THIS IS THE SECOND 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, to this very special edition of SQUAWK BOX. We're live in Omaha, Nebraska, and we're standing by at the Nebraska Furniture Mart. This store is the largest home furnishing store in the entire country. We're standing by right now in the electronics store which just opened up last year. Nebraska Furniture Mart, if you don't know, folks, is one of the 76 holding companies--or operational companies of Berkshire Hathaway. And we are very fortunate to be joined this morning by Warren Buffett, the "Oracle of Omaha," who has been gracious enough to offer--to take questions from our viewers this morning. And, Warren, I have to tell you, the demand was overwhelming, thousands of e-mails coming in, and we've tried to narrow them down a little bit. Why don't we jump straight to it.
BUFFETT: Just give me the easy ones.
QUICK: Yeah, just give you the easy ones. I have to tell you, there were some very, very thoughtful questions that came in.
EMAIL TEXT: In your annual letters you make it very clear you are not a fan of hedge funds and think they destroy wealth. Do you think hedge funds have an edge which justifies their huge fees? Brad Alford, Atlanta, GA
QUICK: I want to start off with a question from Brad in Atlanta, Georgia, and he asks, `In your annual letters you make it very clear that you are not a fan of the hedge funds and you think they destroy wealth. Do you think hedge funds have an edge which justifies their huge fees?'
BUFFETT: Well, the answer is an aggregate no. When there were very few of them and a lot of talent, but not a lot of competition with each other, it's very likely that they did. But in Wall Street you have this progression from the innovators to the imitators to the swarming incompetents. And what happens is that the results achieved by the innovators enable the product to be sold by a lot of people simply because the record of a few people was good. So the idea that billions--well, trillions of dollars can be managed to get above average results while charging fees that are way higher than normal just defies the--just defies the logic. So, in aggregate, people are going to be disappointed with the results you get from hedge funds. But there will be ones that do terrifically, but it's--I would not want to buy them across the board.
QUICK: OK. Jake Kamm from Cleveland, Ohio, writes in and he says, `Among the CEOs within the universe of publicly traded companies in which Berkshire doesn't have an ownership position, which CEO do you believe is doing the best job on behalf of shareholders?' Tricky.
BUFFETT: Well, there's a number of them. The fellow at Fastenal has done a very good job.
QUICK: I'm sorry. Which company?
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: Fastenal. I mean he, all you have to do is look at the record on it. Jim Senegal has done a terrific job of running Costco. We own a tiny bit of it, but I don't think that's warped my view. There are a lot of good CEOs in the country that--I'm thinking right now a few where we own them, but I think Jeff Immelt at GE. We have some in a pension fund, we don't have anything at Berkshire, has done a first class job. Some of these people got handed the baton at the wrong time.
BUFFETT: Jeff got handed the baton at kind of a bad time. There are--there are a lot of outstanding--there are a lot of outstanding CEOs. I may think of some more that I want to name as we go along.
QUICK: OK. If you think of more, you can jump in with them.
BUFFETT: Yeah. I've got to think of who I'm playing golf with next week.
QUICK: Let's move on to David from Defiance, Ohio. He asks, `How would you define a recession?' This is something we talk an awful lot about on the show, but he says, `I've been listening to a lot of discussions on CNBC, some of which can be very annoying because they tend to be so outrageously vocal and the experts believe two quarters of negative growth qualifies as a recession.' Is that the surest definition of it? Or do you think it's broader than just that?
BUFFETT: Well, it's the standard definition, but if you think about it, population grows 1 percent of year. So you could have growth of GDP of a 1/2 a percent, but GDP per capita would be going down. So the very definition, you might say, is a little bit flawed if it--if it doesn't allow for the fact that GDP per capita can go down while growth GDP's going up. Beyond that, I would say by any common sense definition, we are in a recession. And...
QUICK: You would?
BUFFETT: Yeah, we wouldn't--we haven't had two consecutive quarters of GDP growth, but I will tell you that, on balance, most people's situation, certainly their net worth has been heading south now for a considerable period of time. And if you owned a house, and you had an 80 percent mortgage on it, and so you had 20 percent equity a year ago, you might not have any equity now. And millions of people are in positions somewhat similar to that, and people would--people that own municipal bonds feel poorer today than they did a few months ago.
BUFFETT: So business is slowing down. We have--we have retail stores in candy and home furnishings and jewelry; across the board I'm seeing a significant slowdown and, of course...
QUICK: That's the first time I've heard you say you think we're actually in a recession right now.
BUFFETT: Yeah, well, I think, when we talked earlier, I said we might be.
BUFFETT: But it--no, I would--I would say that--but when I say we're in a recession, it doesn't meet the technical definition. We aren't in the second quarter of--we can't be because we don't know what the fourth quarter of last year was. But I think that, from a commonsense standpoint, we're in a recession now.
QUICK: OK. Let's get to one from Don in Atlanta, Georgia. `If Ben Bernanke's a company, would you be interested in owning it?'
