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Warren Buffett Watch

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  Saturday, 8 Mar 2008 | 1:50 PM ET

Barron's Spotlights Buffett's $4.5B Bullish Bet on Stocks

Posted By: Alex Crippen
Billionaire investor Warren Buffett helps Democratic presidential candidate, Sen. Hillary Rodham Clinton, D-N.Y., raise campaign funds in San Francisco, Calif., Tuesday, Dec. 11, 2007. Bufffett, who has said he would be happy with either Clinton or Sen. Barack Obama, D-Ill., as the next president, already helped Clinton raise at least $1 million during a June event in New York. (AP Photo/Paul Sakuma)
Paul Sakuma
Billionaire investor Warren Buffett helps Democratic presidential candidate, Sen. Hillary Rodham Clinton, D-N.Y., raise campaign funds in San Francisco, Calif., Tuesday, Dec. 11, 2007. Bufffett, who has said he would be happy with either Clinton or Sen. Barack Obama, D-Ill., as the next president, already helped Clinton raise at least $1 million during a June event in New York. (AP Photo/Paul Sakuma)

Warren Buffett's big multi-billion dollar bet that stocks won't end up lower years from now gets some attention and analysis in this weekend's Barron's.

In an article headlined Here's How Buffett Spent 2007 (paid subscription required until Monday afternoon when it becomes free content), writer Andrew Bary points out that "for someone who has been publicly lukewarm on the equity market, Warren Buffett has been buying a lot of stocks for Berkshire Hathaway."

Bary notes that during 2007, Berkshire bought just over $19 billion dollars of equities, twice last year's $9.2 billion. That's an average of $75 million in buys for each business day. Berkshire's net stock purchases (stocks bought minus stocks sold) during the year totaled $11 billion.

But Berkshire is not just buying individual stocks. Barron's underlines the section on page 16 of Buffett's annual Letter to Shareholders in which he describes "various put options we have sold on four stock indices (the S&P 500 plus three foreign indices.)"

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  Friday, 7 Mar 2008 | 4:38 PM ET

Warren Buffett Answers Your Emails: Download the Full CNBC Transcript

Posted By: Alex Crippen

Just days before Warren Buffett was named the world's richest person by Forbes this week, CNBC brought you another first for the Omaha billionaire.

On Monday, Buffett sat down with our Becky Quick in Omaha for a series of live appearances throughout Squawk Box's three-hour program. Buffett generated international headlines when he told Becky the U.S. is already in a recession by a "common sense definition."

He also answered questions from Becky and the rest of the Squawk Team, as he usually does when he's on the program.

What made it unprecedented? Buffett stayed for the entire three hours of Squawk and he also answered questions from people around the world. Those questions were selected from the more than 3000 emails you sent in response to an invitation last week here on CNBC.com's Warren Buffett Watch .

There have already been 15 WBW posts devoted to our "Ask Warren" extravaganza, including a summary , a live blog for each hour (6am , 7am , 8am ET), and a transcript divided into 11 parts .

Now that the dust has settled a bit, I've been able to create a "Collector's Edition" version which assembles the entire transcript into one easy-to-read and easy-to-download PDF document with a large font and lots of space between the lines of text.

I also put in a photo of Buffett and Becky "on-set" at the Nebraska Furntiture Mart (a Berkshire subsidiary, of course.)

It's a little something to read over the weekend. Enjoy!

Questions? Comments? Email me at buffettwatch@cnbc.com

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  Thursday, 6 Mar 2008 | 10:42 AM ET

Warren Buffett Named World's Richest Billionaire By Forbes

Posted By: Alex Crippen

Warren Buffett is now the world's richest person, topping the just-released Forbes 2008 ranking of global billionaires, with an estimated wealth of $62 billion.

He bumps Microsoft's Bill Gates from the number one spot, a position Gates held for 13 consecutive years.

With help from Berkshire Hathaway's best year in almost a decade , Forbes estimates Buffett's wealth increased by $10 billion from the $52 billion that put him in the number two slot of the magazine's list last year.

UPDATE: Warren Buffett Jokes to CNBC - I Passed Gates Because I "Spend Less"

It's the second year in a row Buffett's wealth has jumped by $10 billion, even as begins to give away lots of money to charities, notably the Gates Foundation.

Gates falls to number three this year with $58 billion, behind Mexico's Carlos Slim , who is number two with an estimated wealth of $60 billion. Forbes says Gates would have been "as rich -- or richer -- than Buffett" if Microsoft's stock hadn't dropped sharply after it unsolicited bid for Yahoo last month.

