FULL TRANSCRIPT: BILLIONAIRE INVESTOR WARREN BUFFETT SPEAKS WITH CNBC’S BECKY QUICK ON "SQUAWK BOX" TODAY

WHEN: Today, Monday, May 7th

WHERE: CNBC's "Squawk Box"

Following is the full unofficial transcript of a CNBC interview with Berkshire Hathaway Chairman & CEO Warren Buffett, Microsoft Founder & Co-Chair of the Bill & Melinda Gates Foundation Bill Gates and Vice Chairman of Berkshire Hathaway Charlie Munger, on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Monday, May 7th. Video clips from the interview are available on CNBC.com and the full interview will be available on the Warren Buffett Archive.

All references must be sourced the CNBC.

BECK QUICK: Good morning. I am in Omaha, Nebraska this morning that's the site of the Berkshire Hathaway Annual Meeting. Our special guest for the next three hours if you haven't figured it out is Berkshire Hathaway Chairman & CEO Warren Buffett. Thank you so much for being here

WARREN BUFFETT: Thanks for having me.

BECKY QUICK: You are coming off the 53rdannual shareholders meeting Its something that we have been coming to you for years but 53 years in I just want to ask you what you thought about this weekend and how you feel about all of it? What stood out to you through this weekend?

WARREN BUFFETT: I think everybody had as much fun as ever. We had a crowd certainly equal our record I run into thousands of shareholders and they are all having a good time and our directors have a good time here so its sort of a Mardi Gras

BECKY QUICK: Is there anything different about this meeting or is it the sameness that makes it so special?

WARREN BUFFETT: It is the sameness pretty much working with Charlie Munger we are not going to change the format very much

BECKY QUICK: Although Brian pointed out earlier, there were a lot of controversial subjects and things that caught peoples attention and picked up a lot of news this time because you and Charlie say what you think especially Charlie

WARREN BUFFETT: Yeah. Charlie says exactly what he thinks and he thinks in colorful language too. Have you noticed that?

BECKY QUICK: I have noticed that. Has that changed over the years or Is that more of the same?

WARREN BUFFETT: That's Charlie

BECKY QUICK: That's Charlie since you met him?

WARREN BUFFETT: Since 1959 when I met him.

BECKY QUICK: Lets talk about some of the things that really resonated with people and maybe start where you began the annual meeting this year it was talking to your investors and telling them a little bit about investing some tips and lessons along the way. You kind of used it as a teaching experience at the top.

WARREN BUFFETT: Yeah normally I don't do that in fact I cant remember when i did it we just go right into questions and answers. I really thought that maybe we were giving a little bit the wrong lesson because all the questions would naturally tend to be towards current events. So this time I went back to 1942 when I bought my first stock as an illustration of all the things that have happened since 1942 we have had 14 presidents, 7 Republicans. 7 Democrats. We have had world wars, 9/11, Cuban Missile Crisis we have had all kinds of things. The best single thing you could have done on march 11th, 1942 is buy an index fund and never look at a headline never think about stocks just like you would if you buy a farm. Just do it and let the tenant farmer run it for you. If you put $10,000 in an index fund that reinvested dividends and i paused for a moment to let the audience guess how much it would amount to. It would come to $51 million now. The only thing you really has to believe in then is that America would win the war and that America would progress as it has since 1776 You would have to know that if America moved forward, American business would move forward. You didnt have to worry about what stock to buy or what day to get in or out. You didn't know the Federal Reserve would exist. America works.

BECKY QUICK: You went back to the day in 1942 because it was the day you purchased your first stock which to point out you were 11 years old then

WARREN BUFFETT: Yes and the headlines were terrible every day.

BECKY QUICK: This is the new york times that day

WARREN BUFFETT: Yeah. 1942 new york times sold for 3 cents and I also got the headlines from some days before. Everything was going badly the Philippines were going to fall within two months, things were grim in Europe, our ships were being sunk the war was bad then and that day that I bought March 11, The Dow Jones cracked 100 on the down side, it was a 2% decline which would be 500 points today the night before on march 10th I said to my dad I want to go all in I had $125 put every bit of it in three shares of City Service Preferred. And-- which is still my personality is to get it all in and--

BECKY QUICK: As we've seen with Apple.

WARREN BUFFETT: Yeah, somewhat. And-- as I pointed out to the crowd, I bought that stock at 38 and a quarter. It was down from 84 the year before and it was down from 55 in January. I thought I'm really buying it cheap. So it went down to 27 after I bought it. And then I did-- it-- and it went up to 200 later on. But-- I sold at 40.

BECKY QUICK: You know, these are lessons that you point out because you tell investors that they shouldn't really be trying to market time. They shouldn't be looking at things. You should invest, stop paying attention and look away. But you are somebody who does pay attention to market valuation, buys more if you think a t-- a stock is cheap and less if you think it's expensive. And I'm just wondering where you think the markets stand right now. When we talked to you back in February, at the end of February-- you said you thought things were not overly priced. But you didn't find any businesses that you, yourself, felt like you could purchase. Where-- do you think things stand right now?

WARREN BUFFETT: Yeah, and we haven't bought any businesses in their entirety since I saw you last. We bought a lot of Apple as we pointed out the other day. If--I had a choice between buying the S&P index or buying the ten-year U.S. Treasury or the 30 U.S. Treasury it wouldn't take me a nanosecond to--go into stocks. Now that-- it may be because bonds are going to fall a lot-- but the investor has a choice between three or four things. They've got stocks, they've got short-term governments, got long-term bonds or long-term governments. And-- or they could buy-- they could buy a farm, piece-- a small farm or--

BECKY QUICK: What about corporate bonds--

WARREN BUFFETT: --a do--

BECKY QUICK: --too?

