other policies, so be it.
8. Buffett’s thoughts on the bank failures
Buffett weighed in on the banking fiasco.
WARREN BUFFETT: Well, I, I would say that the, some of the dumb things that banks do periodically well has, have become uncovered during this period. And as one of, a banker told me one time, he says, “I don’t know why we keep looking for new ways to lose money when the old ones are working so well.” And they made the same mistake, some banks, in this period by they haven’t made as many mistakes, they expect to make some mistakes in making loans, but they haven’t, and particularly here in the credit card loans I mean, that’s just part of the game, but they haven’t made the same sort of mistakes that they made back in 2008 or 2009. But they have mismatched assets so — and bankers have been tempted to do that forever, and every now then and then it bites ’em in a big way.
And it’s just amazing to me that banks can make presentations to financial analysts and everything and if one bank bought a bond at 100 and another bought it at 96 and they both, they both split held a maturity one bank carries it at 100 and another bank carries it at 96. I mean, it, it is accounting procedures have driven some bankers to do some things that may have helped their current earnings a little bit and pull and caused the recurring temptation to get a little bit bigger spread and report a little more in earnings.
9. How FDIC works
WARREN BUFFETT: The FDIC is a in effect a very peculiar neutral insurance operation that is run by the government but is financed by the banks and FDIC had $120 billion or so at the start of the year, and that’s all the money that banks have paid in, less what the FDIC has had to pay out on losses. And if the FDIC has to pay out $250 billion this time or $300 billion, they just assess the banks more. And they don’t do it in a very businesslike manner because the public has the impression that the FDIC is the United States government and that so on, and of course they do appoint the people, but the cost of the FDIC, including the cost of their employees and everything else, is borne by the banks.
So banks have never cost the federal government a dime. But that the public doesn’t really understand the whole FDIC thing, and the comments of public officials confuse it and the issue enormously and – I mean, the FDIC was set up to operate on I think January 1st, 1934. You’d think somebody would have gotten through to writing what’s the essence of this FDIC, which is, was a fantastically good development of the New Deal. I mean, 2,000 banks failed in, I don’t know whether it was, 1920 or 1921. There’s only, I don’t know, something less than 5,000 banks in the United States. And, I mean, it was a paralyzing thing to have a bank failure in this country.
And my dad lost his job in 1931. He lost his savings. And it was cause a bank failed that he worked in at downtown in Omaha. And people shouldn’t be worried about losing their money and the deposits they have in an American bank. And today they have no reason to worry and but the message has gotten very confused and people don’t really understand how it all works. And you know, and politicians can make hay out of it and all kinds of, all kinds of things, bad things happen when people don’t understand some major institution or who actually bears the cost and what the responsibilities are. And nobody is going to lose money on an on a deposit in a U.S. bank. I don’t know about the rest of the world. I don’t know. I’m not that familiar with it. But it’s not going to happen and that message has gotten mixed up.
10. There is no penalty attached to bad behaviour
When asked how to deal with moral hazard in regard to the bank runs, Buffet responded:
WARREN BUFFETT: So, absolutely. I mean, they’ve gotta have something to lose themselves. I mean, in 2008 all kinds of trouble was caused by the banks, but no bank executive the CEOs that made those decisions, they all continued to live fine. You know, they may have lost their job but they get their pensions so they bore no res– and then the bank later would pay billions of dollars, a bunch of shareholders’ money, that had nothing to make to do with making those decisions. So I would absolutely suggest and I had some friends in banking, I may not have any by the time this program is over, but I would suggest that anybody that’s CEO anybody that’s CEO of a bank that screws up and cost shareholders a lotta money that in effect, you know, they get no pension from the bank. They go back to living, you know, like a person that works on the production line of Ford or something like that. They don’t deserve anything special.
And I would suggest to the directors of the bank that sat there for five years and listened to people come in and give reports and all that sort of thing, that they give back all their director’s fees. And they I mean, there’s gotta be consequences to the people who make the decisions and penalize the shareholders later on by having billions of dollars worth of fines paid to the government, you know. That doesn’t, that doesn’t deter the bad action the way it if you’re the president of the X, Y, Z bank and you screw up enormously, you know, you still will live on like you did before. It, you’ve taken away any sense of real responsibility with the directors.
