CNBC Transcript: Warren Buffett on Squawk Box
By: Alex Crippen | Executive Producer
If you buy 100 acres of farmland, it will produce for you every year. You can use that money to buy more farmland; you can do all kinds of things. For 100 years it'll produce things for you and you still have 100 acres of farmland at the end of 100 years. You could buy the Dow Jones industrial average for 66 at the start of 1900. Gold was then $20. At the end it was 11,400. But you'd have gotten dividends for 100 years. So a productive asset of any kind, a decent productive asset, is going to kill a nonproductive asset over time. Now, in any given one-year period, five-year period, any asset can outperform another asset. I mean, you know...
JOE: Why...
BUFFETT: ...tulips did very well for a while.
JOE: Why don't you— why don't you join me? Warren, why don't you join me and buy some cows? I mean, I like your farmland but, you know, you're in Nebraska for— Iowa, you love steak.
BUFFETT: Well...
JOE: I mean, I— we can have leather, we can have manure, we can have milk, we can have meat.
ANDREW: Milk...(unintelligible)...cheese.
BUFFETT: Yep.
JOE: We'll employ people...
BUFFETT: Well, you can have— you can have the manure, I'll take the meat.
JOE: I've got plenty of the manure. No, but it would employ people...
BUFFETT: Yeah, I've noticed.
JOE: ...taking care of the cows. I mean, that little bar of gold that's worth 50— whatever. We had one in here. Look, I think it was worth like 60 or $70,000. I can get like so many head of cattle for that and be product— that was my point. But you like farmland. You just too lazy to take care of the cattle or something? Pay some people.
BUFFETT: Absolutely. Absolutely.
JOE: Oh, well...
BUFFETT: Have you ever tried to take care of cattle, Joe?
JOE: It must be— I think it might be hard. I know, I've tipped a few, but I've never...
BUFFETT: Yeah, yeah.
ANDREW: Have you tipped...(unintelligible)?
JOE: No, I've never done it. No.
ANDREW: I hope you have not tipped— that is— that's mean.
JOE: I've— it's cruel. It's cruel.
ANDREW: It is cruel.
JOE: No, I've— they're sweet, they're sweet, but they're not too bright, like me.
BUFFETT: With land you can get somebody else to do all the work, give them a percentage of the crop, and you can sit back there for a hundred years and get a percentage of the crop and you've still got the land when you get all through. I will guarantee you that farmland, over a hundred years, is going to be gold, and so are— so are equities.
BECKY: Why do you think gold bugs get so irate? Because they really come out...(unintelligible).
BUFFETT: Yeah, it's very interesting. If you— if you go on CNBC and say that bonds are kind of a poor investment, you know, people don't get mad at you; you don't even hear from the Treasury. I mean— all right, you can— you can knock almost any investment and people may get a little irritated, but when you talk about gold— and of course that says something about their motivations for ownership— they want people to agree with them. They want people— everybody— they want everybody to get so scared they run to a cave with gold. And caves may— might be a better investment than gold. I mean, at least they're not producing more caves all the time. So they want— they want people to be as afraid as they are because that's what's going to produce an increase in prices.
Incidentally, they're right to be afraid of paper money. I mean, they have a very— their basic premise that paper money around the world is going to get worth less and less and less over time is absolutely correct. But...
BECKY: You just disagree with the investment theory beyond that.
BUFFETT: Yeah, yeah. Where they run from that, and they should run from it, is where, in my view, they make the mistake. But they have a correct basic premise.
BECKY: OK. Guys, we'll send it back over to you. We do have a lot more coming up.
ANDREW: OK, thanks, Beck.
And, of course, our conversation with Warren Buffett is just getting started this morning, so stay tuned. And up next, his thoughts on tech investments as Facebook officially kicks off its IPO road show today. And if you're just waking up, well, global stocks, they're coming under a lot of pressure overnight following that weekend elections in both France and Greece. US equity futures sharply below fair value at this point. We're going to keep you up to speed as we march towards the opening bell.
BUFFETT ON FACEBOOK IPO & YAHOO CEO
JOE: Good morning, and welcome back to "Squawk Box" here on CNBC. I'm Joe Kernen along with Andrew Ross Sorkin and Becky Quick, reporting live from just outside Omaha, which is apparently right next to Iowa, with Warren Buffett this morning.
ANDREW: In Iowa. Oh, they're in Iowa this morning.
JOE: They're— but Omaha is right next to— right on the border.
ANDREW: That is true. Right there.
JOE: It's like they didn't really want to settle, it seems like, in Nebraska. There's so much in Nebraska west of Omaha. It's like, I don't know, they were ambivalent between Iowa and Nebraska, I think, when they...(unintelligible)...to Omaha.
ANDREW: Maybe the better diners are in Iowa, that's why.