WARREN BUFFETT: --yeah, they can buy corporate bonds. But they-- they probably don't know enough to evaluate credits. I mean, they will-- they get enticed into junk bonds with exactly the wrong time. That's when the issuances will come and the covenance will be non-existent. And so--

BECKY QUICK: So you're talking about average investors who don't--

WARREN BUFFETT: The average investors.

BECKY QUICK: --do this for their day job.

WARREN BUFFETT: No not professional investors. But-- average investors-- but-- but 99% of people are non-professional-- investors. And-- that would-- if they had to do that to come out decently you-- can understand I'm sort of gambling on that. Or-- but the point is you don't need to do it. You-- don't have to buy exactly the right stock or b-- buy at exactly the right time. The one thing you have to avoid is buying the single wrong stock or at the single wrong time. And most people get excited about a stock or about the market after it's gone up. I mean, their neighbors made a lotta money and they know they're smarter than their neighbor. Very irritating to have a neighbor buy a new car and your spouse says, "You-- that-- that guy's smarter than you are or what." So they-- have this-- they're enticed into the market at the wrong time. And all they need to do is buy a cross section of America. And it's best to buy it over time. If the first ten years of your working life you just save and—that's for that period of time, that-- you don't have to be the right time.

BECKY QUICK: You-- you made the point even more drastically over the weekend in terms of looking at treasuries-- U.S. Treasuries-- basically said there-- there's-- never been a good time to buy it even going all the way back to the war bonds back in the '40s.

WARREN BUFFETT: Yeah, that--

BECKY QUICK: That was the--

WARREN BUFFETT: --that is true now. You bought it for patriotic reasons. But-- the government then was offering you t-- 2.9%. You bought a U.S.-- you called it a war bond. They called them defense bonds. And then savings bonds later on. But-- we were happy to buy war bonds then. And we paid $18.75 and we got $25 in ten years. Four-- three gets you four. That was-- in fact, they had-- they took Take Me Out to the Ballgame and turned it into a song about buying war bonds. You know? And for each three you get four at the old bond game. And-- that's-- that-- there's a little song. And we'd sing it in school. And but-- and the government happily pointed out to you that you were getting 2.9% compounded for that. But that-- and of course now you have a situation the Federal Reserve says they want inflation of 2%. So they say they're going to try and devalue that bond by 2% a year in dollar terms. And-- it's almost always equities have been a better buy. And certainly if you're gonna put away money over time when you're younger-- you can buy stocks over a conservable period of time you're not gonna get the lows but you're not just gonna buy at the highs. And if you buy a cross-section-- well, like I say, you turn $10,000 into $51 million and you'd never have had to look at a financial page again or listen to a broker.

BECKY QUICK: Going back to this idea though that the markets, you think, are a good place for average investors right now. The S&P 500 is a good place. If you're a professional investor, if you're somebody like you, you look at prices and you think what?

WARREN BUFFETT: Well, I look at prices and I-- find it hard to buy things. And incidentally professional investors aren't going to do better than the average-- amateur-- in almost all cases. But I-- don't find things easily. I mean, we were on and-- in March of 2009 when the Dow was in the 660s or 670s. And-- we talked about it then. I mean, there's-- this was the bargain counter. And-- it continued for a long time. Stocks have been very, very cheap. But you have to measure-- you have to measure 'em against alternatives. I mean, if—government bonds got to 15% like they were in 1982 that's a different equation against stocks than exist now.

BECKY QUICK: You've had periods in the past though where you have said stocks look expensive to you or that we look like we're in bubble type territory. This is not one of those times I take it?

WARREN BUFFETT: That-- this is not one of those times. That-- now if government bonds go to 7% or 8% which means if you own a long bond now you'd get killed-- stock you bought now will not necessarily look attractive. It-- probably won't be attractive.

BECKY QUICK: And--

WARREN BUFFETT: Interest rates are like gravity. If interest rates are 1% and they're gonna be that for 100 years obviously anything that yields you 2% or 3% is going to do way better. But I don't think they're going to be 1% for 100 years.

BECKY QUICK: Just to get into the nuances again though.

WARREN BUFFETT: Yeah.

BECKY QUICK: What-- you're talking broadly about issues in terms of how you see the stock market as a great place for average investors. Maybe a place where you're not finding all that many bargains. And when you look to buy a company all in, I mean-- I've spoken with some people here this weekend who know an awful lot about M&A, who know a lot about private businesses, what they're valued out at different things you'd say, that when they're looking at prices things look really rich. You're talking about prices that are 15% to 20% above what the fair price of base-- ha-- does that match up with what you see--

WARREN BUFFETT: I would--

BECKY QUICK: --right now?

WARREN BUFFETT: --I would agree with that. That's why we haven't bought any businesses for quite a while. In addition to the normal factors in the public market too, when people buy businesses these days frequently-- they're being bought by people that are-- borrowing 60% or 70% of the money, maybe even more.

BECKY QUICK: You're talking about private equity?

WARREN BUFFETT: Mostly private equity but not exclusively private equity. And if some-- we're not willing to calculate our returns based on borrowing money at 70%-- of the purchase price. That may be the best thing to do. But-- we--calculate things generally on an all-equity basis. And we are not competitive. And-- then you've got a general euphoria that-- to some degree. The private equity funds have to put the money out. And it's kind of interesting what they do because-- they take the money which they get usually from institutional investors and then they buy a company in the market from some of those same institutional investors except pay a premium and they say we can run it better if it's private. Then they hold it for a while. And then they sell it back to the market in these private institutional investors having-- with them having paid substantial fees in the meantime and say it's better to be public. I mean, it's-- an interesting exercise.

