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...
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.
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?
BUFFETT: Well, they're inevitable. I mean, we are creating the sovereign wealth funds in the United States. We have--when we ship $2 billion today to the rest of the world, it has to go into stocks or bonds or direct investment in the US or something. But we are forcing investment in the United States by our consumption pattern. So when we--if we run a negative trade balance with China of 250 billion this year or something of the sort, they're going to have 250 billion of US somethings. And they're picking equities now, and in the end--you know, it's kind of interesting. They produce the 250 billion net of goods. People work hard over there, they work extra hours to send us shoes and send us a lot of the things you see in the store, and we send them little pieces of paper, you know. And they're not as excited about getting those pieces of paper, but we ought to expect them to do with those pieces of paper whatever's the most intelligent. That's what we would do. And so sovereign wealth funds are simply a result of a large trade deficit here, large current account deficit, and they're going to get larger and larger and larger. And, you know, we may hope that they buy government bonds instead of buying equities, but they should have the right to make that choice.
QUICK: You know, very quickly, you mentioned that they are less excited about getting those little pieces of paper.
QUICK: Our dollars. Right now, everything trades in dollars, from gold to oil, anything else out there. You think that that will change in the next five to 10 years?
BUFFETT: I don't think so. I think--I think people will keep using it. The dollar will become somewhat less important over time, but it's a very, very, very important currency so people will think in dollars for a long time.
QUICK: OK. We have a lot more of your questions that you've been sending in to us through the e-mail, and folks, we're going to get to a lot more of those when SQUAWK BOX comes right back.
Transcript prepared by BurrellesLuce
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