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.
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.
QUICK: OK. Another question that came in came from Brent in Fountain Valley, California. He's got an offbeat question. He says, "Why Coke and not Pepsi?"
BUFFETT: Well, the--I bought the Coke in 1988 and we bought what's become 8 percent of the company. And I thought--it's a business I like very well. I like Pepsi, incidentally, as a business, too. I mean, Frito-Lay is a terrific business. It's better than the--it's probably better than their soft drink business. But Pepsi's been a wonderful investment to own. But Coke's been a wonderful investment to own. So just put me down as having made a mistake for not having bought both.
QUICK: Although I see you're drinking Cherry Coke today.
BUFFETT: We drink--this stuff'll do wonders for you, folks.
QUICK: Joe's got a question for you, too. Hey, Joe.
KERNEN: Hey, Beck. You know, Mr. Buffett made some news earlier about the common sense recession, and from some of the--some of the businesses in the Berkshire portfolio, how about your rail holdings, Mr. Buffett? Slowdown reflected in rail volume?
BUFFETT: Yeah. You can get rail volume--you can--you can go to the Internet and every week get car loadings as to each railroad. And so I click on there every week and look at--look at car loadings. Car loadings were down last year, but we're particularly seeing it in things like our brick business, the carpet business. Haven't seen it so much in paint and insulation, although we've seen it. But I can tell you that those businesses, on balance, are getting worse. The--you know, it--we have not hit bottom at all in construction-related businesses. But that's OK. I mean, we knew that when we bought them, that they would be cyclical business. So that doesn't bother me in the least. I would buy another business like that tomorrow if I had the right management and the right competitive position and the right price on the business.
QUICK: But we haven't hit bottom? You just said we are not near the bottom.
BUFFETT: Yeah, but I wouldn't try and--but I wouldn't worry about hitting bottom in terms of when I'd buy them. I think if you knew exactly the bottom for the business, you would not know the bottom for the stock.
QUICK: OK. Carl?
QUINTANILLA: Warren, with that in mind--and we talk about, you know, Berkshire's exposure to housing here in the states--we've seen you buy Iscar in Israel, we've seen you now get into the real in Brazil. You've gone to China with Becky. Would you guess that your next big purchase would be overseas or domestic?
BUFFETT: Well, it'll be whatever I get the call on. I hope I get it from overseas, but, you know, I just go down to the office in the morning and wait for the phone to ring and hope it isn't a wrong number, you know. So...
QUINTANILLA: Why would you hope for an overseas offer?
QUINTANILLA: Because of--because of the currency?
BUFFETT: Well, yeah. I would--that would be a factor in some--in some situations. And frankly, we're way more on the radar screen in the United States than we are around the world. So the more I can feel that an owner that cares enormously about their business thinks of us in the UK or Germany or wherever it might be, you know, that would be encouraging if I started getting more calls from abroad. But the one I'm really waiting from--for is from Sophia Loren in Italy, but I haven't gotten that one yet, either.
QUINTANILLA: Well, you--she's been trying to reach you.
KERNEN: Yeah, she has. Warren, you...
BUFFETT: Yeah, well...
KERNEN: Yeah. You--for some reason we think of all that big cash horde you had. I don't know, what is it now, 40, $50 billion? We think that you'd like to do something with it, but you just really haven't felt that comfortable over the past five, 10 years with what you've had to choose from. Is that a fair assessment?
KERNEN: I mean, do you expect to be down--could you be ever down to having $10 billion in cash?
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: I think so. We probably wouldn't go much below that. But we did--we've contracted to buy eventually 100 percent of Marmon, which would cost us at least 7 1/2 billion. We're going to write a check for 4 1/2 billion some time--at least 4 1/2 billion sometime this month for 60 percent of it. We've bought a lot of businesses in the last--in the last five years, but the money's come in even faster. Basically, we'll have a couple hundred million dollars a week coming in to Berkshire, and some weeks I spend it and some weeks I don't. But I like to spend it.
QUICK: Hey, Warren, we haven't heard from Sophia Loren yet, but we have heard from another one of your famous friends, Alex Rodriguez of the New York Yankees.
QUICK: He wrote in an e-mail, as well, and here's his questions, guys. He said, "If you were starting in the business world today, what sector do you believe has the most potential?"
BUFFETT: Well, I still think money management would have the most potential for me. I mean, if I were starting today, I would--I would--exactly what I did, you know, whatever it was, 50-odd years ago. And I would--I think--I think I'm better at that than I'm at other things. I mean, I don't think I can sell television sets or--you know, or vacuum cleaners as well as some of the people here--right here, you know, in the store. So--and I'm not going to be a research scientist. I'm just--I'm a little bit better at money management than anything else. And it's a big, profitable field. I mean, there will always be lots of opportunities in it. So I would--I would go right back doing that, unless I could hit a baseball like A-Rod, in which case I would talk to the Yankees.
QUICK: We also got an e-mail from a viewer who wrote in, K.A.--don't know any more than that--but this person wrote in, "Would you consider creating a Class C share for Berkshire Hathaway?" Probably what they mean is a lower...
BUFFETT: Yeah, we have a Class A and a Class B...
QUICK: And a Class B.
BUFFETT: ...and it's not impossible. I mean, it would...
QUICK: It's not?
BUFFETT: Well, anything a little goofy like that kind of appeals to me in some extent. We created the Class B because we kind of got forced into it. But--and the Class A and Class B served us well. I mean, I'm very happy with that. I wasn't happy that I was forced into doing it, but I'm happy with it. But it's not inconceivable.
QUICK: All right, Class A right now is $140,000. The Class B, like we're looking at on the screen, is closer to $4600. Class C, what would you set that up, maybe $1,000 or less? How would--how would you do that?
BUFFETT: Well, we probably wouldn't get much below that, but...
BUFFETT: ...we don't want anybody to buy Berkshire stock based on what they think some corporate event will be, or whether we'll split the stock or do this sort of thing.
BUFFETT: So I don't--I want to have something that makes people really think they're investing in a business. And when you--when you buy a $3 stock or something like that, I think most people think they're buying a $3 stock that might go to 5. We want--we want to discourage those people from buying our stock and we want to encourage the people that are buying it because they think it's a good investment to hold for 10 or 20 years.
QUICK: OK. An Vo writes in from Edmonton in Alberta, Canada: `What do you think is the most complicated out of the three? Is it A, love; B, science or C, business?
BUFFETT: The most complicated?
BUFFETT: Well, I think anything involving human emotions is the most complicated. But it's the most rewarding, too. So I would--I would pick love as being the most rewarding and the most complicated.
QUICK: OK. We have a lot more questions to get to, and we will do just that when we come right back from a very quick break. Stay right here. SQUAWK BOX live in Omaha, Nebraska, with Warren Buffett.
Transcript prepared by BurrellesLuce
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