BECKY QUICK: Let's talk about some of the things that came up this weekend that really caught people's attention and some of the more controversial statements that came out. At one point this weekend you said that Bitcoin and this is was based-- you were asked-- Charlie said, "Bitcoin's like rat poison." You were asked about that comment. And you said, "Well, it's probably more like-- rat poison squared." Charlie went on in the meeting to then basically call Bitcoin turds.

WARREN BUFFETT: He--is an expressive sort, isn't he? Maybe when he gets a little older he'll mature.

BECKY QUICK: I just wanna ask you about that because it sparked so much controversy. And it's-- particularly on Twitter and some of the places where you might expect people who are trading in-- in cryptocurrency-- to be pretty-- loud about what they heard. What-- is it about Bitcoin that gets you guys so fired up?

WARREN BUFFETT: Well, when you buy a farm-- you look at the crop every year and what prices are and you decide whether it was satisfactory investment, I mean, you look to the asset itself and what it produces for you. When we buy a business we look at what the business earns and decide how we feel about it in terms of what we paid. But we are buying something that at the end of the period we not only have what we bought in the first place but we have something that the asset produced. And when you buy non-productive assets-- all you're counting on is whether the next person is going to pay you more because they're even more excited about another next person coming along. But the asset itself is creating nothing. One of the interesting things—for example is gold. If you go back to the time of Christ and you look at how many hours of labor you had to give up in order to buy an ounce of gold and you take it forward to now you'll find a compound right, maybe 1/10 or 2/10 of 1%. You know, and then you have to insure it during that time and make sure, you know, somebody doesn't steal it from you and every-- but it doesn't produce anything. And-- productive assets-- you may have even paid too much for a productive asset. But I bought a farm in the 1980s. And--every year look at how much it produced in the way of soybeans and corn. And at the end of that period I've still got the farm and I've got some significant income off of it. Apartment house, operating business. But-- if you and I buy various cryptocurrency they're not gonna multiply-- they're not gonna be a bunch of rabbits sitting there in front of us. They-- they're just gonna sit there. And I got a whole-- next time you get more excited after I bought it from you and then maybe I'll get more excited it and buy it from you. And actually we could-- we could sit in the house by ourselves and we could keep running up the price between the two of us. But at the end of the time there's one Bitcoin sitting there. And now we gotta find somebody else. And-- they come to an end. I mean, those--

BECKY QUICK: That-- that, I mean, that's a greater fool theory. That's what you're saying?

WARREN BUFFETT: It-- well, yeah. It's-- buying something because you expect the pool of people who wanna buy it because they wanna sell it to somebody else will grow. And-- you know, it's-- wonderful because it does create a rising price. Does create more buyers and people think, "I've gotta get in on this." And--it's better if they don't understand it. That's the other thing about non-product-- if you don't understand it you get much more excited than if you understand it. I mean, if you buy a bond that says it's gonna pay you 4% a year you're not gonna get any pleasant surprises. It only pay you 4% a year. But if-- you can have anything you wanna imagine if you just look at something and say, "That's magic." You can do it with sharks teeth or seashells or anything. And-- you know, they did it with tulips in the 17th century in-- Amsterdam. And-- they'll do it again. I mean, people-- they like to speculate. They like to gamble. And-- if you can get something-- particularly if you have something half plausible going on. If you had bought gold in 1942 and you said, "We might lose the war. We might have to run off to some other country and, you know, so let's put our assets in gold," you would have less than a penny for every dollar you got from owning stocks. Less than a penny. Now somebody calls that a stored value. I mean, I think they're delusionary.

BECKY QUICK: Andrew has a question too. Andrew?

ANDREW ROSS SORKIN: Hey, Warren, related to this-- issue of Bitcoin, you saw that Goldman Sachs just last week announced that they were gonna-- create a-- effectively a trading operation around cryptocurrencies and Bitcoin in particular. You've been an investor-- in Goldman. What do you think of their decision to do that?

WARREN BUFFETT: Well, they probably think that lots of people are gonna get very excited about, well, and-- maybe already are. But they think there's money to be made trading them. I don't think they're expressing an opinion on the ultimate value. I would be very surprised if the top partners of Goldman are selling their Goldman stock and putting it into Bitcoin. But I wanna cover the subject now because my friend, Charlie, will come on at 8:00. There's no telling what he will say.

BECKY QUICK: Well, that-- that's my whole entire point. I do wanna ask Charlie about it because I think when he talked about the turds he was referring to this he said, "If you're trading this it's like watching other people trading turds and deciding you wanna get a piece of that."

WARREN BUFFETT: Well, you're not gonna get me to comment on that.

BECKY QUICK: Hopefully Charlie's not awake and is not--

WARREN BUFFETT: Well, the truth is--

BECKY QUICK: --watching right now.

WARREN BUFFETT: --there's people who do trade on very crazy things over time. You know, imagine people selling their homes to buy a tulip in Amsterdam. If people think they're going to make money the next day and, worse yet, if they think somebody else that they know is going to make money and they aren't going to make money they-- it just draws people in. You know, I can whisper something on this program and kind of the more sillier it was the more it right react because there's no quantitative limits. If you buy a stock and you say, "Well, I'll buy it at 15 times earnings but I won't buy it at 20 times earnings." But when you get into something that doesn't produce anything, you know, there's no checkpoints there. There's nothing to reference it to. It's just-- it's gone up and it will keep going up

BECKY QUICK: Now I will say when I was tweeting the things that you and Charlie were saying about this weekend all I was doing was repeating what you were saying. And people were coming back with some pretty angry comments-- --including things like, "I bought a house-- buying cryptocurrency. You're outdated on this." They said a lot meaner things that-- "You don't understand it so you should shut up about it." What-- you're not.

