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Mar.09

10:07 AM ET

Monday, 9 Mar 2009

TRANSCRIPT & VIDEO: Ask Warren Buffett on CNBC's Squawk Box - Part 5

Posted By:Alex Crippen

Topics:Warren Buffett

Companies:Berkshire Hathaway Inc.

BECKY: That's right, we do. We also have questions from lots and lots of viewers so we'd like to get back to some of those e-mails. They've been coming in all morning long.

And Warren, I'd like to start with one right now from Tom in Vero Beach, Florida. His question is, "Given that Berkshire Hathaway primarily buys stocks, if you felt the Dow was going to slide to 2,000 would you state your thoughts publicly, or would you feel an obligation to keep those thoughts private?"

BUFFETT: I would never have a feeling that the Dow is going to go to 2,000 or 12,000 or 4300 or 20,200. I don't--I know over time it will go higher. I mean, American business will be worth more over time. The dollar will be worth less. They'll be retained earnings that build up values. There will be more people in this country and they'll have more buying power. Stocks will be worth more over time. I have no idea where they'll go in between. For all I know, that farm I bought, you know, 20 years ago, it may have bobbed around 8, you know, $1800 an acre, 1200, I don't even know anything about that. I just know that the farm, over time, will produce 120 bushels of corn, you know, per acre, etc. So I've never tried to predict stock prices.

BECKY: You know, it was interesting. I made a comment earlier that the Dow was at 6626 and when I did, you made a comment about it, too.

BUFFETT: Yeah. When it was at 6626, at the start of 19--the last century, 1900, it was at 66. So it's gone up 100 for one. And we had the Great Depression, two world wars, the flu epidemic, the nuclear bomb, the cold war. I mean, you name it. At least 15 years in that 100 years looked terrible and five or six of them looked, you know, almost disastrous. And in the end, this system works extremely well. And--but it doesn't work well every day or every week or every month and there are times when government needs to be a very big factor to make sure it starts getting back on the tracks. But it will work. I will guarantee you that the Dow will be a lot higher. I'll have no idea about the numbers or anything else, 10 or 20 years from now. I have no idea. You know, 2,000, 8,000, they're all numbers.

BECKY: A lot of viewers wrote in and had specific questions about your investments. David wrote in and says, "You've committed financing for Dow Chemical's acquisition of Rohm and Haas Company. What are your thought on the upcoming lawsuit and whether or not the deal should continue to move forward?"

BUFFETT: Yeah. Well, I can't comment on that. The lawsuit will either happen or it won't happen. I guess they're going to decide pretty soon on that. I mean, any deal that was made last summer, you know, like they say in golf, every putt makes someone happy. But all of the sellers are happy and all of the buyers are unhappy. And you know, the deal would not be at the same terms now and incidentally, we committed to buy $3 billion worth of preferred. That is not a good commitment. I mean, it's good in the sense that we're going to do it, as I've told the CEO of Dow, I said, you know, our 3 billion will be there if Ben Bernanke runs off to South America with Paris Hilton. I mean, they'll have the money. I mean, but the--was that--is that a smart deal today? No. No. But conditions have changed and conditions change for Dow and Rohm and Haas in a huge way. And what looked like a deal that was--they liked at Dow and that it could be financed reasonably well and the Kuwaitis were going to enter into a partnership with Dow, all kinds of things. But the world has changed like nobody ever believed it would and so obviously, it's not only, you know, not only not a good deal now, I mean, it may not be a doable deal now. Our commitment, which was--looked smart at the time, looks dumb at the present time. But that's the way the world is.

BECKY: OK. One of the changes in the world has been what we've seen in the treasury markets and K. Hart writes in and says, "If the much talked about bubble in the Treasury market burst, would money market accounts, which are exposed to Treasuries, be adversely affected?"

BUFFETT: No. The--you'll always--you'll get your dollar back, it just won't buy as much and if we get enough dollars out there and you can go to a Web site and look at what is happening with M1 and M2, they don't talk about it anymore, but the--we are going--we are doing things that are going to put a lot of inflationary pressure on at some later date and we're going to do more things like that and that's the right thing to do, actually. I wish we didn't have to do it, but it's the right thing to do and--but in economics, you can never just do one thing. I mean, if you do something, it has consequences and that's why they always say you never get a free lunch. But it's better to have the lunch we're having now even if we pay later than have no lunch at all.

BECKY: All right. Brian from Santa Rosa, California, writes in. He says, "I'm a 33-year-old lawyer who has never taken a business class in my life. Nevertheless, am I crazy to think that many, if not most, blue chip stocks at current valuations represent the opportunity of a lifetime?"

BUFFETT: Well, I don't know if I would say the opportunity of a lifetime, but I would say that most people who buy companies, believe they're well capitalized. You don't want to buy somebody that's leveraged to the hilt in this situation because they may not to get to play out their hand.

BECKY: Mm-hmm.

BUFFETT: But if you buy a cross section of good equities, generally well capitalized companies, you'll make money over 10 or 20 years. I haven't the faintest idea where you'll be in 10 months, but it really doesn't make any difference. When I bought that farm, I have not gotten a quote on it yet. I bought a quarter of interest in the Omaha Royals, I've never got a quote on it. I look at the attendance figures, I look at see if the billboards have ads on them and all that sort of thing, but I took to the performance of the Omaha Royals or the farm to determine whether I made a decent investment. That's the way people really ought to look at stocks. They have a hard time doing it because they get these quotes thrown at them every day. Forget the quotes. Look at the business.