Last summer and fall, several publications, including the Wall Street Journal and Fortune magazine called Slim the "world's richest man" due to the soaring value of Mexican stocks he holds, including Telefonos de Mexico and America Movil . In October, Forbes informally declared Slim and Gates to be in a "virtual tie" for the title of World's Richest Person.

Mexican stocks, however, have faded in recent months, giving Buffett an opening.

In my post yesterday (Tuesday) at about this time, I asked: Will Warren Buffett Still Be the World's Second Richest Person 24 Hours from Now? and showed this chart, which has Berkshire (in blue) outperforming both Microsoft (orange) and Telefonos de Mexico (green) over the last twelve months.

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  Thursday, 6 Mar 2008 | 9:59 AM ET

Warren Buffett Jokes to CNBC: I Passed Gates on Wealth List Because I "Spend Less"

Posted By: Alex Crippen
Billionaire investor Warren Buffett, right, and Microsoft Chairman Bill Gates participate in a Q & A session with students at the University of Nebraska-Lincoln's College of Business Administration, in Lincoln, Neb., Friday, Sept. 30, 2005.(AP Photo/Nati Harnik)
Nati Harnik
Billionaire investor Warren Buffett, right, and Microsoft Chairman Bill Gates participate in a Q & A session with students at the University of Nebraska-Lincoln's College of Business Administration, in Lincoln, Neb., Friday, Sept. 30, 2005.(AP Photo/Nati Harnik)

Warren Buffett tells CNBC's Becky Quick , with his familiar laugh, that he was able to replace Microsoft's Bill Gates as the world's richest person because he "spends less."

In a brief off-camera telephone chat about Forbes' new list of global billionaires, with Buffett and his estimated $62 billion in the top position , the Berkshire Hathaway chairman joked that "it's a tribute to thriftiness."

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  Tuesday, 4 Mar 2008 | 6:29 PM ET

Will Warren Buffett Still Be the World's Second Richest Person 24 Hours from Now?

Posted By: Alex Crippen

Tomorrow (Wednesday, March 5) at 6pm ET, Forbes officially releases its annual list of the world's billionaires .. ranked primarily, of course, by net worth.

Or at least net worth as estimated by the editors of Forbes, since doing those kinds of calculations can be more of an art than a science, given the complexities of the very wealthy. They do a very credible job, though, and the Forbes ranking is about as close as you get to an "official" list.

Warren Buffett was number two on the 2007 Forbes list of billionaires . When the magazine crunched its numbers last March, it came up with a net worth of $52 billion for Buffett. That was an increase of $10 billion from the year before, despite some large charitable gifts.

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  Monday, 3 Mar 2008 | 2:39 PM ET

Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 11 and Final)

Posted By: Alex Crippen

THIS IS THE ELEVENTH AND FINAL PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE APPEARANCES THIS MORNING (MONDAY, MARCH 3) ON CNBC'S SQUAWK BOX.

STEVE (on tape): I'm Steve, and I'm wondering why Warren Buffett isn't running for president.

QUICK: Well, Warren, go ahead.

BUFFETT: Bill Buckley, who just died a few days ago, ran for New York mayor many, many years ago. And they said, `If elected, what's the first thing you'll do?' He says, `I'll demand a recount.' And that's sort of the way I would feel about running for president. It requires a whole different set of talents than I've got. I wouldn't like the job, so, you know, and I love what I do. I mean, I would do this if I had to pay to do it. But don't tell the shareholders that. But the job of being president, the compromises you'd have to make, it just wouldn't appeal to me at all.

QUICK: OK. Joe, I know you have another question from back in the studio.

KERNEN: I have to. And it just has to do--Warren, over the years you see commodity cycles and supercycles. I'm just wondering, this time around--and not worried about the dollar. The dollar notwithstanding, because that's the excuse everyone uses. But have we now passed the point of no return in terms of what we have on this planet and what we're using as--is the Malthusian nightmare finally here, or will we go back to where wheat doesn't cost, you know, $50 a bushel?

BUFFETT: Well, ag commodities are a little tough. You know, if I had to on--where ag commodities would be three years from now, up or down, I wouldn't know which way to bet. But they look like they've had quite a run. But if you take something like oil, I mean, we have been sticking straws in the ground now since, what, Titusville in 1850-something with Colonel Drake. And we have--we have--we have found a lot of the oil that's to be found. And if we're going to produce--or use 85 million barrels a day now and the rest of the world probably is going to increase its demand in the--in the--in the next five or 10 years, we're going to have--we're going to have a tough time maintaining production that satisfies those at this price, even. So I think something like oil, six and a half million humans--or six and a half billion humans are going to use a lot more oil than a lot fewer used 20 years ago or 30 years ago.