JOE: Maybe there are. We'll get right back to Mr. Buffett in just a minute. First, though, a quick recap of this morning's top market stories.
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BECKY: Warren, over the weekend we talked a little bit about this and you mentioned that you have spoken with Mark Zuckerberg about what he needs to be doing with his company. When did you talk to him?
BUFFETT: Last year at Sun Valley.
BECKY: And what was the basic— did he come to you, or did you reach out to him?
BUFFETT: Well, he— or a shareholder or somebody said, you know, they'd like to get together to talk a little bit about Facebook, and so we talked to him.
BECKY: But, obviously, you've been in a position of taking a private company public. Is that basically what you were talking about?
BUFFETT: Yeah, although we didn't exactly— I took a private company public when I was in the tech world and— with Data Documents many years ago, but Berkshire we never really took public.
BECKY: Well, you're a public company now.
BUFFETT: Yeah.
BECKY: It started as a private partnership.
BUFFETT: Sure.
BECKY: When you look at what's happening with facebook, I know that this is not something you're a fan of, but you're also not saying that at this point— you're— you wouldn't buy into because it's not something that you feel comfortable with, but you don't think this is a bubble scenario.
BUFFETT: Oh, no. No. I'm an agnostic on a company like Facebook. Any time you get a truly extraordinary business— and it's obviously— you know, it's an extraordinary business— but they're the hardest ones to value because the question is, is whether five or 10 years from now that they will be as extraordinary as they are now, or they may keep doing more and more wonderful things. So I— it's just harder to figure out than, oh, we'll say Coca-Cola.
BECKY: Mm-hmm.
BUFFETT: I mean, Coca-Cola 10 years from now is going to be bigger and more profitable, in my view, than it is now, but there won't be some quantum change in either direction. So it's much easier for me to figure out what Coca-Cola's worth than Google or Facebook or, you know, you name it.
BECKY: Although you did get into technology stocks with IBM, and that caught a lot of people by surprise. Is IBM a very different company than those others?
BUFFETT: It's certainly a company that's future will not look as different five or 10 years from now, in my view...
BECKY: Mm-hmm.
BUFFETT: ...than it does now, than will happen with a Facebook or an Apple. I— it can be in either direction. I make— you know, I would never shorten those stocks and I'm not— I'm not saying they have anything but brilliant futures, but I just don't know.
BECKY: Right. And so that's the question is when it's a fast-growing company in a fast— in a quickly changing arena?
BUFFETT: Yeah, it's just harder to figure, you know. And it's fascinating to watch, but I don't— I don't have to— I don't have to— I don't have to draw a conclusion on even tens of stocks. I just have to look at one or two...
BECKY: Mm-hmm.
BUFFETT: ...and feel that I've got a reasonable fix on what those companies will look like in five or 10 years.
BECKY: OK.
ANDREW: Hey, Warren, question on Facebook but technology companies broadly. A number of the IPOs we've seen, including Facebook, have dual-class shares where the founder, in this case Mark Zuckerberg, really does control the company. We've seen it with Google, we've seen it with Zing and so many others. I'm curious, when you think about corporate governance and you think about these dual-class shares, how does it impact you as an investor? And as a CEO, how do you think about it?
BUFFETT: Yeah, as an investor it doesn't change my view much. I— we're buying into a known quantity. When we buy into The Washington Post company, as we did in 1973, the Graham family controlled one of— one of the classes of stock. And actually I wrote Mrs. Graham a letter then and I said— you know, I knew they controlled it and that was fine with me. You know, there are a few other people, if they control— you know, if Castro controlled it or something I might have felt a little differently about coming in.
But I think if you know what you're getting into, you make a decision on that. And at Berkshire we have two classes of stock and we have made a very careful determination that never under any— Berkshire will never sell out or anything, but we make sure that those two classes have to be treated identically. I think when you have a situation where the super-voting stock can be sold at a big premium if they sell the company to what the— what the diminished voting shares sell for, you know, I think that's wrong. I don't think you should be selling the vote when you sell a company, and we've— I've seen that done. We've had it done to us in some situations way back in the past.
ANDREW: Right. What...
BECKY: What about with Google, what we've— what we've heard with what they're planning on?
BUFFETT: Yeah. I do think— I do think that when you have some extraordinary people running a business where the business is very tied to their particular talents, you may want to protect them in some ways to be sure that they get a chance to keep painting their painting over time.
BECKY: But it's one thing to know what the stock structure is as you buy into a stock.
BUFFETT: Right.
BECKY: It's another thing to have it changed once you're in.
BUFFETT: Yeah. As my memory, I think— I think Dow Jones changed it.
BECKY: Right.
