Wednesday, 1 March 2017

Warren Buffet Interview on CNBC, Feb 2017

Warren Buffet, Interview on CNBC, Feb 2017, after publishing on Berkshire’s 2016 annual letter
GDP Growth
Quick: I can't believe we've gotten to this point in the program and we haven't asked you your take on the economy. Where is the economy right now?
Buffett: The economy is – everything I see has been the same since 2009 – the fall of 2009. It keeps moving ahead at a couple percent a year, which is terrific, incidentally. Not as terrific as 3 percent or 4 percent would be, but if it just stays at 2 percent, you'll add in one generation 19,000 of GDP per capita to our present economy. We'll have so much more stuff then than we have now, it'll be fabulous, one generation away. So your kids are going to live better than you do. But people – would rather have 3 percent or 4 percent, and maybe we'll get it. But 2, we're moving forward.
Quick: We just spoke with Treasury Secretary Mnuchin last week and he said he sees a way for us to get to 3 percent growth based on a few things, if it's tax reform, if it's cutting regulations and other things that go along with that. Do you see us getting back to 3 percent growth?
Buffett: I just don't know. I mean I wouldn't bet on it, but 2 percent will be – will do perfectly. 3 percent would be better. Anything – well, I shouldn't say anything – but there's a lot of policies that might bring it to 3 percent. If they do, I'm all for it.
Quick: What do you think would help us improve growth?
Buffett: Well, productivity is the only thing that gives you growth. I mean, if we hadn't changed productivity since 1776, we'd be living like we were in 1776. If 80 percent of the people had to be on the farms to feed us, we wouldn't be producing much of anything else. So it's all productivity over time that counts.
Quick: Well, we got a lot of people who wrote in about artificial intelligence and robots and where you think they are moving along. Are they hurting our productivity?
Buffett: Yeah, I don't really know anything about robots. But I'll put it this way. If you eventually got the world so that one guy could push one button and everything that's being produced now would be produced from him pushing that button, it'd be a better world. Now, you'd have to make sure that guy didn't keep all the output, but the idea of getting more productive, it benefits everybody. And I shouldn't say it benefits everybody. It benefits society. It can hurt individuals in their given industries. But we should long for more productivity. That'll give a fewer hours worked, it'll give more output per capita, it'll give better living for people. And that's what we've done, actually, in this country. We saw it dramatically in farming. I mean, it's unbelievable what has happened in farming. And we now have 2 percent of the population working on farms, doing way better than when we had 80 percent. But if we didn't have tools and fertilizer and all those things, we'd be an agrarian economy and we'd be living like we did in 1776.
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Buffett: Yeah. If you go back to 1790, Joe, there were four million people, roughly, in the United States of whom 700,000 were slaves. There were 900 million people around the world. So we had at that time a half of 1 percent of the world's population. And it was a friendly country in terms of the soil, and the minerals, and the temperature and all of that. But there were other friendly spots around the world. And so why did this ... why did these four million people do something that 900 million people hadn't been able to do before, where progress had been very slow? And I would say that it was a combination ... none of these perfect, but I think the market system was absolutely essential to it. It was not a planned economy and I would say that rule of law was important, never perfect but far more than many places. I would say that equality of opportunity was a factor. I would say that immigration did select for people that to some extent selected for people that were ambitious and really wanted a new life. But I would ... if I had to pick one thing I would say the market system ... was the overwhelming factor that contributed to it.
Kernen: You know what? Life is weird too, because I think it's weird that Adam Smith wrote that book in 1776 and it...
Buffett: Yeah, exactly.
Kernen: That's not a coincidence. That when you're able to own an idea, and you got, like, a court system that will back up your ownership of patent law, and then you can commercialize it, I think maybe that was it. I think intellectual property, and property rights, and things like that. Because prior to that, after 10,000 years of spinning our wheels no one ... What was the average GDP per person? And then all of a sudden, starting when you were able to own an idea and commercialize it, suddenly it exploded, GDP, like, in multiple times.
Buffett: It unlocked human potential, Joe. I mean, you know, we aren't smarter now than they were 240 years ago, and we certainly don't work harder. But once you started opening up human potential,the sky's the limit. And it's just starting.