KERNEN: So that goes for metals, too? You're saying things that we can grow, we can grow more of. But things that are in the ground are...

BUFFETT: Well, we--yeah, we're using--my son is turning out considerably more bushels of corn or soybeans per acre than 20 or 30 or 40 years ago. So land can get more productive. But oil is finite. There's actually some school that says it isn't, but I think it's pretty finite. And, you know, we have 500,000 producing oil wells in the United States. The average production is 11 barrels a day. Five hundred thousand times we've actually hit. But if you look at our production vs. 30 years ago, it's way down. And most, you know, most fields are depleting at a pretty good rate. And with demand--if demand grows a million or a million and a half barrels a day from year to year and the present fields deplete and we don't find the elephants in the future...

KERNEN: Right.

BUFFETT: ...you know, who knows what the equilibrium price will be.

QUICK: Carl:

QUINTANILLA: Well, with that in mind, some of the biggest bets, Warren, that get talked about on this show are from the likes of Boone Pickens, who says that he likes wind. Or it's the tar sands or it's a play on water here at GE. When it comes to energy, is there a next generation play, an alternative play that at least has caught your eye?

BUFFETT: Well, we're using more and more wind. We have a big energy company and--for example, in Iowa, we have a lot of wind farms and we're going to have more. So sure, the world is going to attempt to do that, but that is--that is not a big answer to the kind of energy demand that--that's coming along. So I think we've got to do everything we can in alternative areas, but I don't--I do not see that as a cure-all at all.

QUICK: OK. Warren, I'll try and get through several quick e-mails from viewers. And guys, jump--follow with me in the control room. This is from Ivan in Voorhees, New Jersey. He says, `We know there's a succession plan for Berkshire, but will there be a succession plan for writing your annual letters?'

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  Monday, 3 Mar 2008 | 2:30 PM ET

Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 10)

Posted By: Alex Crippen

THIS IS THE TENTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE APPEARANCES THIS MORNING (MONDAY, MARCH 3) ON CNBC'S SQUAWK BOX.

ANNOUNCER: Live from Omaha, Nebraska, here again, Becky Quick with special guest Warren Buffett.

QUICK: Welcome back, everyone. We are live in Omaha, Nebraska, at the Nebraska Furniture Mart, which is one of the many companies that Berkshire Hathaway owns. We've been asking Mr. Buffett questions all morning long, and at this point we're turning the show over, once again, to you. Warren, we have a lot of questions that are coming in, and one of them comes from Larry Beckler from New York. He asks that, `Given the board of directors are normally quite chummy with their CEOs, how can shareholders get some kind of accountability for CEO pay, particularly when the company's stock has not appreciated or decreased in value?'

BUFFETT: The only real way, in my view, is to have a few of the very largest shareholders--I mean, you would need--you would need the CalPERS, the Vanguards, the Fidelities. If a half a dozen of those, when they saw something really that they felt was outrageous, would simply withhold their votes and explain why, that would get through. You know, the--you've got a bunch of big shots on the board, and they don't--they don't like criticism. And they particularly--they don't like criticism when it would come from a group that would not look like a bunch of hot heads or anything of the sort.

QUICK: Mm-hmm.

BUFFETT: So I would--I would say that if four or five of the largest institutional investors--and they don't have to give an opinion on every one or anything like that. If they saw something really egregious, they just simply said, `We're withholding our votes,' and...

QUICK: They do that from time to time, right?

BUFFETT: They--but they don't--they don't speak out. It just would take four or five of them, practice would change, then, in some cases. I'm a big fan of pay for performance. We pay people a lot of money at Berkshire when they perform. But we don't--we don't let them--we don't let them shoot the arrow and then paint the bull's-eye after it lands.

QUICK: OK, Allan from Manchester writes in with a question--Manchester, New Hampshire, I should say--writes in with a question that we heard in a lot of different forms. He says, `I'm a shareholder of Berkshire. How can you assure me that Berkshire Hathaway will not change the way it is now after you're gone? In other words, will corporate culture change or will the company be split into different entities when you're no longer in charge?'