WARREN BUFFETT: Well, the interesting thing is if you're investing you or other people. You--

BECKY QUICK: What--

WARREN BUFFETT: --if I'm investing in Apple-- I love the idea of people saying Apple is terrible 'cause I want the stock to go down because the repurchasing shares and my interest will go up faster. You-- don't get defensive if you're buying something that produces. You don't buy a farm and get real defensive if somebody comes and says, "You shouldn't buy a farm." If somebody says, "I watch the crops go and I can see what I sell-- I'm selling my crop for at the end. And I'm making s-- 4% or 8% on my investment." You're getting defensive when you look at this thing and it doesn't do anything. You're just hoping somebody comes along to pay you more tomorrow and the next day. And you're dependent on more people-- the mob growing, you know, basically. So-- those people do get angry. But-- the person that bought a house with it, I would say they did the very right thing. They sold it.

BECKY QUICK: They sold it. They sold it and bought something else with it. Hey, Joe-- you have a comment to?

JOE KERNEN: Just-- I was saying in it-- but look how long it took you to buy Apple though, Warren. I mean, you finally did buy it. But-- you needed to be, you know, it needed-- it just took a long time. I don't know what happens with Bitcoin. But you see these-- I don't understand it either. But-- it's got quite a following amongall these people that, you know, think it's going to 25,000 or 100,000. I mean, it did take you-- you've never embraced-- technology as much as a lot of other things that you understood a lot better. And you're finally in Apple. But what did you finally buy Apple? It's was already probably a $700 billion company when you finally bought it. Coulda-- you know, woulda been nice to buy it a $100 billion or $50 billion.

WARREN BUFFETT: Yeah. I say about buying Apple is I don't care whether anybody ever mentions Apple again. I mean-- you know, whereas with Bitcoin you do-- people that buy it wanna taut it because they want more people joining the crowd. So they wanna come on and say, "You buy Bitcoin," because the only-- they're gonna lose money unless the crowd gathers. If the crowd starts to dispersing-- so they've got every reason in the world to taut it. When I buy Apple I know that Apple is going to repurchase a lot of shares. So right now Apple had whatever it did at the quarter 4,927,000,000 shares or 923 million, whatever it was. And we own about 5%. But I know I don't have to do a thing. And probably in a couple years we'll own 6% without laying out another dollar. Well, I love the idea of having 5% go to 6%. And the cheaper the stock is, the more they will get for their money when they're buying it in. So there's-- no reason at all for me to encourage other people--

JOE KERNEN: Hey-- Warren--

WARREN BUFFETT: --to buy Apple. I'm--

JOE KERNEN: -- I hadn't heard anyone say City Service in a long time. Was that-- it was-- it was a preferred stock? I-- I don't-- it must've been convertible. Wasn't it or something to have huge price—swings like that

WARREN BUFFETT: Now what---- happened, Joe, was that City Service started out as a utility company like it sounds. Way-- back around 1910, sometime around then.

JOE KERNEN: Right.

WARREN BUFFETT: But then they bought it-- they started developing natural gas and then they found oil in connection with it. So over a period of time it still = it was a big utility company. It-- morphed into a basic energy company-- productive company. But they issued when they were a utility primarily-- they issued a $6 preferred that-- cumulative preferred. And it quit paying dividends in 1932-- a lotta people, they ran outta money then. So-- from 1932 forward you had this preferred which, $100 par, which was accumulating at $6. A rarity just-- the year before I bought it they actually made a $3 payment on a rarity. But that still was less than $6 coupon. And then they eventually called it at 200 and something which was-- $100 par, probably a call premium plus all the rariges. It was not convertible.

JOE KERNEN: I see. That's pretty amazing that you were 11 years old when you-- and what a history City Service had. I mean, there's a boom ticking and a Pacman defense, it was bought by Oxy. And then part of their gas stations were bought by Venezuela, remember? And they were given free gas around it. And-- the Red Sox, the big--

WARREN BUFFETT: Sure.

JOE KERNEN: --CITGO sign up at-- near the-- baseball stadium. It's amazing--

WARREN BUFFETT: Right, right. It became-- a major oil company.

JOE KERNEN: Yeah.

WARREN BUFFETT: They actually I think sold the preferred door to door-- way back in the-- in the '20s, sometime like that too. But--

JOE KERNEN: Quit talking about buying--

WARREN BUFFETT: --it was cheap. You know.

JOE KERNEN: -- every time you say bought the farm I'm like, "What--" I'm, like, not listening for a second and then you go, "I'm buying a farm-- buying--" like, stop talking about that. I looked up what-- that's a weird-- expression that came from-- it's very morbid-- what it actually came from. But-- I'm not even gonna go into it. But it-- there's-- a-- derivation for what it came from when I guess the guys-- they wanna come back from a war and they're gonna buy a farm when they do. And unfortunately it's their family that ends up buying it from insurance proceeds or something. It's horrible. But-- anyway-- yeah, let's move onto-- Bitcoin and--

BECKY QUICK: To different assets--

JOE KERNEN: --Apple.

BECKY QUICK: --different assets on this.

WARREN BUFFETT: The War-- World War II there wasn'tgo ahead actually.