BUFFETT: I think Lee Enterprises changed. There are various companies. I think probably more in the media field than others. A lot of the media companies had a dual structure going in. Others created it after the public was in. I, you know, I think that gets a little more dubious.
ANDREW: Warren, one of the arguments is that when things are going well— for example, right now things at Google going relatively well— when everything's going well, there is no problem, meaning nobody's going to come after the company or come after the CEO.
BUFFETT: Right.
ANDREW: But it is actually when there's trouble that, as a shareholder, you might want to have a little bit more power than you would in one of these circumstances. No?
BUFFETT: Well, no, I won't argue with that. But I would say this. If you had an extraordinary company back in 1973— Cap Cities Broadcasting was a truly extraordinary company. I knew the company very well. That company in 1973 was selling for a third or less of what it was intrinsically worth even though it was being managed magnificently. And Tom Murphy and Dan Burke, who ran it, did not have that percentage of stock that would enable them to obtain control. So anybody with money, at a time like that, could have walked in and taken away a great group of assets at a discount from its intrinsic value but a big premium to the market value. And that would have been a mistake. But, you know, I can pick out examples the other way, too. I'm no— it is not— it's not like I'm any big fan of dual classes, but I can see some reasons for them.
BECKY: Hey, Warren, while we're on the topic of some of the other companies that are in the news right now, can I ask you bout Yahoo! too? There's news about its CEO that he did not, in fact, have a degree from— in computer science, and now Dan Loeb and another investor, who I think owns a little over 3 percent of the stock, are pushing for his ouster. What do you think about what happened and the company's announcement that this was an inadvertent error?
BUFFETT: Yeah. Well, I don't know all the facts, but just from the few sentences I read, it doesn't sound like an inadvertent error. And I would say this, if I thought— if I had thought that, as a director, if I thought that a— an officer had consistently misstated some fact to me, I think I'd probably do something about it.
BECKY: Mm-hmm.
BUFFETT: Yeah. We actually had that one time, and if you can't trust the people you're working with, you've got a problem.
WAL-MART BRIBERY AND WALL STREET REGULATIONS
BECKY: Right. Another stock that we've been watching pretty closely is Wal-Mart, and that is Berkshire's seventh largest holding, I believe?
BUFFETT: That sounds about right.
BECKY: So Wal-Mart has had its own issues. There was a report in The New York Times alleging bribery in Mexico in its operations there. Has that changed your opinion about the stock?
BUFFETT: Well, not really. We have 270,000 people working at Berkshire, and it's a little early in the morning, but I will guarantee you that during the rest of the day, at least, some people will be doing something wrong. I mean, it's the thing that scares the dickens out of me as the CEO, because you can't have 270,000 people without somebody doing something wrong. People are just not that— no matter what instructions you...
ANDREW: Warren, but...
BECKY: This is different, though.
BUFFETT: Yeah. Well, what's particularly different in this is apparently the way they handled it once it...
BECKY: Allegations it went all the way up.
BUFFETT: ...once it came to their attention. I mean, that's the problem, and we'll find out.
ANDREW: It doesn't— I mean, I guess the question is, does it undermine your faith in the board, given that it does seem to have risen to that— to potentially that level or at least management at that level back here in the US?
BUFFETT: Yeah. I don't necessarily think— I'm not ready to think that it got to the board, but I have read things that it got to the management. And if the story, as reported in The New York Times a few weeks ago— and I don't remember every word of it— but it certainly implied that it got to the higher levels of management and then got brushed aside and did not get reported. If it didn't get reported, you know, that's a big mistake.
BECKY: Would you have second thoughts about the company at that point?
BUFFETT: No. I— you know, it wouldn't be the same individuals running it. I mean, they may— there may be— there may be things that happen to certain individuals because of this, but, you know, at Solomon we had a problem there with a few people. I don't think it changed how I viewed all 8,000 people and what Solomon did. It did mean that it needed to make some changes.
BECKY: OK. Andrew, I'll send it back over to you.
ANDREW: OK, terrific. If you've got comments, questions about anything you see here on SQUAWK, anything that Warren said, please shoot us an email at squawk@cnbc.com's the address. Coming up, why Berkshire's Charlie Munger says that the Volcker Rule, well, may not go far enough, as "Squawk Box" returns live from the Hollywood Diner just outside of Omaha.
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BECKY: Welcome back, everybody. We are spending the morning on Squawk with Warren Buffett. And this weekend I got the chance to sit down with his right-hand man, Charlie Munger. We spoke a little bit about what's been happening on Wall Street and whether the rules there need to be tightened up.
And, Warren, take a listen to this.
(Clip of Charlie Munger interview)
BECKY: We had Michael Lewis on the show this week, and he said that the Volcker Rule is not enough, it needs to have way more teeth. There need to be even stricter things, and that sounds a lot like what you've said in the past.