BUFFETT: Yeah. I think it's--I think there's more chance of our corporate culture being maintained intact for many decades than any company I can think of. I mean, we have a board that's bought into it entirely. They're big owners themselves in almost every case. They've seen it work. We've got 70 managers at 76 businesses out of--out there. They've come to us because of that culture, in many cases. They've seen it work, too. So you've had this--you've had it communicated through annual reports, at annual meetings. I mean, it is--I think it's as strong a culture as you could possibly have. And I think that anybody that tried to fool with it would not be around here very long.

QUICK: Because of the board and everyone else involved.

BUFFETT: Because of the board, and the fact that I would come back and haunt them, too.

QUICK: Peter Knoll writes in from Minneapolis, and this is another question that we got a lot of similar questions. He says, `As shown in your appearance on CNBC, you've been taking a much more public role in the past few years. Why, and what's the benefit to shareholders?'

BUFFETT: Yeah. Well, I think, you know, today is a good chance to explain things that I may not have communicated perfectly in the annual report. And people can ask questions about it, and I like talking about Berkshire. I like--at the annual meeting, you know, they have to use a hook to pull me off. I mean, it--so I've always been very open about talking about Berkshire. I haven't gone out to sell it to anybody, I never will, but I like--I think you should be able to defend your policies. I think you can do it through various kinds of communications. And if you--if you can't defend them, you know, you better--you better re-examine them. So I kind of enjoy it in that respect.

I am not saying that Berkshire stock is a buy. I never--you know, I don't know whether it is or not. And I--and I never will get into that. But if anybody wants to understand the philosophy, we have a section in the back of our annual report, the economic principles of Berkshire Hathaway. We've run that now for over 25 years and they don't change, because they're principles. And I want people to know what Berkshire's all about, and I--frankly,, I want people that might sell us their business to know what Berkshire's all about, because for some people we are the right choice.

»Read more
  Monday, 3 Mar 2008 | 2:08 PM ET

Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 9)

Posted By: Alex Crippen

THIS IS THE NINTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE APPEARANCES THIS MORNING (MONDAY, MARCH 3) ON CNBC'S SQUAWK BOX.

QUICK: Welcome back to SQUAWK BOX here on CNBC, first in business worldwide. Folks, we are just one hour away from the opening bell and we have a very special SQUAWK BOX today. We are live in Omaha, Nebraska, at the Nebraska Furniture Mart. Our special guest this morning is Warren Buffett. He has been answering all kinds of questions we've been throwing at him. He's got a lot of e-mail questions from you he's going to be getting to. But first, Joe, I think you have a question for Mr. Buffett, as well.

KERNEN: Want to just try to get some insight into how he decides to do certain things. Warren, you recently bought some Glaxo, some Sanofi. I don't know whether the--whether you make that decision, but I'm trying to--OK, you got Merck or you've got Schering or Lilly, you got some domestic company. You bought Sanofi and Glaxo. Is it the pipeline? Do you--do you look into what the pipeline of upcoming drugs is? How do you make that decision? Or is it you that makes the decision to go with the Glaxo, Sanofi vs. somebody else?

BUFFETT: Yeah, it's me that makes the decision. And I would say this: with drug companies, I feel I know less specifically about a given company's future than I might if I were buying a candy company or whatever it might be, because it's very difficult to say who will have the winners five or six years from now. I think--I think if you buy drug companies that you probably want to buy those with--that--you probably want to buy them somewhat across the board. You know, it would be hard for me to make a bet on any specific company based on something that was in the pipeline that might come out in two or three years. You know the ones that are coming off protection, so you'll see--in a Sanofi, you'll see certain things that are going to cause the earnings to go down, and what's going--what will cause the earnings to go up is in the pipeline, you're sort of guessing at. If you have a group of them, I think you'll probably do OK if you buy in at sort of a multiple for the group. And actually, the drug companies have gotten in some cases quite a bit cheaper in recent years.

KERNEN: So we shouldn't be surprised to see you--then it wasn't that you were picking nondomestic drug companies, you might end up with a stake in one of the domestics at some point.

BUFFETT: Yeah, very easily. And, of course, the domestics have a lot of earnings coming from abroad, too. I do like earnings coming from abroad better than earnings coming from the United States. So if they're doing business--but most of them are doing business all over the world, so there's not a huge difference in that. We own some Johnson & Johnson and, you know, half the earnings, roughly, will come from abroad. And we think we probably have some currency play. We've already had some, but it hasn't been reflected that much in the stock. But there will be a J&J, a Sanofi, you name it, they will earn a lot of money abroad and they'll come up with some drugs that surprise you and they'll have plenty of them that are earning a lot of money now that'll--won't be earning any money for them or anything to speak of 10 years from now.