BECKY QUICK: Go-- ahead, go.

WARREN BUFFETT: It was very interesting in one sense because John Maynard Keynes had written in 1935 or 1936 The General Theory. And-- Keynes in economics of-- around my household everybody thought it was a total fraud and all of that. World War II forced the country into this huge Keynesian type financing. I mean, we had the deficit financed in a way that was incredible. And-the debt went up to 120% of GDP which is considerably higher than it is now from a figure far lower than that. And we sent millions of the most productive people-- we took a lot of the economy. We started building things that we dumped into the sea. We did it on borrowed money. And it created the runway for, you know, the greatest economic progress the world's ever seen.

JOE KERNEN: That

BECKY QUICK: Warren, let me ask you one more question on-- oh go ahead.

JOE KERNEN: No I-- so that almost-- so is that, like, an endorsement of Keynesian economics, Warren?

WARREN BUFFETT: It certainly worked in World War II. I mean, we would-- we-- I don't-- I do not think the '40s and '50s and '60s would have developed remotely like they did without the huge deficit spending. And-- all these events that, you know, we were trying-- we were struggling to get out of the '30s. And-- then they just turned a spigot loose which they had to do and build a whole bunch of things they dumped in the sea. You know, they-- weren't building refrigerators or cars or anything like that. They-- and-- there were a lotta people that predicted a-- one of the things that I do remember very well was that a lot of very respected figures that we would come out and have a Depression post-World War-- II just like we had post-World War I. So-- that was a prevailing sort of--

BECKY QUICK: But are there times to be Keynesian and then times to pull it back in and rein it back in?

WARREN BUFFETT: Yeah, well, that's-- but Keynes would say that too. Yeah.

JOE KERNEN: Well, we need a guy with a little--

BECKY QUICK: Let-- me ask you--

JOE KERNEN: --experience-- to talk about all this. Not someone-- you're age, you know. We need-- Charlie on who can probably really--

BECKY QUICK: Charlie.

WARREN BUFFETT: Yeah.

ANDREW ROSS SORKIN: --with a little experience under his belt.

WARREN BUFFETT: Give him a s-- yeah, g-- be prepared to bleep him out though.

BECKY QUICK: We need a three-second delay with Charlie. Hey, Warren, let me ask you, just City Services, you've talked about this. I knew that was your first purchase. I knew you were 11. But for people watching at home, you hear an 11 year old picks out a stock and asks their dad to buy it, particularly when their father is a stock broker, you assume their father is the one that led them to that conclusion. My guess is you did that all by yourself. How-- did you come up with it?

WARREN BUFFETT: Well, I must've heard somebody talk about it. But-- and if you looked at City Service at that point, here was this company in the Depression, didn't have the money to pay it. Now all of a sudden was paying down its debts and it was going to earn a lotta money. And they had a lot of, you know, they had- -- assets that were becoming worth more. And we were going to have inflation after World War II so that assets probably were going to be worth more while their debt was coming down. And the earnings on the preferred were terrific. They just weren't paying 'em out. So-- I was gonna get $200 at some time. But the problem was that I-- buying it at 38 and a quarter, as a matter of fact, and having it go down to 27-- and walking to school with my sister who also wanted to buy three shares 'cause I was buying it-- she hated to see me get rich, while she wasn't getting rich- and having her point out that this thing was going down every day,when it got back up to 40 and we had-- each had a chance to make a $5 profit I thought, you know, now my sister will again consider me a genius and I will have $5 more. How could life be any better? So then I watched it go to 200 after selling it at 40.

BECKY QUICK: Well, lessons learned early in life. Probably very powerful ones. Warren Buffett's gonna be with us until 9:00 a.m. We have a lot to talk about still. But, guys, I'll send it back to you in the studio right now.

ANDREW ROSS SORKIN: Okay, thank you, Becky. Coming up, when we return, we have two special guests joining Becky and Warren Buffett. That's gonna happen in the 8:00 hour, Berkshire vice chair Charlie Munger. We are getting the three-second delay ready for him. And then Berkshire board member Bill Gates. Stick around, we've got a lot more coming back from Omaha in just a moment right here on Squawk.

ANDREW ROSS SORKIN: Good morning. Welcome back to "Squawk Box" right here on CNBC. Let's show U.S. equity futures at this hour. Let's let you know what's going on right now. Dow looks like it could open up higher, about 60, almost 70 points higher now. NASDAQ looking to open about 38 points higher and the S&P 500 looking to open up about nine points higher. A quick look at crude right now. Barrel costs a WTI, $70.42. That's the highest level since November of 2014.

JOE KERNEN: And it makes you wonder when – if the Iran deal is decertified, is it in the stock or is it in the price already? Because that's not going down if the president decides to exit that deal. Let's get back to Becky out in Omaha with our special guest, Mr. Buffett. Beck?

BECKY QUICK: Joe, thank you. Once again, we are in Omaha with Berkshire's chairman and CEO, Warren Buffett. He's going to be with us through the entire morning. We'll be joined also by Charlie Munger and Bill Gates a little later in the program. But right now, Warren, let's talk through some of the individual stocks that you've spoken about this weekend. Maybe the most controversial one was Wells Fargo. You were questioned directly on that at the shareholders' meeting with questions from shareholders. And who have said, "Okay," and I did hear this from other shareholders later on –

WARREN BUFFETT: Sure.

