BECKY:  Welcome back to CNBC's town hall.  We are with Bill Gates and Warren Buffett at the Columbia School of Business at Columbia University.  We're in the heart of New York City.  And before we went to that break, we asked one of our students -- one of our students actually asked, which industry is going to be producing the next Bill Gates.  Now, as we mentioned, we got the chance to take a poll of the students in this room and we asked them if they thought they would ever see a company as transformative as Microsoft in their lifetimes again.  Gentlemen, eight out of 10 said yes.  That's 80% saying yes, they do think this will be another issue.  You guys are a very enthusiastic bunch.  Bill, do you share that sense of optimism?

GATES:  Absolutely.  Capitalism is great and having thousands of things going on in parallel.  And a lot of them fail.  Some are just mediocre.  But the ones that are special can grow and, you know, stun everybody.  And in all those fields I mentioned, there is going to be several companies that kind of take your breath away.

BECKY:  All right.  Let's get to another student question. [APPLAUSE]

QUESTION:  Hi, my name is Lisa Williams.  I'm from South Orange, New Jersey. I'm currently a first-year at the MBA program.  Glad to have you both here.  My question is actually for Mr. Buffett.  There has been a lost of discussion around the true drivers with the recent deal with Burlington Northern

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[BNI  Loading...      ()   ].  I was wondering if you could share with us your key motivation for wanting to increase exposure to the railroad sector at this time.

BUFFETT:  You know, when I was six, I wanted a railroad set and my dad didn't get it.  [APPLAUSE]  You think about it.  The railroads are tied to the future prosperity of this country.  You can't move a railroad to China or India or anyplace else.  We start out with the premise, and I can't think of a more sound premise, that there will be more people in this country, 10, 20, 30 years from now.  They will be moving more and more goods back and forth to each other.  And you have the most environmentally friendly and the most cost-efficient way of doing that on the railroads.  The Burlington Northern last year moved -- on average it moved a ton of freight, 470 miles on one gallon of diesel.  That is far, far more efficient than what takes place over the highways.  You have the situation where overall they use 1/3 less fuel, they put far fewer pollutants into the atmosphere than trucks will.  One train will supplant 280 trucks are so on the road.  So the rails are in tune with the future.  I like the West.  I like the 30-some-thousand miles of roadway that Burlington has.  And, you know, if this country has a poor future, the rails have a poor future.  I'm willing to bet a lot of money, 34 billion to be specific --  [LAUGHTER] -- on the fact that 10 years from now, 20 years from now, 50 years from now, there will be more and more goods being moved by rail and better for the country and it will be better for the shareholders of the Burlington Northern.

BECKY:  OK.  [APPLAUSE]  Another question.

QUESTION:  Hi.  My name is Josh Porter.  I'm a first-year from North Reading, Massachusetts.  It's an honor to have you both here.  So we just went through the worst financial crisis of hopefully all of our lifetime.  And I know it keeps a lot of Americans up at night, you know, worrying about their future.  What, if anything, keeps either of you up at night? 

BUFFETT:  I try to live my life so nothing keeps me up at night.  [APPLAUSE]  I don't like to sound, you know, like a mortician during an epidemic or anything, but last fall was really quite exciting for me.  [LAUGHTER]  I don't wish it on anybody, but there were things being offered.  There are opportunities for us to do things that didn't exist a year or two earlier.  So I really don't -- I don't want to be in a position where I am leveraged or something of the sort that does keep me up at night.  I did not worry about the ultimate survival of our economic system.  We were messed up.  Wasn't any question about that.  But the plants haven't gone away.  The cornfields haven't gone away.  The talent of the American people hasn't gone away.  The innovativeness of the next Bill Gates hasn't gone away.  This country was going to do fine.  I knew that.  We just had to get things straightened out.  And we're well on the way to having that happen.

BECKY:  Bill, you mentioned --  [APPLAUSE]  You mentioned before that you called Warren and he said, ‘Yeah, we should maybe be a little worried.’   Did you stay up late that night worrying about it?