Quick: Yeah, there are times, Warren, where you hear pundits or other people saying, "Look things are at risk at this point. Our American way of life, our system is under threat." And I've heard this from all sides at all different times. Is there ever a point where you thought that was the case?
Buffett: No, and you say you've heard it at all times from all sides. I've been hearing it, you know, all my life. And in the spring of 1942 I was 11 years old, and the Dow was at about 100. And we were losing the war in the Pacific at that point, that was early ... was shortly after Pearl Harbor. And there was no doubt in this country we were going to win over time. I mean, and people said, "Well, this is let's wait till things are clear, let's wait till we start winning the war." There's always a reason to wait and I've listened to that all my life. You know, when I got out of school the Dow had never been above 200. There'd never been a year when the Dow had not been below 200 during the year. Even in 1929, when it got to 381, the low was below 200. Never been a year. Well, so what, you know? But that was a big subject at that time. And then you know, we ran into price controls, we ran into the oil shocks, you name it, just all kinds of things. And those are diversions. So all my life I've been hearing, "You know, maybe there's a better time to invest, you know?" Or, "Things are more unpredictable now." They're always unpredictable. I can't predict what's gonna happen tomorrow. I mean, you could have anything happen tomorrow. We've had October 19th, 1987, 22 percent down in one day. So I can predict what'll happen ten or 20 years in a general way, but I have no idea what'll happen tomorrow. And the important thing is if you got these wonderful assets out there, to own 'em, and which ones do you own? I mean, if you ... if you save money you can buy bonds, you can buy a farm, you can buy an apartment, house, or even buy a part of American business. And if you buy a 10-year bond now you're paying over 40 times earnings for something whose earnings can't grow. And you know, you compare that to buying equities, good businesses, I don't think there's any comparison. But that doesn't mean the stock market can't go down 20 percent tomorrow. I mean, you never know what it's going to do tomorrow, but you do know what it's going to do over ten or 20 years. And people talk about 20,000 being high. Well, I remember when it hit 200 and that was supposedly high. The Dow, I mean, the Dow, in your lifetime. You know, you're going to see a Dow that certainly approaches 100,000 and that doesn't require any miracles, that just requires the American system continuing to function pretty much as it has.

Interest Rates – Act like a gravity
Quick: Although you have had times where you thought stocks were incredibly cheap, like in 2008, 2009, when you talked about that, even on our program. You thought that there were times that stocks were greatly overvalued where you've said, "Forget it, don't do it." Are we near an inflection point right now, as best as you can tell?
Buffett: Well ... I've been talking this way for quite a while, ever since the fall of 2008. I was a little early on that actually. But I don't think you could time it. And we are not in a bubble territory or anything of the sort. Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high. But you have to measure, you know, you measure everything against: interest rates, basically, and interest rates act like gravity on valuation. So when interest rates were 15 percent in 1982 they'd pull down the value of any asset. So, what's the sense of buying a farm on a 4 percent yield basis if you can get 15 percent in government's? But measured against interest rates, stocks actually are on the cheap side compared to historic valuations. But the risk always is, is that — that interest rates go up a lot, and that brings stocks down. But I would say this, if the ten-year stays at 230, and they would stay there for ten years, you would regret very much not having bought stocks now.
Dollar
Quick: Very quickly, the dollar has continued to climb. Is that good news or bad news for America?
Buffett: That depends whether you're an exporter or importer. It makes it very tough if you're exporting. But it's, you know, with interest rates being what they are in Europe, you know, compared to here, the dollar just has gotten stronger. And when people tell you what the dollar's going to do, they'll be very careful. I mean, it just suggests they take up currency trading for a living and see how they do.
Investing
Stocks are safe for the long-term, very unsafe for tomorrow
 Buffett: Yeah. But if you're going to need – you shouldn't borrow money against stocks. And you shouldn't – if you're going to need some money for college or something in a year, you don't want to be in stocks because you don't have any idea what stocks are going to sell for in a year. It's inappropriate. But stocks are safe for the long run and they're very unsafe for tomorrow. If you call unsafe being will you be bothered by a decline in market prices. But Berkshire, three times since I took over, has gone down roughly 50 percent. Did I feel poor then? No, not at all. I mean, you know, but I didn't owe it on borrowed money. I knew it was going to be worth more over time. American business is going to be worth more over time. You know, that's what you're buying, is a business. You're not buying a stock, you're buying a piece of a whole bunch of businesses. Are those businesses going to be worth more ten or 20 or 30 years from now? Of course, they are. But if you think you can jump in and out or that you know the time to come in, then I think you're making a mistake.