BECKY QUICK: Wells Fargo has run into trouble time and time again. The fines have continued. The developments and things that we've found out about some of the cockroaches particularly – you know, as you might phrase – continue to come out. But you've stuck with this stock and said that you're not selling and that you have faith in Tim Sloan who's the existing CEO. People have pushed back and said, "Look, this is a company that's run into trouble and it doesn't jive with what we've heard you say about Salomon." How do you say yes this does fit with our investing philosophy?

WARREN BUFFETT: Well, at Wells Fargo they made one mistake that maybe I've made from time to time, which is incentives work, and they came up with improper incentives and they work. And so they incented bad behavior instead of incenting good behavior. And that happens from time to time. You could put too big a commission in something of the sort.

BECKY QUICK: But let's talk very specifically about what incentives were created. They were incentives that rewarded people for the number of new accounts that were opened.

WARREN BUFFETT: Number of new accounts. And they got in – they regularly on their investor presentations would say, "We've got so many. And eight would be great. And 6.2 was better than 6.1 products." So it put this huge emphasis to the public out there as well as to their employees. But to the public that they had more services per customer.

BECKY QUICK: To their shareholders.

WARREN BUFFETT: And shareholders. And everybody would listen. And surprise, surprise, people started creating fake accounts. And when bad behavior gets in there, other people figure it out – I mean if you get rewarded for bad behavior, you're going to have a lot of bad behavior. That's a problem. I'm sure it's a problem we've had from time to time in Berkshire and other places. But the real problem was when you find out about it, you've got to stop it immediately. And I don't know the details about why it wasn't stopped, but I've seen that before. And then it just gets out of hand. And if you don't stop it immediately, then if you do it four months later everybody will come and say, "Well, why didn't you do something four months earlier?"

BECKY QUICK: But let's be a little more pointed with this. This was not just a case where Wells Fargo was not stopping bad incentives immediately. It was quashing whistle-blowers who were behaving properly and firing them.

WARREN BUFFETT: I don't know the details too much on that.

BECKY QUICK: From what's been reported. I don't know this first-hand.

WARREN BUFFETT: I won't argue with you.

BECKY QUICK: I don't know this first-hand, but from what's been reported, there have been many whistle-blowers who said that they were trying to do the right thing. They tried to report it. And as a result they wound up losing their jobs.

WARREN BUFFETT: Yeah, once you have not done it, you're in the soup. I mean, John Gutfreund in April of 1991 got word that Paul Mozer, a trader in government bonds, was doing something that was very wrong. And he absolutely – John was not profiting by it. He didn't know about it. But the next minute he had to pick up that phone and call Gerry Corrigan of the Federal Reserve of New York. And everybody thought he was going to do it in the room. But it was unpleasant or he got distracted. And then on May 15th Mozer did it all over again and now the position you're in is you caught him and you knew this pyromaniac was out there who would set fires and you let him light another match. And then you're in big trouble. Anyway, you have to act. I mean, Charlie's been very good with me on things like that. If I tell him about anything is a problem, I mean, he doesn't let me procrastinate. And I might procrastinate a little. It's a very human trait. But anyway, and then they uncover other wrong things as you get into it. Now a couple of our great opportunities came from similar situations. I mean GEICO had a CEO in the early '70s who refused to accept the fact that the lost reserves were developing badly. Now if you refuse to accurately assess your loss reserves, you also don't know your costs because you sell the product first and then you start kidding yourself on the cost. And then you get in a hole. And now your reserves are at a – maybe you figure it out. But then you've got to admit it if you do it. And it's just easier to shut your eyes and hope that something good happens. And it essentially bankrupted the company. Now that was a huge opportunity for us because GEICO was a solid company underneath. But their balance sheet was a mess. They needed to raise capital. They almost got their licenses withdrawn. And we bought half the company for less than 50 million bucks. So the fundamental business of Wells Fargo, they've still got the accounts, they've got the loan customers. We do business with them every day. And incidentally, other banks ran into much other kinds of trouble in the 2008 and '09 period. More on the selling bigger stuff, you know, maybe mortgage back securities or something of the sort. So the banks had their share of trouble. But Wells had theirs in a particularly egregious way, which was really kind of thumbing their nose at the public. They made way, way, way less money doing that than if they were bundling big MBS' and raking it in by the tens or hundreds of millions. And the fines were big, you know, even bigger. But going forward, you can stop bad practices. They should be stopped earlier and much earlier is easier.

BECKY QUICK: I look at the situation with Salomon and you came in and were the person who had to clean it up. Tim Sloan was an insider. Tim Sloan was not the one who – this didn't happen on his watch.

WARREN BUFFETT: No it didn't.

BECKY QUICK: But he was an insider. Is that – can you be an insider and still be the one who cleans it up?

WARREN BUFFETT: Well, I cleaned up affairs with Congress and tried to set a tone and everything. Deryck Maughan came in and I put him in total charge of running Salomon Brothers. And everything he did, you know, was perfect. I mean, and he had all kinds of things he had to look at, we didn't know when we'd get more surprises. He was working 15-hour days. He never asked for any extra compensation of any kind.

BECKY QUICK: And he was an insider at Salomon.

WARREN BUFFETT: Oh yeah, he'd been an insider there. Sure, he was one of seven or eight people that would – top people I interviewed. I had to have an insider because I arrived there on a Friday, you know, and they were about closing us up – and somebody had to run a business that was doing more maybe hundreds of billions of dollars' worth of business and things like government bonds and everything. We had the largest balance sheet of Wall Street. So there was no way I could wait and get an outsider. I interviewed people on a Saturday. I started interviewing at 9:00 in the morning. I got in on a Friday. And I had to come up with somebody by Saturday afternoon to run the place. And there were people in that room that semi-contributed to the culture anyway that led to this activity. And so I picked an insider who knew about it, knew all the people involved. And the guy behaved magnificently and got me outta trouble.