KERNEN: Let me--you want to go back? Or I had a real...

QUICK: No, go ahead.

CNBC has scheduled a one-hour special program on Buffett's unprecedented Squawk Box appearences.

It's called Warren Buffett - The Billionaire Next Door: Face to Face. It will be hosted by Becky Quick and airs tonight, Monday, March 3 at 9pm ET.

KERNEN: I had a theoretical question. Alternative energy, Warren; I mean, you seem to buy things you know. Utilities. Obviously, utilities are going to deliver energy to communities all around the globe. It seems like there's a huge potential in alternative energy. Is that just too out there, or maybe the fundamentals get ahead--or the stock price gets ahead of the fundamentals? It seems--are there any earth-changing areas that you're considering right now or do the stocks just get ahead of themselves?

BUFFETT: Well, I don't--I don't try to--I usually don't try to make money by guessing that something will be doing enormously well 10 years from now, that is sort of a dream...

KERNEN: Yeah.

BUFFETT: ...at the present time. I look for things I can understand. I mean, here's our own See's candy, I might add. And See's candy will be--will be popular 10 years from now or 20 years from now. People will keep eating it. They'll keep chewing gum, they'll keep doing all kinds of things that are obvious.

KERNEN: See's.

BUFFETT: They'll shave with Gillette razors and, you know, they'll use Tide in the washing machines and so on. And I can't pick--I can't pick the winners. There were 2,000 auto companies started in the United States and you've got three of them hanging on by their fingernails now. So it was a tremendous industry, it changed the world, but 2,000 of them disappeared.

QUICK: Hey, Warren, you mentioned earlier--and you wrote about this in the annual letter to shareholders, too--the sovereign wealth funds. So these guys have come out of nowhere. When you made these comments earlier, we were talking about the strength or the weakness of the dollar. But are sovereign wealth funds a bad thing, necessarily?

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  Monday, 3 Mar 2008 | 1:58 PM ET

Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 8)

Posted By: Alex Crippen

THIS IS THE EIGHTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE APPEARANCES THIS MORNING (MONDAY, MARCH 3) ON CNBC'S SQUAWK BOX.

QUINTANILLA: We do have--thank you, Charlie. We do have Becky and Warren, of course, in Omaha, listening to all of this.

GASPARINO: OK.

QUINTANILLA: And there's a lot--a lot of cross currents here, Becky. Any thoughts from that part of the country?

QUICK: Mm-hmm. Yeah. Actually, Charlie, Warren was just listening in to what you were talking about, and we started talking about Moody's because Berkshire owns about one sixth of Moody's. And that was a question that came in from a lot of--from viewers, as well, Warren, is what do you think about the value of Moody's? Was this a mistake to jump in and buy this stake?

BUFFETT: Well, it wasn't a mistake at the price we bought it. But in terms of the--the intrinsic business value of Moody's decreased last year. I mean, Wells Fargo stock was down last year. I don't think the intrinsic business value shrunk. In fact, I said I thought it probably increased a touch. And there's a lot of companies whose stock went down where the intrinsic business value did not go down, or maybe went up. But I--our holding a Moody's, which is a significant holding, they're--I don't think there's any question that the intrinsic business value of a Moody's shrunk last year, just as McGraw-Hill owns S&P and the S&P component of McGraw-Hill, it--they have less of a moat around them and they're going to be affected for a long time by the experience of the last couple years.

QUICK: OK. And, you know, that's something interesting, though. Does that mean you would sell this stock and try and get out of it, or do you hold onto it through this time?

BUFFETT: Well, we own 48 million shares, so we have not seen a lot of bids for 48 million share blocks. We have a much more difficult problem either buying or selling stocks than the average investor. I mean, moving big blocks of stocks around, it's very difficult for us to sell, except on the way up, and it's difficult for us to buy except on the way down just because of the quantities involved.

QUICK: OK. Charlie, that's Warren weighing in on what he'd just heard you reporting about.

BUFFETT: Mm-hmm.

QUICK: And, guys, we'll toss it back to you.

KERNEN: All right. Warren, I may lighten up on that a little bit if I--if I do come in and start running--I mean, maybe a million here, a million there. You're not going to--I mean, you're not going to come in and tell me what to do, right, once I become CIO, right?