And answer to the directors isn’t to have more risk committee meetings or anything like that. The answer to I’ve been on the board of banks, and the answer is to have board of directors feel like, “God, if this guy screws things up, I’ve gotta give back all this money that I’ve gotten, you know, $300,000 a year or whatever it may be in pre-stock and this kinda so I gotta give it all back for five years.” Believe me, that changes behavior of the people that cause the problem. And this system doesn’t get rid of moral hazard because it penalizes different people who make the decision. And I wanna penalize people who make the decision and have it very clear to them. And that will not be met by great enthusiasm from a lotta friends of mine.
But that’s exactly what I believe is should be done. And banking systems are enormously important. The world doesn’t work well without banking systems. And I don’t know anybody that went back to flipping burgers at McDonald’s or something, you know, after they screwed up the system, you know, in a big way in 2008, 2009. Now they really were they made dumb they did things in 2008 and or 2007 and 2008 that really are qualitatively different and really much more reprehensible than things that people did in this period currently. But they did a lotta dumb things. And some of ’em sold their stock. And, I mean, there’s no penalty attached to bad behavior. And it does really, really affect the system when people lose confidence in banks.
11. No one is going to lose money on US bank deposits
Buffett: But in economics, the equation changes every time because of the experience of the previous time. So things that seemed to make the mistakes of 2008 and 2009, they affect how people behave subsequently, and 2023 is a different world. And it isn’t like light travels at the same speed or anything like that. And people have adjusted so that lazy money in 2008 doesn’t exist in the same way at all. And we’ll see how it plays out. But, you know, it’s our job at Berkshire, for example, and in all our businesses to not think about, you take cognizance of what’s happened in the past, but you have to worry about things that people haven’t seen yet. And, you know, the people that have run banks the wrong way, their shareholders are gonna lose money, but the depositors aren’t going to lose money. And I made that offer, you know, in the previous segment, and if anybody’s called in with their million dollars I’m still good for it. And—
BECKY QUICK: Okay. Let’s go back to that. For anybody who’s just tuning in, you’re saying that you will put up a million dollars against anybody who wants to take the other side of the bet that no depositor in a U.S. bank will lose money—
WARREN BUFFETT: In the next year—
BECKY QUICK: Within the next year—
WARREN BUFFETT: And in a year from now whichever one of us has won gets to decide where the, what charity the $2 million goes to. So some charity’s gonna win just like on that hedge fund bet I made a few years back. But I’m betting on what is certain to happen politically. It isn’t the law now, but it’ll get changed. I will bet on the fact that the United States will not suffer, ruin the world by messing around and not finally changing the debt ceiling. And why, you know, the Congress we elect to do all kinds of things, and they’re overworked in all kinds of ways why spend a lot of time — on that and make hay out of it on one side or the other, depends who’s in, who’s in charge, I mean, it’s just silly. And I’d rather have the government, you know, actually focus on things like they did back in the New Deal, which my dad hated, but which social security came out of and the FDIC came out of. These things really improved the situation of the world, and they proved, they improved America. And I’ve got the advantage of hindsight, and I believed in it. And really, you know, since I was 11 years old I just said, “Bet on America and figure out a way to be in the better businesses.” But even if you’re in the average business, you know, it’s just the way we still work despite all our common sense. And but we can work better.
12. The only thing we have to fear is fear itself
WARREN BUFFETT: I’d rather own part of America than try to squirrel my money away somehow other place, you know, maybe in Switzerland, Credit Suisse or something like that. It just people are they don’t really get any wiser about this sorta thing. People somebody yells fire, they’re gonna run for the door. I mean, and it’s built into fear is so easy to arouse in people. And you talk about fear about their money and they don’t really understand the system necessarily or anything of the sort. And they can actually, by their own actions then, create what they were afraid of. It’s a very interesting phenomenon.