BECKY QUICK: Joe?

JOE KERNEN: Andrew wants to talk to you.

WARREN BUFFETT: The same thing happened to GEICO. They picked a new guy. They picked Jack Byrne.

JOE KERNEN: Warren, I wonder how much Wells Fargo talked to you. They're on a complete reset now. Yesterday was a Wells Fargo championship down at Quail Hollow. I don't know if you saw it. But the entire advertising campaign they go back and show when Wells Fargo was, you know, was founded and they show stage coaches and everything they did. And then they just go completely blank where they say, "But this happened. And now it's the new—" I mean, they paid someone to get an entire ad campaign that there's been a complete reset and we're starting over. And, you know, the spokesperson that they had on at the tournament it's all they talked about as well. I mean, that took a while. But they finally got to the point where they're saying, "All that history is in the past and we're starting all over right now," which is pretty amazing that they had to come to that point. Did they talk to you about that advertising campaign?

WARREN BUFFETT: Yeah.

JOE KERNEN: I guess they did.

WARREN BUFFETT: No. No.

JOE KERNEN: No, they didn't?

WARREN BUFFETT: No, we never – and at Salomon, we did not run an advertising campaign. But I ran a two-page, double truck ad in the New York Times and the Wall Street Journal and the Financial Times when we reported our third quarter. And I said what was wrong and I said how we were going to change it. And it was in very small type. And we needed change. Wells, it's interesting. I first bought in when Carl Reichardt was running it. I can tell you that there's no finer guy than Carl Reichardt. It wouldn't have happened under Carl Reichardt. But institutions make mistakes. And I will tell you this, we have 377,000 people working for Berkshire and right now I don't know whether five of them or ten of them or 20 of them – but I'll guarantee it isn't zero – are doing something wrong. And my job is to act when I hear about anything. And to make sure we've got some system so we do hear about things. So we get about 2,000 contacts through what we call the hotline a year. I get anonymous letters. And those are the two best sources of finding out where something's wrong. I mean, it's better than having 100 people crawling all over the books. Anonymous, anonymous. Sometimes they sign them. But I just received one last week, you know.

BECKY QUICK: You received one last week about something happening at Berkshire?

WARREN BUFFETT: Yeah, sure. But, I mean, I receive them all the – and I mean, they're going to come in. And sometimes people just don't like the person working next to them so they, you know, they come in for a lot of frivolous reasons. But you have to look into what it is. And if you look at 100 and 99 are, you know, the guy next to me has bad breath, you know, or something like that. But that's the way you do find them, overwhelmingly, is tips basically.

BECKY QUICK: How do you track down every one of those tips?

WARREN BUFFETT: Well, we have an audit department that sorts out the ones that they think I ought to see. I mean, you know, so Becki Amick is in charge of the audit department. And incidentally, the larger companies, they have their own groups too. But those people could not only write their own company but they could write us. And some of them just come into, you know, a letter comes into Warren Buffett chairman – it's usually not signed. But that's okay, I mean, and obviously when they get very specific and say, "This is going on or that's going on," that's what happened at American Express in 1964. They had a field warehousing subsidiary. They were getting calls from a guy at a bar in Bayonne to the head of the – and he was saying, "The tanks are phony. Go to this tank and go to that tank and you will find that it's not filled with solid oil." And the guy didn't want to hear it. And he didn't want to tell his boss. And it just gets worse and worse and worse.

ANDREW ROSS SORKIN: Hey, Warren?

BECKY QUICK: Andrew?

ANDREW ROSS SORKIN: You know, after you had commented on Wells Fargo during the meeting when we discussed it on Saturday I got a couple of emails of folks who asked me I could – if there could be a follow-up question. So the follow-up question is this. When you bought Salomon you came in after Salomon had its problems. And some of the other examples that you gave, the opportunity came because you weren't in the stock. In the case of Wells Fargo, you've been in the stock. So there were two questions. One is do you wish you weren't in the stock when they had the problems, meaning would you have preferred to put your money, for example, in something like JPMorgan, which I know you've put personal money in before. And somebody else said that, you know, you famously said if you lose reputation, "I will be ruthless." And the question is, when will you be ruthless or at what point would you be ruthless either in this case of Wells Fargo or does it have to be even more egregious?

WARREN BUFFETT: Well, I'd be ruthless if anybody was working for me. But I don't – and the answer is, of course I wish I wish I'd bought the other stocks – bank stocks – and then sold them now so I'd be buying Wells Fargo now. I mean, Wells Fargo actually is buying in a lot of shares. And you can argue that they are improving the per share value because they had this bad news they're buying it cheaper. But I think ten years from now, I think if you look at the ten-year record of Wells Fargo ten years from now you will – you're very likely to find that it outperforms most of its competitors.

BECKY QUICK: Would you be buying more shares now if you could? You can't because of the bank thresholds, bank owned 10%.

WARREN BUFFETT: Yeah, if – I don't want to give recommendations on which stocks to buy.

BECKY QUICK: Yeah. To Andrew's other point though, I think you touched on it very quickly. But the idea of being ruthless, if you lose a shred of reputation for the company—

WARREN BUFFETT: That's Berkshire.

BECKY QUICK: Right, but what you're saying, you're distinguishing between Berkshire-owned companies and investments.

WARREN BUFFETT: Sure. Sure.

BECKY QUICK: It may be worth pointing out that you're a passive investor in Wells Fargo and the bank and you have to be.