Quick: In my lifetime, you said, you wouldn't be surprised to see the DOW go to 100,000?
Buffett: Yeah, well, you're probably, what, 30, 35 and you got another 50 years or 60 years left—
Quick: You're kind.
Buffett: You'll see it. You know, I mean, it's going to go. I mean, they retain earnings every year. Just retained earnings. A fellow named Edgar Lawrence Smith wrote a great book about that in 1924. It was the rationale for the great bull market in the '20s. But you know, he pointed out how retained earnings actually add-- to values. And if you owned a private business and you retained the earnings every year, Berkshire's done that. And it gets to be worth more money. And that's what's happening in this world.
Quick: "What does he think about the stock market right now?" There are a lot of concerns from investors who have watched things run very rapidly over the last few months. We've watched the DOW go past 20,000, watched the S&P go past 2,300. And there are investors who feel like, "Wow, I missed my chance. I've been sitting on the sidelines. Now I have to wait for a pullback." What would you say to those investors?
Buffett: Well, I don't have the faintest idea what the stock market's going to do tomorrow or next week or next month or even next year. I do know that over time – and we'll talk ten years of something of the sort – that equities will do better than bonds, which is the main alternative or bank deposits or whatever it may be. Fixed dollar investments for people. And they're not going to be able to pick the time to come in. I don't know how to pick the time to come in. I bought a lot of stocks in the last couple months. They turned out – the stock market goes down 20 percent or 30 percent. But that won't bother me if I like the businesses I bought.
BECKY QUICK: There was a question that came in from a viewer, and I don't know the number on it you guys, if you can find it, the gist of the question was does the market still have plenty of GEICO's out there that you could find that are great investments, that are going to continue to grow phenomenally? Or is it just a different market, is it a different time?
Buffett: It's tougher than it was, obviously, 50 years ago. I mean, my best year actually was 1954. So see how far I peaked very early. But I was working with tiny amounts of money and in a market that was not combed over the same way as presently. So there are way more people looking to compete with. And I think still think, because of temperamental differences, I think there are a fair number of people that, with small amounts of money, can do well. But the chances that the average person is going to be – pick them out or that the person sitting across from you, trying to sell you, is that person, is betting against the odds. Significantly against the odds.
Kernen: I have one more philosophical question Warren. And it goes against what you normally speak to. But just in terms of looking at the market and whether it's had, like, a run where it's done too well and it needs to regress to the mean, or where it hasn't done well enough and it'll come back, if you look in an eight year analysis, let's say it's triple in eight years. That's, like, 16 percent a year or something I think because it doubled twice. Or not quite. But it if it tripled, that's one way of looking at it. But if you go back to 1999, 17 years it's only doubled. So that's only 4 percent a year. So which is it? Has this market gotten ahead of itself because it's tripled in the last eight years? Or it's taken forever to go from 10,000 to 20,000, so we aren't necessarily in this rarified era. Do you have an opinion on that?
Buffett: Yeah. Well, I would bet my life well, it doesn't mean much when I'm 86 to bet my life on a 30 year bet. But I would bet my life that stocks over 30 years outperformed the 30 year bond. I would come close to doing it, betting that over ten years, they'll do better than the ten year bond, versus the one year bond or two year bond. I have, you know, no idea whatsoever. But stock if you look at American equity, basic business of America, American equity earns a tremendous return on tangible net assets. That's what the business is about. That's what the farm is producing. Now, a bond is limited in what it can produce. But when you say reversion to the mean, I'm not sure what the mean is. I mean, the mean is going to be based upon returns on equity, the amount of equity reinvested and reemployed. And I would say there the prospects are so much better than in fixed dollar investments, that, you know, admittedly, I liked stocks a lot better a few years ago. And I've said that on this program. But the stocks versus bonds right now, it's not close. Now, bond yields can change a lot. If bonds go to 15 percent, I may be recommending bonds.