BUFFETT: Well, I don't know how many million shares you've got, Joe, but we'll let you go first.

KERNEN: Well, no, I got--I'm going to sell some of yours when I'm running the place. Forty-eight...

BUFFETT: Oh, I see. Well, you...

KERNEN: If we got--if we got 48 million, I'm going to start lightening up. I just--I don't want you looking over my shoulder every...

BUFFETT: You...

KERNEN: ...you know, every time I do something.

QUINTANILLA: Joe, have you started looking at homes? Have you started looking at homes in Omaha?

KERNEN: Oh, yeah, I forgot about that. That--I won't be able to buy a sports team, either. Charlie, you want to get back in here?

GASPARINO: Yeah. I mean, you know, listen, we've been writing--I've been covering the bond rating issues for a long time, and every now and then you have this huge flare up where everybody says they haven't done their job and, you know, there should be more competition. And basically nothing has really changed much. This--if we--we were talking about bond insurance as a license to steal. Well, let me tell you something: The rating agencies is--you know, multiply that by 10. I mean, these guys have an entrenched--it's not a monopoly, because it's three of them. What is that, a triopoly? Those generally aren't bad businesses to invest in, unless, of course, you think there's going to be regulation out there. And this SEC does not seem to want to regulate the rating agencies. It's not really--it's not really--it keeps saying that it wants to open up the competition, but the types of competition it's opening up to doesn't seem to--these are not--these are not companies that could really compete against big companies like Moody's, S&P and Fitch, which is a growing company. So, you know, we've sang their--you know, we've said in the past that they're not great investments. Whenever we hit these sort of bump in the road, like now, they've obviously missed the subprime market. But, you know, they're there for a reason, and three of them, and it's hard to break in. And I guess Warren Buffett would agree with everything I say.

KERNEN: Yeah, and I would...

BUFFETT: Yeah, I--can I?

QUICK: Yeah, go ahead.

BUFFETT: I do agree with that. But they have--certainly structured finance rating has been a--quite a profitable--everything's profitable at the rating agencies.

GASPARINO: Right.

QUICK: Mm-hmm.

BUFFETT: But structured finance has been very profitable, and certainly that stream of revenue probably has diminished dramatically for quite a while.

GASPARINO: Gone.

KERNEN: Mm-hmm.

QUICK: OK. I...

KERNEN: All right, thanks...(unintelligible).

QUICK: Warren--thanks, Charlie. Guys, I'd like to bring in a few more viewer e-mails that have been coming in, as well. This one comes from Shan Ausaf in Katy, Texas, who writes in: `How do you know when you're dealing with an honest and capable person?'

CNBC has scheduled a one-hour special program on Buffett's unprecedented Squawk Box appearences.

It's called Warren Buffett - The Billionaire Next Door: Face to Face. It will be hosted by Becky Quick and airs tonight, Monday, March 3 at 9pm ET.

BUFFETT: Well, it's a great question, and I would say this: If you--if we get 100 possible sellers to us of businesses, I don't think I can make a correct judgment all--on all of the 100. But I only have to be right on the ones I make an affirmative judgment on. So I think I can be right a high percentage of the time on the six or eight that I might pick out from there, and I think I can sort of pick out the obvious thieves, you know, of the six and eight. But in between, I think, I can't grade everybody in that 100. And--but we have had--I mean, when we bought the Furniture Mart from the Blumkin family, I'd seen them operate for 20 or 30 years. I knew them personally. There wasn't any doubt in my mind whatsoever that they would work harder and more--you know, for me than they had when they owned it all themselves. And we've had good luck in that. But we've not batted 100 percent. Every now and then I make a mistake.

QUICK: In terms of the management that you're betting on?

BUFFETT: Yeah, yeah. It--human beings sometimes change. Sometimes they change with age. I hope not, but I kind of feel it myself some days, the--but you can be right most of the time. We love buying businesses from people who are second and third generation. You've really got to--you've got a scorecard on them then. Buying them from a financial operator, we've never done it.

»Read more
  Monday, 3 Mar 2008 | 1:51 PM ET

Warren Buffett Answers Your Emails on Squawk Box: Transcript (Part 7)

Posted By: Alex Crippen

THIS IS THE SEVENTH PART OF A TRANSCRIPT OF WARREN BUFFETT'S SERIES OF LIVE APPEARANCES THIS MORNING \(MONDAY, MARCH 3\) ON CNBC'S SQUAWK BOX.