BECKY: Although right now a lot of people are facing--focusing on those quotes.

BUFFETT: Sure.

BECKY: Richard from New York City writes in. He says, "In the annual report for 2008, you say that `Now our book value far understates Berkshire's intrinsic value.'" He wants to know, "would you care to be more specific how `far understates' should be interpreted?" For example, do you mean 30 percent?

BUFFETT: Do we have a number? Yeah. Well, the answer is I won't give you a number, but I will tell you, for example, that here's See's Candy that we bought in 1972 and we paid $25 million for it.

BECKY: Mm-hmm.

BUFFETT: It's worth a lot more than 25 million. But in terms of knowing numbers on different businesses, you know, Geico's worth far more than we paid for it, but others aren't worth far more. On balance, book value does understate intrinsic value, but I--who knows how much?

BECKY: OK. Harold from Williamsville, New York, writes in. He says, "You said recently that Treasury Bonds and cash equivalents are going to have very bad times in the not too distant future. Does that imply that you like gold and silver and the equities underlying them?"

BUFFETT: No. It applies I like good businesses.

BECKY: Mm-hmm.

BUFFETT: You know, if the dollar becomes way--worth way less, we will sell See's Candy for more money. I mean, it won't be more real dollars, but we--if somebody's willing to give up 15 minutes of their labor or half to buy a pound of this or to buy six cans of this, they'll do the same thing and it won't make any difference whether shark's teeth are being used for money, basically. So the best--well, the best assets you can have during inflation is your abilities. I mean, because if you're the best doctor in town or the best lawyer in town or the best broadcaster in town or whatever it may be, you will always command a certain percentage of the resources of society. So your own talents are the most important thing. But if you don't have any talent like I do, you try to buy into other people's talents. And you know, this is the best candy. This is the best soft drink, as far as I'm concerned, and it will be that way 10 years from now. And whatever the value currency is, we'll get our share in that--in terms of that value at that time.

BECKY: You mentioned before when we were talking about the mortgage plan that it may help some people that it shouldn't.

BUFFETT: Of course.

BECKY: But that's something we need to suck up and understand at this point. But it does lead to other people who have questions about whether they're being penalized for doing the right thing. In fact, Bob and Lani in Rapid City, South Dakota, write in. They say, "We are conservative South Dakotans. We are now saving more, but the government wants us to spend more. Are you `short' or `long' on our strategy to `pay all your personal bills promptly and always live within your means'?"

BUFFETT: Well, I've always followed that myself, so I'm with them 100 percent on that. But in terms of 100 percent, I mean, you don't want to get behind the eight ball. I mean, if you are, you've got to work your way out, but it's always better. You know, Ben Franklin wrote that, you know, hundreds of years ago, the--you know, earn a dollar, spend 99 cents, result happiness, you know. Earn 99 cents, spend a dollar, result misery. And--but in terms of the inequities, if I were a--had been a client of Bernie Madoff's and fortunately I never heard of him, but let's say I was a client of Bernie Madoff's. I'm in the middle of Lake Michigan with him. We're in a boat together. Bernie's at the other end. I've just lost all my net worth. I see this hole spring up at his end of the boat. Am I supposed to cheer? No. I mean, in the end, you know, I want to save Bernie, too. I mean, not because I really want to save him, but I--you know, there is no way to divorce myself from what's happening on the other end of the boat. And this thing is covering--going to cover the whole boat. There's no question about it. So the people who have behaved well are going to find themselves taking care, to some extent, of the people who didn't behave well.

BECKY: Right.

BUFFETT: And in Pearl Harbor, the Army, you know, undoubtedly was not as responsible for those boats being in the harbor there all exposed to an attack and kind of sleeping through it as the Navy. But does that mean the Army holds back? No. You've got to be in there.

JOE: Hey, hey, Warren, Becky's really, you know, she's nice and deferential to you and everything. I just want to let you know that there are times she gets really mad because she's been one of the people that have paid her mortgage and she always points out she's never bought new bedroom furniture because she...

BECKY: Oh, stop already.

JOE: And you're in a furniture store! You and Warren are...

BUFFETT: We're not going to last--we've locked the doors, Joe.

JOE: You can...

BUFFETT: We've locked the doors, Joe. She is not getting out of here until we clean her out.

JOE: Becky, tell Warren you're mad that you've done all the right things and all these other people are going to get bailed out.

BECKY: Oh. I'm not nearly as mad as is as many times you've complained for me. But yes.

BUFFETT: There's nothing wrong with being mad, Joe. It's just you can't--there's times when you're made about something that you've got to overcome the emotion because...

JOE: Give her a deal on a new bedroom set and then we won't have to hear it anymore. You're in a furniture store.

BUFFETT: We give deals to everybody, even including guys named Joe Kernen.

JOE: All right.

BUFFETT: We'll open an account for you.

JOE: All right. Thank you.

TRANSCRIPT AND VIDEOS CONTINUE WITH PART SIX

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