Buffett: It is someone who is not a professional. I'm a know nothing doctor, I'm not in that business. The idea you're going to be in a game you're not trained for or spent your life, not saying a zero IQ, you can have 200 IQ and not be involved in investments. I don't know why light switches go on. I think I'm generally reasonably intelligent but I don't know. I'm a know nothing physicist.
***
It says, "You only find out who's swimming naked when the tide goes out. Do you feel that there are many naked swimmers right now?"
Buffett: Well, it's not like during the internet boom or – and there have been various real peaks – I've written a couple of times when I thought things were getting out of hand on the high side. And-that's not now. Now, if interest rates dramatically upward, then these valuations would come down, in my view. But I don't see the games being played on a big scale that you had in the late '60s or that you had around the internet time, you know. I don't see lots of just fallacies being promoted. Or games being built on accounting tricks and that sort of thing.
Quick: Is it fair to say though, you point to interest rates. Is it fair to say that much has been built on the idea that interest rates are not going to necessarily rise rapidly or dramatically anytime soon?
Buffett: Yeah. Low interest rates push stocks up. You know, I mean the ten-year bond is selling at 40 times earnings. And it's not going to grow. And if you can buy some business that earns high returns on equity and has even got mild growth prospects, you know, at much lower multiple earnings, you are going to do better than buying ten-year bonds at 2.30 or 30-year bonds at three, or something of the sort. But that's been true for quite a while. And I've been talking about it the whole time. I said people were idiots in 2008 to put their money in cash. I mean, it was the one thing that wasn't going to go anyplace. And interest rates are enormously important over time. And that's – if bonds yield a whole lot more a year from now than they do now, stocks may well be lower.
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Investing - Timing
Quick: It's a very common message for you. But is there a reason that you chose to put it so high in the letter this year?
Buffett: Well, I usually put it pretty high in the letter because it's the dominant theme that's run through my life since I bought my first stock in the spring of 1942 when I was 11 years old. And it overwhelms everything else over time. I mean, we have hiccups in the economy and we even had a panic in 2008. And we had a war during that period that when they started we were losing the war, actually, in the spring of 1942. But this country always comes back and wins. And it's astounding when you think about it, what's happened in 240 years. That is less than three of my lifetimes. And let's look at this place, I mean, there wasn't anything here 240 years ago. And civilization is gone on, you know, for centuries, and centuries, and centuries with people making very little progress in their lives. And then America showed the way and it ... and we have not lost the secret sauce.
Quick: In terms of what the message is you want to get across to people, I mean, when we're looking at markets at such high levels, as Joe was just alluding to, it has a lot of doubters and a lot of people saying: "Wait, it's too late for me to get in. I've missed it. We're past Dow 20k, now I have to wait for the pullback." What would you say to someone like that?
Buffett: Well, I would say they don't know, and I don't know. And if there's a game it's very good to be in for the rest of your life, the idea to stay out of it because you think you know when to enter it-- is a terrible mistake. I don't know anybody that can time markets over the years. A lot of people thought they can. But, if you were buying a farm and you decided that farms were gonna be worth more money ten, or 20, or 30 years from now and that would be a productive asset, go out and buy it unless it was just ... some absurd price. And the best thing with stocks actually is to buy 'em consistently over time. You wanna spread the risk as far as the specific companies you're in by owning a diversified group, and you diversify over time by buying this month, next month, the year after, the year after, the year after. I ... but you ... making a terrible mistake if you stay out of a game that you think is going to be very good over time because you think you can pick a better time to enter it.
Quick: Although you have had times where you thought stocks were incredibly cheap, like in 2008, 2009, when you talked about that, even on our program. You thought that there were times that stocks were greatly overvalued where you've said, "Forget it, don't do it." Are we near an inflection point right now, as best as you can tell?
Buffett: Well ... I've been talking this way for quite a while, ever since the fall of 2008. I was a little early on that actually. But I don't think you could time it. And we are not in a bubble territory or anything of the sort. Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high. But you have to measure, you know, you measure everything against: interest rates, basically, and interest rates act like gravity on valuation. So when interest rates were 15 percent in 1982 they'd pull down the value of any asset. So, what's the sense of buying a farm on a 4 percent yield basis if you can get 15 percent in government's? But measured against interest rates, stocks actually are on the cheap side compared to historic valuations. But the risk always is, is that — that interest rates go up a lot, and that brings stocks down. But I would say this, if the ten-year stays at 230, and they would stay there for ten years, you would regret very much not having bought stocks now.