GATES:  No.  The financial system, fortunately, good leadership has a lot of self-correction built into it.  I think there are a few things that could surprise us that are negative.  You know, big terrorist event sometime in the next 20 years, that would be a big negative.  And a pandemic, which we're actually having in terms of the rate of spread of a new flu, one right now.  And fortunately, its actual impact is very modest, way less than any such thing.  So you have to keep your eye out for a few outliers like that.  Those are the two that I would point to.  But overwhelmingly, the rest of the system, you know, there is self-correction built into it.  The long-term thing that I don't lose sleep over but I worry about is that we do have our education system, particularly the K through 12 part, not improving as much as we should.  And it's an important system for opportunity, it's an important system for the economic strength of the country, and since it hasn't improved that much, that's a bit scary and needs a lot more attention.

BUFFETT:  Becky, if you had a wonderful farm and you knew the next 50 years there would be five droughts but there would be 45 good years, I mean, you would not become paralyzed thinking about the five drought years.  You would recognize that you've got a system that works very well over time, and that's our American economic system.

BECKY:  Since we just had the drought year, does that make it less likely for the --

BUFFETT:  No.  If you study statistics at Columbia, you'd recognize that -- [APPLAUSE]

BECKY:  OK.  Let's get to another question.  Right back here.

QUESTION:  I'm Peter Lawrence, first-year student from Columbia.  And, first of all, thank you both so much for coming here.  Mr. Buffett, the recent runup in the market has been historic.  And it seems that many people question the sustainability of the current price level.  Do you think the rally is for real?

BUFFETT:  What's going to happen tomorrow, huh?  [APPLAUSE]  Let me give you an illustration.  I bought my first stock in 1942.  I was 11.  I had been dillydallying up until then.  I got serious.  [LAUGHTER]  What do you think the best year for the market has been since 1942?  Best calendar year from 1942 to the present time.  Well, there's no reason for you to know the answer.  The answer is 1954.  In 1954, the Dow … dividends was up 50%.  Now if you look at 1954, we were in a recession a good bit of that time.  The recession started in July of '53.  Unemployment peaked in September of '54.  So until November of '54 you hadn't seen an uptick in the employment figure.  And the unemployment figure more than doubled during that period.  It was the best year there was for the market.  So it's a terrible mistake to look at what's going on in the economy today and then decide whether to buy or sell stocks based on it.  You should decide whether to buy or sell stocks based on how much you're getting for your money, long-term value you're getting for your money at any given time.  And next week doesn't make any difference because next week, next week is going to be a week further away.  And the important thing is to have the right long-term outlook, evaluate the businesses you are buying.  And then a terrible market or a terrible economy is your friend.  I don't care, in making a purchase of the Burlington Northern, I don't care whether next week, or next month or even next year there is a big revival in car loadings or any of that sort of thing.  A period like this gives me a chance to do things.  It's silly to wait.  I wrote an article.  If you wait until you see the robin, spring will be over.

BECKY:  But at the same time --  [APPLAUSE]  Warren, you have repeatedly said over the last year that investing in American areas is a bet on the future of America.  But you have also invested overseas, companies like BYD.  You both spent some time in China.  Are there more opportunities overseas or right here in America?

BUFFETT:  I see more opportunity in the United States.  We're the biggest economy and we're looking for big deals.  But I am delighted to find something, you know, whether it's in China or whether it's in Israel, like Iscar or whatever it may be.  There are more opportunities in the United States than anyplace else.

BECKY:  Bill, you agree with that?

GATES:  Well, yes.  The U.S. benefits as the globe benefits.  You're not going to have a case where the rest of the world does poorly and the U.S. does well.  Our fate is tied to open trade, innovation everywhere.  You know, even the Burlington, some of the stuff that's on those railroads might come from other countries.

BUFFETT:  I hope so.

GATES:  It's exciting to see what's going on in China.  It's great for us.  If we had a choice for all the people in China to be as rich as we are versus be as poor as they were back in 1979, we'd be way better off to say, you know, let's have them be consumers and inventors just like we are.  They are a long ways away from that.  But they are a large enough population that great things are happening there.  And, you know, many countries that we thought of as basket cases and we sent lots of aid to, like Brazil or Mexico or Thailand, are now big contributors.  So it's good for the world that it's not as dependent just on the U.S.  But the U.S. is where the energy revolution is likely to happen, the IT revolution will continue.  We are expected to lead the way.

BECKY:  All right.  We're going to be back with another question in just a moment.  [APPLAUSE]  And by the way, if you have the chance, how would you like to have Warren Buffett or Bill Gates as your career counselor?  Well, we're going to have that when we come right back.  [APPLAUSE]