Warren Buffett on CNBC Interview Notes

I don’t know what markets are going to do

“Yeah– I never know what markets are going to do. There’s never been a time in my life when I was– I know what markets are going to do over a long period of time. They’re gonna go up. But– in terms of what’s going to happen in a day or a week or a month or a year, even– I d– I– I never felt that I knew it then and I never felt it was important. I– I– I– I will say that in ten or 20 or 30 years, I think stocks will be a lot higher than they are now.”

Business is a little softer than people anticipated four or five months ago

“The bus– business, I would say, is a little softer– in many places, than people I (UNINTEL) than I anticipated will say four or five months ago. That to me is in reverse. But, you know, we’ve talked before how since the fall of 2009, overall the economy’s just kept movin’ up around 2%. And people talked about dipple– a double dip, you remember hearing that, you know, three or four years ago”

Lower oil prices are good for the consumer, but capital values disappear immediately

“Well, it’s a very interesting thing. I mean– we all learned in freshman economics that– that if oil went down in price, it was bad for the exporters and good for the importers. And– and certainly, when we had the oil shock back 40 years ago, it was a tax on– on– on America and the Saudis were leveling the tax and so on. There’s no question that it is good for the country, that lower oil prices. But what happens is that the benefit to the consumer, it feeds in– next time you go to– to the filling station, the gas station, you know, you save 15 or 20 bucks. It feeds in very slowly. But the capital values disappear immediately. So if you’re sitting with an oil industry in this country that’s producing ten million barrels a day or something of the sort– that’s– that– at $100– ten million barrels a day is– is a billion dollars of revenue– $365 billion a year, capital values may be $2 trillion based on that. Now all of a sudden you take it down to where you’re not making any money, and the $2 trillion of capital values disappears very quickly, the bank loans against it get sour very quickly. They– they quit buying from the service companies very quickly. So the negative effects to this huge capital value happen very quickly, whereas it’s easing to the consumer very slowly. So even though it’s good for the country net, when you’re an importing– economy, it can be very bad in the immediate effects it has”

Rail has been disappointing and continued this year

“Yeah, you see it in various industrial parts. And– well, you see what rail– rail– rail was disappointing last year, it got more disappointing as the year went along, and so far this year it’s– it’s– it’s been the case.”

Auto accident frequency went up in 2015

“in 2015, for the first time in a long time, the trend started going the other way. The– and– and– we just got figures from the first nine months. But the frequency of auto accidents went up a lot last year. The number of deaths went up– to 32,000 deaths, and only about a third are drunk driving. I mean, if you think about it– almost 10,000 deaths from up into 32,000 come from drunk driving. Half of the people were killed as occupants in a car– or not wearing seatbelts. But I personally believe that distracted driving, which was listed for about 10% of the deaths in 2014, I’ll bet that number went up a fair amount. So”

Best thing for most people to do is buy an index

“I’m not an investment advi– I wouldn’t– ever im– urge them to do anything based on what we– what we do. I mean, the– it– it– if they wanna do what Berkshire does, they– they probably should buy Berkshire. But I am not into– I’m not an investment adviser. You know, it’s intellectual property that belongs to Berkshire what we’re doing in the– securities. So we– we have no desire to encourage people to buy or sell stocks at all, except I will tell people that over time, I think they will do very well by buying common stocks. And I think the best thing for most of ’em to do is to buy an index”

You have to teach Watson a lot

” At Geico, we’re doing a fairly elaborate– experiment with– with Watson. And with Watson, you spend a considerable amount of time teaching Watson. I mean, Watson– Watson does not come knowing a thing about insurance. (LAUGH) And– and– never had an insurance policy before we had him and– and– he was great at Jeopardy But– so our job– and IBM’s job is to educate Watson– in all aspects of insurance. I mean, Watson learns. And– and we have been working with Watson– quite a while now. And we’ve got some big tasks in mind for Watson. And we see progress along that line. But it– it’s just like in medicine. I mean, the– you know, if you’ve got Memorial Sloan Kettering starting to feed information about cancer into Watson, the first day, it– he– Watson knows nothing, you know? And it’s– it’s just a piece of machinery. 06:41:40:00 And– and after a while, it has this ability to– to remember every article that’s ever been written and re– really– you know, do it in– in a second or two and– and take information from tens of thousands of w– whether it’s X-rays or recent tests or whatever it may be and– and– and– it comes in and incredibly valuable piece of– of– or storage of information and then aide in decision making. And that can be very valuable in insurance, but it’s not valuable the first day or the second day.”