Selling
Buffett: Well, there's a section in the report which has been there for 30-some years saying that we won't sell a business just because we get offered a fancy price for it or anything. But if it ever has one of two things happening, that it promises to lose cash forever, or we have major labor problems of some sort, we would consider selling. But I've gotten calls on businesses saying, "I'll pay you way more than it's worth," and I say, "I'm not interested." People have interpreted that-- in fact, one of our directors had interpreted that as meaning it applied to the stocks as well. Well, the truth is, we keep selling stocks a and we-- our favorite holding period is forever. I mean, it'd be nice to find stocks. I've owned Berkshire forever, I mean, for 52 years. So I followed myself, and I-- a lot of my family's followed it. But we don't commit to owning anything-- stocks forever. We do commit-- when a fellow sells me his business-- I commit that we're gonna keep it. We're not gonna resell it to anybody. It's-- we're not a private equity firm. And if it's disappointing, we'll keep it unless it gets in that those two categories. But that one section in what I call the-- ground rules-- that proved ambiguous is proved by the fact one of the directors actually mentioned it to me. So I just thought I'd better make-- clear it up.
Quick: should that lead us to think that you might be selling any of your ultra long term holdings? If I think of Wells Fargo or Coca Cola or American Express, stocks that have seemed like you've owned forever.
Buffett: Yeah, we've got no intention of selling those. On the other hand, let's say the world's greatest deal (LAUGH) came up. I mean, I have not-- there's no self-imposed ban on selling-- those. I've got no plan to sell 'em, but I just wanted to clear up that one point because it was-- the way I'd said it earlier wasn't clear.
Bonds
Quick: Let's go to a question. T129 from Paul Howard. He says, "What would you to do tackle the country's debt? Would you like the 50- or 100-year bond idea?"
Buffett: Well, I think that when rates have been where they've been the last five or six years, or even a little longer, selling very long bonds makes sense for the same reason I think it's dumb to buy them. I wouldn't buy a 50-year bond, you know, in a million years at these rates. So if it's that dumb for me to buy it, it's probably pretty smart for the entity to sell them if I'm right. So I would say that the Treasury – I would've been – there's a lot of considerations they have. But I would be shoving out long bonds. And of course at Berkshire, you mentioned we had $80-some billion in very short stuff. I mean, everything we buy in the way of bonds is short.
Buffett: I-- it absolutely baffles me who buys a 30 year bond. I just don't understand it. And-- they sell a lot of them so-- clearly, there's somebody out there buying them. But the idea of committing your money, you know, at roughly 3 percent for 30 years-- now-- I think Austria sold some 50 year bond here, you know, at-- below 2 percent. I just don't understand the-- in Europe, there are certain inducements actually for the banks in terms of capital requirements to load up on governments. But it doesn't make any sense to me.
Insurance Industry
"Self-driving car technology continues to advance rapidly. How do you see it affecting GEICO earnings?"
Buffett: Well, self-driving cars will be adopted if they're safer. If they're safer, there's less in the way of insurance costs, that brings down premium by significantly. So, if all the cars – if a safe autonomous car had been developed, then there's 260 million vehicles on the road, so it takes some time to break in. The average age is about 11 and a half years or something. But if the day comes when a significant portion of the cars on the road are autonomous, it will hurt GEICO's business very significantly.
Quick: It sounds like you potentially see something like this happening sooner maybe than you had anticipated a few years ago. That's the case with me, but—
Buffett: It's the last 1 percent though that's the problem. I mean it's going to happen one way or another, but, you know, who knows? You had that situation in St. Louis a year ago and if you were driving down the road and somebody took control of your car, only one or two experiences like that can slow it down a lot. But it'll come. If I had to take the over and under ten years from now on whether 10 percent of the cars on the road would be self-driving, I would take the under. But I could very easily be wrong. You've got very, very, very smart people, lot of them, working on it. You've got the big auto companies – I mean, it's something that billions and billions and billions of dollars are being spent on, and brains are being involved in it. So it could easily come sooner than I think. But it will be negative for auto insurers.