KERNEN: Welcome back to SQUAWK BOX here on CNBC, first in business worldwide. I'm Joe Kernen, along with Carl Quintanilla and Becky Quick, who's in Omaha this morning with the man himself, Warren Buffett. It's a perfect day to have him on with everything going on in the markets and the economy. Becky, I don't know if you've gotten access to the wire services, but they truly...

QUICK: I don't.

KERNEN: Well, they truly are hanging on every word. I mean, I'll see a flash, you know, the ones you would think of: Buffett, common sense, we're in a recession. But also, Buffett says he has not--a woman is not on the list for CIO. They have another one that says Buffett would not put Obama or Clinton in charge of Berkshire. So they're putting everything on there. Nothing about me being the main guy for CIO, though. Nothing about Joe being in the--in the...

QUINTANILLA: One of the four candidates.

KERNEN: And I challenge Reuters and Dow Jones to, if he said it--they're putting everything else on. J-O-E, right?

QUINTANILLA: K-E-R...

KERNEN: Even just my first name is OK. I'm mad.

QUICK: And Joe, did they pick up--did they pick up what he puts on his hamburgers? The mayo and ketchup?

QUINTANILLA: That also has not been on the wires.

KERNEN: That has not been picked up, either. It's like, you know, they're trying to judge what's important and what isn't and, you know, someone--they're like 22 years old, they're misspelling everything. But--no, they're not. They're...

BUFFETT: I'm doing my best to make news, but...

KERNEN: You are--you are making a lot of news.

QUINTANILLA: Yes, you are.

KERNEN: And I got so many follow-ups, Beck, but let's get to--there--you know, earlier it was quiet. There are so many e-mails at this point that have come in, I'm sure they're very similar to the ones that you already have ready to go. So you want to take it away, Beck, and do some more?

QUICK: Sure. And guys, jump in as you want. You know, you tell us when you want in on these things, and...

KERNEN: We want in at--we want in whenever you can let us.

QUICK: ...it's hard when we're far apart, but you guys jump right in.

KERNEN: Yeah, we want in whenever...

QUICK: All right, you guys jump in. You guys are listening. You hear any points you want to jump in on, go right ahead because...

KERNEN: OK.

QUICK: ...we're OK with this. We're working. We can hear everything.

KERNEN: Good.

QUICK: But we're going to start off with a question about derivatives, because Joe, you brought this up earlier. You were talking about those comments that Mr. Buffett's made in the past about these being weapons of financial mass destruction. And Warren, you said you had a couple other thoughts on derivatives.

BUFFETT: Well, you know, the ways you get into trouble in markets is doing things you don't understand, and then doing them with a lot of borrowed money. And derivatives combine those things. And--but the really important illustration that has never gotten picked up on much was that a couple of years ago Freddie and Fannie got into big trouble, billions and billions and billions of dollars of--that they had to restate. Now, Freddie and Fannie had auditors like everybody else, but they also had a government agency called OFHEO that had 200 people in it whose sole job was to oversee Freddie and Fannie. Two hundred people going to work every day, and those people did not pick up at all on all of these problems that Freddie and Fannie had. I mean, they were looking at complex financial instruments, you know, all kinds of swaptions and all that sort of thing. The auditors didn't pick up on it, but more important, 200 full-time--they didn't have to think about General Motors, they didn't have to think about AT&T. They had two companies to think about. And they issued a report later on telling about the failing of all--everybody else.

QUICK: Mm-hmm.

BUFFETT: But it shows you--when things get that complex, you're going to have a lot of problems. And CDO squared--I figured out, on a CDO squared you had to read 750,000 pages to understand the instruments that were underneath it.

QUICK: Oh, my gosh.

BUFFETT: Yeah. Well, you start with the RMB, that's the residential mortgage-backed securities, and that would have 30 tranches. And then you'd take--and that would be a 300-page document--you'd take a tranche from each one of that and create a CDO, 50 of those times three--300, you know, it becomes 15,000. Then you take a CDO squared with 50 more, and now you're up to 750,000 pages. QUICK: You have to read through it.

BUFFETT: And the mind can't comprehend that. What people did comprehend was that the fees were terrific in selling them to the people.

QUICK: Yeah. It raises some questions, too, when you talk about people who are looking at oversight for these very particular things, about what's been happening with the rating agencies as well, and there's been some viewer e-mail. I'd like to bring in another one right here. In fact, Brad Osterloo from Mitchell, South Dakota, writes in and says, `I was surprised to see no mention of the municipal bond rating crisis nor a mention of Berkshire entering that market in the annual report--how come?'