I like to see our managers in person particularly as they get old

“I– I like to see our managers in person. And particularly as they get old. I mean, we’ve had a couple that– have drifted off into la la land– at– at Berkshire. (LAUGHTER) And– and then a couple (UNINTEL) I didn’t know it. I mean– so there’s nothing like semi-per– semi-personal contact. And they’re the people that go on business around the world. So we’ll give it a shot this year and see what– see what happens.”

You’re better off in stocks if you did not get a quote on them

“I mean, there’ve been way worse months. There have been way, you know, you have October 19th, 1987, what was it 22% up and down in one day or something. It, you know, the– the– the– people buying and selling (UNINTEL) but they basically don’t know what day of the week it is or what hour or anything like that. 07:08:41:00 And– and they react to news, they react to the market itself. The very fact that we talk about the market, you know, on bad days and everything may tend to accentuate it for all I know. Who– who– who knows? It really doesn’t make any difference. 07:08:55:00 I mean, if I– if I owned a McDonald’s stand here in Omaha I would not get a quote on it every day. You know, I would– I would try to make my service the best. You know, I would– I would hope too many competitors didn’t move in close to me. And– and I would hope that McDonald’s would great advertising and came up with some new products occasionally And what I would think about is how’s this going to work over five years or ten years. I mean, people gonna keep eating hamburgers, they’re gonna like ours and all of that sort of thing. And you’d be better off in stocks if you did not get a quote on them.”

Interest rates have a huge gravitational pull on valuations

“Well, i– that– that’s– besides– what’s happened with interest rates is really extraordinary. I mean, it– you can go back and read everything Keynes wrote and everything Adam Smith wrote or Ricardo wrote or (UNINTEL) wrote or you name it and Paul Samuelson. 07:10:19:00 I mean– you won’t see a word of– in my view– anything I’ve ever seen– about sustained negative interest rates. I mean, we– really something the world hasn’t seen. It does have the effect of making all assets more valuable. I mean, interest rates are like gravity in valuations. 07:10:33:00 I mean, if interest rates are nothing, you know, values can be almost infinite. If interest rates are extremely high that’s a huge gravitational pull on values. And we had that in the early 1980s. So we’re going into this period– well, Berkshire Hathaway is sitting with billions of dollars of euros in an insurance company that we have in Europe. And they will bear a negative rate. I mean, we would be better off if we had a big mattress here (LAUGHTER) if we could spin all this stuff.”

I don’t know the and then what on interest rates

“in economics the most important thing to remember– important in other areas in life– but after anything that happens if somebody tells you, “This is gonna happen,” you gotta say, “And then what?” There’s always– it’s like in physics or anything else, there’s always an and then what. So the question I always ask myself, “And then what?” And in terms of the say no interest rates what I say and then what I don’t know the answer. (LAUGH) And you want to know the answer. I– I’ll ask him next time I see him.”

You can’t name a single super wealthy economist

“I don’t know what– I don’t– I don’t pay any attention to what economists say frankly. Well, think about it, I mean, you– all these economists with 160 IQs and spending their life studying it. And can you name me one super wealthy economist who’s ever earned money out of securities? No. I mean, just go down the list now.”

Everyone in m neighborhood lives better than the Rockefeller

“as I mention in the letter, I live in a middle– upper-middle class neighborhood. I mean– the– the median income might be $100,000 a year or something like that. And every person in that neighborhood lives better than John B. Rockefeller Senior lived at the time I was born. In one man’s lifetime, an upper-middle class neighborhood has evolved to a– a way of life that’s better than the richest man then in what was the best country in the world– in 1930 was able to achieve. He had power and prestige and– and all of that. But in terms of medicine, entertainment, transportation, you name it, my neighbors are better off than he was.”

Activism plays a useful role

“No, it hasn’t changed at all. The first time I’d written about it on this– in this specific arena. But I– actually I’ve talked about it annual meetings in the past. I mean, we do not– if you take the Fortune 500 we do not have the 500 best quarterbacks (LAUGH) at each one of those scenes. 07:39:24:00 And in the end part of the success of our economy will depend on having the right managers and having the right businesses. And– and any time a business is run by someone that’s a six when you can have– a nine in there, not only the business suffers, the whole economy suffers. I mean, it– it– you need able people and– to the extent you can– the very best people– running– running businesses. I mean, they deploy these 150 million workers we have and determine how efficient they are. So I– I have been– I’ve been a director of companies where we’ve had the wrong person running them.”

