market folly

CNBC's Becky Quick interviewed Berkshire Hathaway's Warren Buffett on a range of topics yesterday.  Below is a summary of noteworthy comments and a link to the full transcript.


On tax reform:  "It's a huge tailwind. And it's particularly a tailwind if you've got-- particularly for companies that have had lots of depreciation and taken bonus depreciation up front. So it's a big item-- there. Not as many companies have lots of appreciation and marketable securities, but it's a big item for those that do."


On market valuation:  "I mean, it--in fact, I-- the market-- the stock market relative to the long-term bond market-- people have free choices, pretty much, if they're going to be in marketable securities. They can own reasonably long-term bonds, they can own equities, or they can keep it in short-term cash equivalents. And--- if-you had to choose between buying long-term bonds or equities-- I would choose equities in a minute now ...

That doesn't mean I think the stock market is gonna go up or anything else. But if- I were going to own a 30-year government bond or own equity for 30 years, I think equities will considerably outperform that 30-year bond over the 30 years. I don't know what they're gonna do in any day or week or month ...

In-- so far this year we've been-- a net buyer, although we sold-- a chunk of Phillips to get below 10%"


On whether he would buy any parts of General Electric (GE):  "If we like the business and the price was right, we could write a check for cash. And that would apply to GE. They've got a few big businesses. I don't think they want to sell them, but they have some smaller units that they're interested in selling. But we're always in the market for a big business that we can understand and that we like, and we think that we've got the management for and so on."


On Buffett's favorite stock, besides Berkshire:  "Well, if you look at our holdings, you would assume that we like them in the order in which they rank by dollar value of holdings. But if you look at them in terms of recent purchases, you know, over the last year, we've bought more Apple than anything else ... I haven't told you what I might have been buying in the last week. Or month"


Shoutout to CNBC for asking the question we submitted on Twitter via the #AskWarren hashtag:  Has Buffett ever disagreed with any of Todd (Combs) or Ted's (Weschler) investments, and why?



"Yeah, well, they make their own decisions, 100% and they each manage $12 billion or $13 billion now. Well, they started actually, I think when Todd came about a year ahead of Ted. And I think maybe it was $2 billion, but it has increased at various points and then they've earned a lot of money for Berkshire, which builds up for them, too. There's certainly – they've done things I wouldn't have done. But I've done things they wouldn't do, too. I mean, I want them to figure out their own. The choices – they are good at managing money, and they've got the advantage of managing smaller sums than I'm running. But they've got the disadvantage of running quite a bit larger sums than most people run. I mean, it gets more difficult with size. But they not only have done a good job of managing the money and trusted them. But they've contributed to Berkshire in just dozens of ways. They were sensational hires."

Becky Quick then followed up and asked if he talks to Todd/Ted about investments beforehand:

"No, not ahead a time. And there's a number of them I haven't talked with them at all. I couldn't even – I couldn't name three quarters of their portfolio. I couldn't tell you the amounts. I don't remember that well. But I've gotten ideas from them. But they take on other tasks. I mean, Todd is on the health care situation. He's there on Saturday. I was there on Saturday. He's there all day talking to people around the country in terms of looking for the right CEO and that sort of thing. They are enormous contributors to Berkshire."


On owning Samsung in the past:  "I don't own them, and Berkshire doesn't own them now. But Berkshire has owned Samsung. It doesn't get reported in our 13F.  But I think I'm right on that. I'm 99% sure. And so we bought some when Samsung was at about a million yuan – you got to divide that by something over 1,000 – we bought a reasonable amount. We did sell it when it went up. It's higher than this now. It went up to 1.8 million, or something. I think it's around 2 million, 2.3 million or 2.4 million. The yuan went in our favor a little bit too. So we did a little bit better in dollars."


On why he sold IBM in favor of buying more Apple (AAPL):  "Well I was wrong on – at least I felt I was wrong on IBM. Now, I may have been wrong when I sold it, too. But I certainly was wrong when I bought it. And I've felt that Apple has an extraordinary consumer franchise. Apple's a different kind of business than IBM. They're both tech, obviously, in a major way. And they even have a joint venture, you know, on some things. But I think I understand consumer behavior perhaps better than I do the tech business. It wouldn't take much to beat it. And I liked it, I like Tim Cook very much. I like their policies. I see how strong that ecosystem is. It's to an extraordinary degree. I mean, I look at my grandchildren, my great grandchildren and everybody in the office, I mean, their families. I talk to the people at the Furniture Mart when the ten hadn't arrived, nobody goes over to, you know, buy an Android. I mean, you are very, very, very locked in at least psychologically and mentally, to the product you're using. I mean, you got all kinds of stuff up on there. It's a very sticky product."


On the airline industry (he owns stakes in AAL, UAL, DAL, LUV): "It's-- a business that's-- always subject to somebody doing something very dumb competitively. And—-- they've done it a lot in the past. There was more chance of them doing it when there were seven of 'em than the big ones, than-- than four. I mean, the industry was suicidally competitive for decades. I mean, they net lost money-- and-- while they were growing like crazy in units. And I was on the board of U.S. Air so I saw how it all happened. And it can turn into fierce competitive battles that'll wipe out earnings. Or it can be a business that's more decent, but still subject to lots of competition. And-- it's really hard to know, you know, for sure how it will develop. It's-- not risk free in their competition at all. In-- in the railroad business, all the tracks have been pretty much laid and all of that. So that settled into a business. Now, it's regulated and means that your earnings, you know, can only-- you're a common carrier. And-- many places, you compete with another railroad, and other places, you don't. And there're different rules that apply even in terms of pricing in those cases. But it's a perfectly decent business. It will lose volume in coal over time. And that's an important product. But it'll probably gain in other areas. So it's-- it's two different animals."


On stocks and volatility:  "Well, some people should not own stocks at all because they just get too upset with price fluctuations. If you're going to do dumb things because a stock goes down, you shouldn't own a stock at all ... But some people are not actually emotionally or psychologically fit to own stocks. But I think 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 become, whereas the longer the maturity of a bond, the more risky it becomes."

Here's a link to the full CNBC Warren Buffett interview transcript.

And for even more, be also sure to check out Warren Buffett's 2017 annual letter.