BUFFETT: Well, we entered it very late. I write--I write the report in November, December, we didn't even enter in the--and we're still very small in it. We'll undoubtedly have something to say about it at the annual meeting and in the report next year. But, you know, as I mentioned, we only have had 69 million of premiums. We've written 206 contracts so far. So it's something we've just started in. We were admitted in New York about a month ago, we've been admitted in five more states. The states have been terrific about responding very quickly. But we got into Maryland the other day, so it's moving, but it isn't yet a big item.

QUICK: OK. Joe:

KERNEN: You know, Warren, I was--your comments about insurance, the party being over, I don't think you were talking about monoline. And typically property casualty, P and C companies, there's these big macrocycles that have to do with--I don't know whether there were a lot of disasters in one year, and being able to raise premiums. What are your thoughts on what makes it such a difficult time right now for the entire insurance industry? Why did you say that, that the party's over? Because of the credit crisis?

BUFFETT: Well, it's been a--it's been a--it's been a--no. It's been a wonderful time up to now. Now, if they happen to own the wrong assets, they could lose some money on that. But on their peer insurance underwriting, we've had two very, very good years, partly because rates were very good and partly because natural disasters in the United States were almost absent on a big scale. So we're now going into a year where rates will be somewhat lower. Exposures grow every year, and some years we'll be lucky on natural disasters and some years we won't. But I would bet a lot of money that the--that the underwriting profit margin--or loss, perhaps--but underwriting profit margin of the US property casualty industry decreases in 2008, but it's decreasing from a very good level. So it--but it's going to be worse.

QUICK: Carl:

QUINTANILLA: Warren, we've talked a lot about growth concerns this morning, inflation concerns. Page two of the Journal, Greg Ip, big Fed watcher, has a story about how for the Fed it is recession, not inflation, that poses the greater threat. If you were in the chair, and Chairman Buffett was giving Humphrey-Hawkins on the Hill, would you be framing it the same way?

BUFFETT: I'd probably arrange to get an emergency call so I had to leave the place. Hey, it's a very tough position. I never--I don't like to second guess Fed chairmen, because they have a very, very tough problem. They don't--and they don't have all the answers. They know they don't all have the answers. And, of course, people like to think they do. And the problem with inflation is that it's very easy to ignite it and it's very hard to put it out. And you needed a Paul Volcker to do it 25 years ago. So I think Bernanke's got a very tough balancing act and I think there's a pretty fair chance that the country will react in such a way as to ignite inflation in a serious way.

QUINTANILLA: I don't want to put words in your mouth, but one could take that and say, `Well, Buffett's suggesting they're on the wrong side of the trade.'

CNBC has scheduled a one-hour special program on Buffett's unprecedented Squawk Box appearences.

It's called Warren Buffett - The Billionaire Next Door: Face to Face. It will be hosted by Becky Quick and airs tonight, Monday, March 3 at 9pm ET.

BUFFETT: No. The trouble is they have--they've got a problem on the other side. You know, it's like Woody Allen in that movie many years ago, where he said, you know, `We face a fork in the road. One leads to death and pestilence and the other leads to total destruction. May God grant us the wisdom to make the right choice.' I mean, it is not an--it's not an easy game.

KERNEN: I was thinking of Yogi. `If you get to a fork in the road, you should take it' is what--that was much--that was much easier one to...

BUFFETT: Yeah, absolutely take it. Yeah.

KERNEN: Warren, real quickly on--I wanted to follow up, a long time ago, on your comments about hedge funds. I don't know the exact numbers, but let's say 10, 12 years ago there were X hedge funds, now let's say that there's 50 X, or whatever it is. And you're not a big fan, obviously. How do you foresee the scenario where we go back to something between X and 50 X? Does the market--does a bad market take us there? Does bad performance across the board take us there? How do we see the end of this--of this explosion in hedge fund mania?

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About Buffett Watch

  • Warren Buffett is arguably America’s most-admired and most-followed investor. Buffett is the largest shareholder and CEO of Berkshire Hathaway and one of the world’s most famous and most generous philanthropists. Legions of investors - from all walks of life - follow Buffett's homespun investment philosophy: invest in what you know, invest in value. Here on CNBC.com's Warren Buffett Watch, we’ll keep you up to date on what the “Oracle of Omaha” is doing by following Buffett's trades, words and deeds.

 

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