CNBC TRANSCRIPT: Warren Buffett & Bill Gates - Keeping America Great

BUFFETT: Why aren't you at work? [LAUGHTER] [APPLAUSE]

QUESTION: My question to you is I'd like both of your thoughts on the investment of alternative energy as for developing our economy and getting it back on track.

BECKY: Bill, you touched on this earlier.

BILL: Well, there are many, many ideas. And there's enough that we can say most of them will turn out to be dead ends. You know, the solar-thermal, solar-electric, nuclear is going to go through some of the revival and see if it can solve some of its cost challenges. As a country, we want to make sure all of those get lots of R&D and regulatory enablement because one of them is going to give us much cheaper power without causing any problem. We don't know which one it is. And we don't have quite as much R&D going into those things as I'd like to see. We have quite a bit, but I think the government policies could drive for more. But it is one of these areas that is somewhat faddish in nature. When you have a lot of energy focusing on a field, the amount of money that goes in is very large. And the overall return on capital is often quite large. The car industry in its heyday was a disaster. The airline industry, even the software industry because people don't remember all the non-Microsofts that don't exist until today. When something is hot, you get kind of a bubble. So energy, you're going to have to be a bit careful to make sure it's one that's really got its cost structure in line and it's not just being pushed along by subsidies and there will be scientific surprises. So a very hot area, but not necessarily a good area for investment.

BECKY: All right. Why don't we leave it there for now? When we come back, we will have more with Bill Gates and Warren Buffett. [APPLAUSE] We'll be talking about leadership and President Obama right after this break. [APPLAUSE]

HOW TO RUN A BUSINESS

BECKY: All right. Welcome back, everybody. We are at Columbia University. And right now we're going straight to the top of Columbia Business School. We are joined by Dean Hubbard. [CHEERS AND APPLAUSE] Glenn Hubbard, by the way, is not only the head of the Business School here, he also happened to serve at the White House where he was chairman of the Council of Economic Advisors. So this is a man who knows not only about what's happening in the economy, but also what's happening with these students. You talk to them all the time. What's the question that you'd like to pose to Mr. Gates and Mr. Buffett?

HUBBARD: Thanks, Becky, and thanks to both of you for being here today. And, Warren, welcome home.

BUFFETT: Thank you. [APPLAUSE]

HUBBARD: Warren, one thing you said years ago that's always stuck with me is you never know who is swimming naked until the tide goes out. And that, of course, says maybe there's some value in knowing when it's going to be low tide. It also says there's value in knowing context. How do we develop -- how do we encourage business leaders who understand context and connect the dots?

BUFFETT: Well, I think they have learned a lot about that in the last year. Some never learn, you know. At Berkshire, we have actually 70-some managers. I think most of them are a fair amount smarter than they were 15 months ago but they were plenty smart to go in. But, you know, I think that what I learned from a Ben Graham, who came up here every Thursday afternoon. He didn't need to do it, you know. He donated whatever he got paid back to the school and all of that. But having sound principles takes you through everything. And the bedrock principles that really I learned from Graham and Dodd, I haven't had to do anything with them. They take me through good periods. They take me through bad periods. In the end, I don't worry about them because I know they work.

BECKY: Bill, what do you think is the most important character for a business leader to have?

GATES: Well, it's surprising that the fundamentals of business are pretty straightforward, you know. You try to take more in income than you spend in cost. That's a pretty straightforward subtraction. But it's surprising in terms of projecting out into the years ahead that, you know, are we making the right investments, are we gaining on the competition, are we making it a little bit harder for people to replace what we're doing? That kind of common sense, I guess you've got to develop it through experience. And I think it's neat if you are young and you can see that in a small scale and be hands on with it because a lot of people who start with large businesses may have a hard time with it. So, you know, the basics are pretty straightforward. Learning how it works and doesn't work in a variety of industries, by reading a lot, I think that's something that comes with time and a business school is an intense period where you can get ahead of the game.

BUFFETT: I send one message out every year and a half or two years. They get one letter from me every couple of years. And basically it says, run this business like it's the only business that your family can own for the next 100 years. You can't sell it. But every year don't measure it by the earnings in the quarter that year. Measure it by whether the moat around that business, what gives it competitive advantage over time has widened or narrowed. If you keep doing that for 100 years, it's going to work out very well. Then I tell them basically if the reason for doing something is everybody else is doing it, it's not good enough. If you have to use that as a reason, forget it. You don't have a good reason for doing something. Never use that.

BECKY: Let's get to some student questions. [APPLAUSE]

QUESTION: Mr. Buffett, Mr. Gates, it is absolutely fantastic having you here. Thanks a lot. My name is Kata Cafunka. I am a second-year MBA student here at Columbia. Actually, my question is really related to what you were asking. Many of us and many people in general aspire to become somebody like you. But actually only a few people got that height, right? So what do you think were the major qualities that you have that distinguish you from the majority?

BECKY: All right. Bill, Warren, what makes you stand out from the crowd?

BUFFETT: It's always interesting when Bill and I appear together, they don't figure they can do what Bill does, but they know they can do what I do. [LAUGHTER] [APPLAUSE] We did both have a passion. We were doing what we did because we loved it. We weren't doing it to get rich. We probably felt if we did it well, we would get rich. But we'd have done it, you know, if somebody was slipping bread in under the door, you know, to keep us going. And so I think that passion for it is enormously important. I was lucky enough to have a couple of great teachers, particularly one great teacher. I had a great teacher in life in my father. But I had another great teacher in terms of profession in terms of Ben Graham. I was lucky enough to get the right foundation very early on. And then basically I didn't listen to anybody else. I just look in the mirror every morning and the mirror always agrees with me. And I go out and do what I believe I should be doing. And I'm not influenced by what other people think.

BECKY: All right. We'll get to Bill's answer on this in just a minute. [APPLAUSE] Bill Gates and Warren Buffett right after this break.

'BELIEVE IN YOURSELF'