Buffett: Oh-- well, it's not predictable, but it's been-- the frequency of Florida hurricanes, for example, has been quite low-- for the last ten years or so, compared to history. That's not been true in the-- you know, in--in Asia. I mean, New Zealand had a quake a while back that would've been equivalent to, in relation to their population, probably three times or so what we've ever seen in the United States. But-- most of the cap covers do relate to the United States. If you see ha-- Matthew came close last year to being a big one. But-- it's been remarkably benign in terms of Florida, Texas, the southeast-- for quite a while. But--that doesn't tell you anything about next year.
Buffett: Well-- last year-- , tornados were unusually frequent. And if you wrote comprehensive auto, or you wrote homeowners in Texas-- you probably lost a lot of money on that line. We have, I don't know, 25 auto dealerships-- or thereabouts in Texas. And we had losses that were I think seven or eight times the premium we paid, for example, on cars damaged at our auto dealerships through tornados. So Texas got hit hard-- well, a lot of places got hit hard. So what you've seen in the last few years is there's more tornadoes than you might expect and-- fewer hurricanes. But who knows what's gonna happen next year? You know, you've seen--you actually had a big quake over in New Zealand not that long ago.
Retail Industry
Buffett: Yeah, well, Walmart's a fabulous company. And what Sam Walton and his successors did, I mean, that's one of the great stories of American business. I think retailing is too tough for me. Just generally, I-- we bought an department store in 1966 and I got my head handed to me. I've been in various things in retail. B-- we bought Tesco over in the-- in the U.K. and I-- it wasn't we. I bought Tesco over in the U.K. and got my head handed to me. It-- retailing is very tough. And I think the online thing is very hard to figure out, you know? Now, we own we're sitting in a retailer we own that does very well. I mean, I think this particular business is relatively immune from the online business, although we do a lot of online-- business here. But this does very well. I think it'll continue to do well. But I think that-- I think Amazon in particular-- is someone that's going to-- it's an entity that's gonna have everybody in their sites. And they've got delighted customers. And it's extraordinary what they've accomplished. And a lot of people like-- they like the delivery, they-- you know, and that is a tough, tough, tough, competitive force. Now, Walmart's pushing forward online themselves and they've got all kinds of strengths. But I just decided that I'd look for a little easier game.
Quick: That investor then asked me, "Why don't you own shares of Amazon?"
Buffett: Well, that's a good question. And-- but I don't have a good answer. Obviously, I should've bought it-- long ago because I admired it long ago, but I didn't understand the power of the model-- as I went along. And the price always seemed to more than reflect the power of the model at that time. So it's-- one I missed big time.
Quick: Is it too late or you just don't know?
Buffett: I just don't know. Yeah. I d-- retailing is tough for me to figure out. I mean, it-- I-- if you go back to when I was a kid, in every town, the guy that owned the big department store was king, I mean, whether it was Marshall Field or, you know, or Dayton or Hudson in Detroit or Frederick and Nelson, Seattle, or you name it, , the department store was king. And people said, "What can happen to it?" You know, it's down there where the streetcar lines crossed and the women took the streetcar to shop there. And they could see 500 spools of thread and 500 wedding dresses. And they couldn't see anything like that. That-- it offered this incredible array of goods. And then somebody came along with a shopping center. And instead of making it vertical with all this display owned by one person, they spread it out, owned by many. And now comes the internet, and that's the ultimate variety of things that you can get to very easily. So people love variety. They love low prices and a whole bunch of things. So it's-- it just keeps evolving. And the great department stores, many of 'em have disappeared and the rest are under pressure.
Airline Industry
Buffett: That's so true. He'd a saved him a lot of money. If you look at the last 30 years you can look it up on the internet, I think there have been almost 100 airline bankruptcies. I mean, that is a lot. So it's true that the airlines had a bad first century. 
Quick: I'm sure that this was a horrible business, what's changed?
Buffett: It's a very tough business because it's got the marginal cost of a seat ... is practically nothing. You have these huge fixed costs, and yet if you take one more person on there's virtually no cost to it. So you're very tempted to sell that last seat too cheap, and if you sell the last seat too cheap it becomes the first seat for, in a way, so it has- it has this dynamic to it. And unless the airlines operate in the well over 80 percent capacity — what kills ya is when they really have too many airplanes around. I mean, they do what anybody else does. If they got too many airplanes around they just think it down to marginal cost, and marginal cost cause you to go broke over time in the airline business. I- the hope is that they will keep orders in reasonable relationship to potential demand. And-- lately they've been operating in-- in the 80s now for a while. But it's a business you can always mess up.