07:40:04:00 We’ve owned companies where we’ve had the wrong person running ’em. And I do not believe that– in dilly-dallying around about making changes like that. Sometimes I’ve been too slow myself and I’ve seen the problems in– in widely-held corporations. I’ve seen the problems of the– of getting rid of somebody who’s a perfectly nice person, probably helped select you to become a director. 07:40:27:00 Treats his family well, treats his directors well. But he’s just not doing as good a job as someone else can do. And– and that hurts not only that company it– it actually hurts all of America. So I– I’ve– I’ve always been– I’ve always felt that way. It doesn’t mean I wanna do that job myself. I mean, that– that– you know, at 85 I’m not– (LAUGH) I’m not– around to be– it’s much easier just to buy companies that are already well-run. I mean, it– that makes it– my job so much easier. But the problem exists out there that certain companies are not well-run. And sometimes the directors don’t do anything about it. And then you need somebody to stir things up”

Values companies that have shown that they can adapt over time

“Well, American Express started I think in 1851. And they had an express business. You– you transported goods from the west coast– east coast to the west case. I think they even chained the pony express rider to his trunk that he was carrying so that if the Indians came couldn’t (UNINTEL) and leave the trunk. 07:51:46:00 And then along came the railroad. And now all of a sudden you could stick those trunks on– on– on a railroad. And American Express adapted to money orders. And then the credit card came along in the 1950s and people thought money orders were gonna disappear. And they adapted to credit cards. 07:52:02:00 Diner’s club looked like they were gonna wipe ’em off the face of the earth for a short period of time. So it’s been a business that’s had to adapt. But it’s– it’s been a very fundamental business with a terrific reputation. During– when Roosevelt closed the banks in 1933 travelers checks were allowed to be continued to be used. So they substituted for banks even for a week or so”

Tracks capacity utilization in refinery business

“Well, it– no, it’s not so good right now. (LAUGH) You know, it was better last year. But– what really helps (LAUGH) in the oil refining business is when somebody shuts down. For example, the Whiting, Indiana refinery sh– sh– this is a big one, shut down last year for a while. And– and that helps the spread, okay? 08:19:48:00 That– oil refining generally operates in the 90+% of capacity operation. So anytime somebody gets knocked out, either there’s planned outages, but then there’s also unexpected outages. And– and if you’re– if you’re in the oil refining business, you’re hoping that the utilization is very up there, h– in the high nineties.”

Robots would be great

“wouldn’t it be wonderful if someday we got to the point where there were robots everyplace. They were running farms, they were running Apple, they were running Berkshire Hathaway. And all you had to do was one person could p– punch a button at the start of every morning and all the goods and services that we’re getting now would be turned out by robots or whatever? 08:37:00:00 And we’d have the goods. We’d have 18 million cars a year. You’d have a million more housing starts. We’d have all the iPads being sold. And if all of that came to one person pushing a button, would that be a tragedy? (LAUGH) I mean, just think how w– how well we’d live. Now we’d have– instead of having to work 35 hours a week, we might work an hour a week or something of the sort. 08:37:20:00 So, I mean, basically, the more output you can get from people, it– it frees ’em up to do other things. And one of the things it frees ’em up to do is work less”

Negative rates absolutely affects people’s behavior

“Well– well, negative rates affect everybody’s behavior. I mean, I– I probably– hell, I know that I pay more for precision cast parts because interest rates are so low, than I would’ve paid if interest rates were 6% or 8%. I mean, it– it absolutely has an effect on my behavior. And– and for people that use a lot of our money, it has a huge effect. 08:47:14:00 So it– I mean, it is a s– huge stimulus (UNINTEL). It’s terrible on people that are– that are lending. I mean, for somebody– just retired and who’s always afraid of owning stocks or something, and therefore, kept their money in banks, I mean, they’ve gotten killed. So you really had the borrowing class– getting enormously subsidized by the lending class for these overriding– (UNINTEL) reason. 08:47:40:00 But– you know, it’s– it’s really rearranged the income big time of– a lot of the citizens of the United States. And– and I never would’ve thought it would continue this long. But I also thought a year ago it would have to continue if the Europeans kept (LAUGH) doing what they were doing. It could be– it– nobody’s seen this movie before. And you can go back and read all the great economists and nobody’s (UNINTEL) about a long period of negative interest rates”