And it actually you have, my dad hated Franklin D. Roosevelt, but so I grew up first 10 years of my life I couldn’t get dessert at dinner unless I said something nasty about Roosevelt or something. But over the years, you know, when Roosevelt said, “The only thing we have to fear is fear itself,” he was 100% right. When he closed the banks and said, “I’ll open the good ones a week from then,” he didn’t, he didn’t know anything about which bank was good or bad or anything like that. But people just needed that an appropriate confidence. And now they’ve really got an appropriate confidence because we didn’t have an FDIC and we didn’t have an FDIC that was required for every bank. Lotta banks fought the idea.
And now we’ve got a system that works, but people are still scared when they get scared. And it being scared is so contagious. You can’t imagine what it was like that weekend after Silicon Valley. I mean, you know, the guy that drives me around because I can’t see that well and, you know, all he was talking was banking, you know. And he what should he do and it’s unnecessary fear is a terrible thing to give people. And Roosevelt and the New Deal really wanted to get rid of that. And it here we are X years later and we’ve got a mechanism that’s so much better than we had going in, but people really don’t quite understand it. And maybe, you know, maybe it takes the president of the United States to just go on and deliver Roosevelt’s message and make it more clear to people what we really do have and what they need to be worried about and what they don’t need to be worried about. But of course if you’re trying to win an election next time you tell people, you know, that if you’re out of office or you’re out of control, you know, tell ‘em how terrible the other guy is for getting ’em into this problem. And that’s gonna always live with us.
13. Buffett on ChatGPT
Buffett said that while ChatGPT can save you an “unbelievable amount of time”, he has concerns about the consequences of it.
WARREN BUFFETT: I think it’s an incredible technological advance in terms of showing what we can do. But I don’t know whether we know what happens. And I was listening who was it the other day that was knows a lot about technology? He just says that it scares him. Well, if it scares him, it scares me in terms of the possibilities of I mean, we’ve done amazing things, like we figured out how to create an atom bomb back in 1945. I didn’t know what an atom was or anything, but the Einstein told me it was gonna change the world, and it changed the world. So I don’t wanna change the world too many times without knowing having some idea of the consequences of it. And this, I think this is extraordinary, but I don’t know whether it’s beneficial.
14. Bitcoin is a gambling token
Buffett emphasises his stance on Bitcoin, that it’s a gambling token.
WARREN BUFFETT: People love the idea of getting rich quick. I don’t blame ’em. But I’ve always wanted to get rich slow, and I have a lotta fun along the way… And something like Bitcoin, you know, it is something it’s a gambling token. And doesn’t have any intrinsic value. And, you know, Larry Summers was on and it doesn’t have any value. I mean, it doesn’t have any value, but that doesn’t stop people from wanting to play a roulette wheel, and think that if there’s 37, you know, one zero and or double zero and doesn’t make any difference. Yeah, it makes a difference.
And score’s now and that eats up your money if you spend rest of your life spinning around the roulette wheel. But they feature the winners and people get excited about it, and that’s why the slot machines make a lotta noise when they’re paying out. I don’t know, I don’t know how to turn back the clock on that.
15. Never opined on an economic forecast of any use to the company
BECKY QUICK: In terms of the potential for a credit crunch coming through what the banks are going through right now, there’s been a lot of speculation about what that could mean to the economy. Is it going to mean a 0.5% hit to GDP? Is it going to mean a 1% hit to GDP? What would you guess?
WARREN BUFFETT: I would say that I’ve been in business, running Berkshire for 58 years, and I’ve never opined an economic forecast of any use to the company. And all you have to do is keep running every business as well as we can, and we got to keep plenty of cash on hand so that people are going to keep making intelligent decisions, rather than those forced upon them. And that’s all we know how to do. And if I depended in my life on economic forecasts, you know, I don’t think we’d make any money. I don’t know how to do it. And, you know, people want to get them, so they get them. But it has no utility. When I find one of our companies has hired somebody to tell them what’s going to happen in the economy, I mean, they’re throwing their money away as far as I’m concerned.