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And we do have a question that came in from a viewer, James Lee, it's T51, folks, who says, "Why do you believe that managements in boom and bust industries like the airlines will act prudently and rationally for a long time?"
Buffett: Well, that's the question. But hey, it's certainly easier to act rationally when you're doing 80 percent plus loan factors than if it was a lot less. So the big problem if they get too many airplanes around you know, you can be sure that it'll be a lousy business for a while.
Quick: Does that mean that's a number you watch, kind of like the canary in the coal mine – is the loan factor itself?
Buffett: Well, you can see what the orders are and all of that and delivery's expected to be. And airline usage – will go up over time. You know, not necessarily dramatically, but that will increase. So it isn't like demand is ever going to go away. If you get too much supply, you got a problem.
Furniture Industry – 75% is imported
Buffett: Yeah. I would still say I think the economy will be better off four years from now, even though I disagree with some of the specific policies. But I disagree with the policies of most administrations – of some policies. Border adjustment tax, I mean, it's an import tax, and an import tax is a sales tax. You're looking – we're here at the Nebraska Furniture Mart. This store is in several buildings, does over $400 million a year; 75 percent of what you see is imported. I mean, if we pay an import tax on it, our customers are going to pay for it. It's a sales tax, and it's a sales tax, in this case, on items that are not yachts or anything like that. They're things that the ordinary person buys. So it would be a big sales tax.
Apple – stock purchase
 And at this point he now owns $17 billion worth of Apple shares. That gives him about 2.5 percent of the shares outstanding of Apple, and is now the second largest holding after Wells Fargo for Berkshire Hathaway. Very close to Coca-Cola?
Buffett: Well, I've, yeah, I had learned that from a fella named Phil Fisher who wrote this great book called "Common Stocks and Uncommon Profits." And he calls it the scuttlebutt method. And Phil was a remarkable guy. And I first used it back in 1963 when American Express had this great Salad Oil Scandal that people were worried about it bankrupting the company. So I went out to restaurants and saw what people were doing with the American Express card, and I went to banks to see what they were doing with travelers' checks and everything. And clearly American Express had lost some money from this scandal, but it hadn't affect their consumer franchise. So I ask people about products all the time. When I take my great-grandchildren to Dairy Queen they bring along friends sometimes. They've all got a iPhone and, you know, I ask 'em what they do with it and how ... whether they could live without it, and when they trade it in what they're gonna do with it. And of course, I see when they come to the furniture mart that people have this incredible stickiness of — with the product. I mean, if they bring in an iPhone, they buy a new iPhone. I mean, they're ... it just has that quality. It gets built into their lives. Now, that doesn't mean something can't come along that will disrupt it. But the continuity of the product is huge, and the degree to which their lives center around it is huge. And it's a pretty nice, it's a pretty nice franchise to have with a consumer product.
Quick: Hey, Joe, you can relate to that, the stickiness of the product and being hooked into the Apple eco-sphere, right?
Diplomacy
Buffet:  Now, I might mention you know, it reminds me of that old story about the difference between a diplomat and a lady. I don't know whether you've ever heard that or not.
Quick: No.
Buffett: Well, if a diplomat says yes, he means maybe. If he says maybe, he means no. And if he says no, he's no diplomat. And if a lady says no, she means maybe. And if she says maybe, she means yes. And if she says yes, she's no lady. So he probably got a maybe and didn't know whether it was coming from a diplomat or a lady, essentially. I mean, that's what frequently people get. I don't work on acquisitions that way myself, I just go in and say, "If you want me to make an offer, I'll make one. If you don't want me to make an offer, I won't make one. And I'll tell you a price if I do it." But there's usually much more of a mating dance than that. And so you get this, "I'll take it to the board," and all that. And you're dealing with different kinds of people. Some people are different cultures, they're more polite than others, and so on.
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Source: http://www.cnbc.com/2017/02/27/billionaire-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box.html?curator=alphaideas&utm_source=alphaideas


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