EMAIL TEXT: If Ben Bernanke is a company, would you be interested in owning it? Don Sitec, Atlanta, GA
BUFFETT: Well, I think that Bernanke's very able, and I'm not sure I'd want to be in any--own any company that an economist was running, though, so he gets disqualified by profession, but not personally at all.
QUICK: OK. Roy writes in from Maple Glen, Pennsylvania. He says, `Would you please characterize, in general terms, the breakdown of shareholders in Berkshire class A. Are there a lot of single share owners, and what would be the average number of shares owned per shareholder? And by the way, does Bill Gates own your shares?'
EMAIL TEXT: Would you please characterize, in general terms, the breakdown of shareholders in BRK-A. Are there a lot of single share owners? What would be the average number of shares owned per shareholder? Does Bill Gates own your shares? Roy Stephenson, Maple Glen, PA
BUFFETT: Oh yeah, Bill Gates owns a lot of shares. As a matter of fact, when he joined--I didn't know how many shares he owned when he joined the board, so I had to put him on the board to find out. So he had to make a filing so I could find out how many shares he owned. And he owned about, as I remember, about $300 million worth, and then he bought another pretty good size chunk of stock. And somebody asked him why he bought it, and he said, well, everybody else on the board had a higher percentage of their net worth in the stock than he did, so he felt like kind of a picker, and he had to do something about it. We have about 400,000 shareholders. We have--I believe we have the lowest turnover of our stock relative to the shares outstanding of any company on the Big Board, which means we have more real investors. We don't want anybody to buy our stock to sell it in a month or six months or something. We really want it to be a holding like buying a farm or buying an apartment house. We want it to be a real investment. So we try, by our policies and by our communications, to attract those people.
BUFFETT: Because, you know, it's like running a restaurant. If you put hamburgers on the outside, and you'll get a crowd that wants hamburgers. If you put French food, you'll get a crowd that wants French food. We try to be very clear we have investors out there. We don't want anybody--we don't want all shareholders. We don't go out and make presentations to analysts' societies or anything like that because the idea that every shareholder we could add would be a plus is ridiculous. I mean, it would be like measuring a church, you know, with high turnover and every week you had a different congregation sitting in the thousand seats. Well, we've got a 1,500,000 seats out there, and we really like the idea of talking to the same congregation every week. So we have a lot of one share class A shareholders, we have a lot of one share class B shareholders. What we do have is a lot of individual shareholders. I used to have something like 100 shareholders in my zip code here. So when I would take the kids out trick or treating on, you know, on Halloween, I mean, we scored big time.
QUICK: You know exactly where to show up for all the candy.
BUFFETT: I knew where to go.
QUICK: Warren, we have a lot of e-mailers that came in from the viewers. We also solicited a couple from some of your well-known friends, and we get one that I want to bring up, too. LeBron James of the Cleveland Cavaliers writes in.
QUICK: And he asks, `If you were ever to buy a professional sports franchise, what would it be?'
BUFFETT: It would, well, if I lived in a big city that had a--that had a top team, I'd want to buy it there. I mean...
QUICK: You would?
BUFFETT: Yeah. Well, I own a quarter of the Omaha Royals, which is just a minor league team, but if--but it--I grew up in Washington, DC. My dream might have been to buy the Washington Redskins, although they were playing baseball then, the Washington Senators. I'm not sure you would want to--they used to say, you know, `First in war, first in peace and last in the American League' about the Washington. But the--I would--sure, if I lived in Dallas, I'd want to own the Cowboys or something like that. So that would be the team I would buy. But...
QUICK: I guess the question would be is are you planning on moving anytime soon?
BUFFETT: No, no. I went to Cleveland for a game to watch LeBron, and, when I was a kid, I thought for sure if I ever got rich that I would be buying a sports team, but I'd rather play on one now. So if there's anybody out there who would like to sign me up, I'm ready.
QUICK: OK. We have a lot more questions to get to this morning, but we also have to get in a quick break, and so, Carl, I'll send it back over to you and figure out where we stand right now.
QUINTANILLA: I can imagine Warren playing a power forward. Joe, can't you? Maybe some elbows in the paint?
KERNEN: Will he put on...
QUICK: There you go. Sharp elbows, Warren?
BUFFETT: Yeah. You bet. KERNEN: Will you put on one of those Will Ferrell wigs, Warren? "Semi-Pro" wigs? I don't know if you've seen that.
QUICK: Darren Rovell ran around dressed up like this new Will Ferrell character last week.
QUICK: And he had the big wig, he had everything going on. Shorty shorts, remember that?
BUFFETT: I took on LeBron last year, one on one, and I noticed he hasn't asked for a rematch.
QUINTANILLA: He's not going to take that mistake twice. We're going to take a quick break. We've got a lot more with Becky and Warren Buffett when we return live. We're back in just a second.
Transcript prepared by BurrellesLuce
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