WARREN BUFFETT: Yeah, well, I have to be a passive investor.

BECKY QUICK: But I'm not sure everyone understands that.

WARREN BUFFETT: Yeah. No, no, no. We are not – we do not want to be a bank-holding company. Now, we can become a bank-holding company if we own over 10% and there's a point at which your activities could make you or some of these – we have no – we owned a bank. And we had to dispose of it back in 1980. We bought a bank and then they passed the banking act of 1969. We'd have bought more banks actually. I like the banking business. And then they changed the law in 1969 and we had ten years to divest. Maybe they changed it in 1970. We had ten years to divest of the bank we owned. But I would not – we'd still own that bank and we'd own other banks if they hadn't changed the law in the 1970 period.

BECKY QUICK: Okay.

WARREN BUFFETT: But I don't feel responsible. If you're having trouble with your Apple phone don't blame me.

BECKY QUICK: Okay. We have much more from Warren Buffett still to come. Right now we're going to send it back to Joe and Andrew in the studio.

ANDREW ROSS SORKIN: Okay. Coming up when we return, billionaire summit. Warren Buffett's going to be joined by Berkshire vice chair Charlie Munger and Berkshire board member Bill Gates. That starts at 8:00 a.m. eastern time. "Squawk Box" returns from Omaha in just a moment.

BECKY QUICK: All right, good morning again, everybody. Welcome back to "Squawk Box" where we are live from Omaha. Today we are introducing the Warren Buffett archive. This is a website with the world's largest collection of Buffett speaking about business, investing, money and life. It includes 25 full annual meetings for Berkshire Hathaway with Warren Buffett and Charlie Munger taking questions from the audience. It goes all the way back to 1994 with a highlight reel for each year. By the way, folks, this is the only place that you can get this complete archive. It's also got 130 hours of searchable video. It's synchronized to 2,600 pages of transcripts that have been painstakingly checked by Alex Crippen who did a phenomenal job of running through and making sure he knew exactly what everything that was mentioned was done. This was done by hand. I'm calling it, instead of AI, AC for Alex Crippen. There are 500 video clips covering scores of subjects plus CNBC interviews, a Buffett timeline and a Berkshire portfolio tracker. If you want to check it out make sure you do it today, it's Buffett.CNBC.com. Warren, you got a chance to take a look at this too. And this came from you giving Steve Burke, our chairman at NBCUniversal, access to 25 years of annual meetings. This is stuff that only Berkshire's been holding onto for this time.

WARREN BUFFETT: Yeah, Steve had suggested it to me a few times. And then he suggested it a little stronger. And it sounded like a good idea. I didn't think it could be done like this. So we just gave him all the annual meeting material. We didn't give the movie because that's got some stuff that we've promised not to put out, you know, but—

BECKY QUICK: You mean with celebrities who have done things.

WARREN BUFFETT: The celebrities come on, yeah. But in terms of the annual meetings, you know, door to – portal-to-portal and everything we had. Everything we had. And even, you know, with university students – anything we had, we gave Steve. And I told Steve, "You can do with it exactly what you want." I mean, I've known Steve a long time. And I thought it'd be an impossible job. But I knew that if it was done, it would be done well. I mean, it blew my mind when I saw it.

BECKY QUICK: I mean, it's been really useful for me just going back trying to figure things out because over the years things kind of blend together when you said what or exactly what you said or if it was you who said it or Charlie who said it. The search function is better than I had anticipated just in terms of being able to look up things. Like maybe I wanted to find out when you started buying shares of Apple. Type in Apple shares and it comes up. And I can even go back, link to the transcript and then click to the video of you saying exactly why you were buying it.

WARREN BUFFETT: Yeah, it'd be more fun for me to just recall what I was saying. The bottom of all. But it's all there. I mean and that's the way it should be. I just love the idea of it.

BECKY QUICK: Great, thank you. And folks at home, if you are wanting to check this out the address, again, is Buffett.CNBC.com. The website is live. We'd love to hear what you think about it too. When we come back this morning, we have much more from Warren Buffett plus we'll be joined for an hour by Berkshire's vice chair Charlie Munger and Microsoft co-founder and Berkshire board member Bill Gates. That is coming up at 8:00 a.m. eastern time. We will be right back live from Omaha, Nebraska.

BECKY QUICK: Andrew, thank you very much. Again, folks, we are live in Omaha, Nebraska. This was the site of the Berkshire Hathaway annual meeting this weekend, the 53rd annual meeting. Our special guest is Berkshire's chairman and CEO, Warren Buffett. And, Warren, thank you again for being with us this morning.

WARREN BUFFETT: It's fun.

BECKY QUICK: It is fun. I want to talk through the cash hoard that Berkshire has. At the end of the year, you had $116 billion in cash. You told us last week-- that you had spent about $12 to $13 billion in the first quarter. So you were thinking the cash hoard was closer to $100 billion based on some other things that you had potentially bought as well. Okay. So you're spending billions of dollars, but you still have $100 billion. Is-- is that ideal?

WARREN BUFFETT: No. No. It-- it-- it's-- we earn very little on it. But that is-- we will earn a little more this year on it than-- but it's-- it's-- it's just about the world's w-- worst investment except doing something dumb that y-- you're doing for a longer term. And-- but it does give you the ability to move very quickly if something very big comes along. But I would much rather have that number be $30 billion than $100 billion and have that-- the other $70 billion invested in-- ideally in businesses we own but also-- in securities we own. And we did, for example, put out-- I don't know whether it was-- how much was in the first quarter, how much was in April I'm not sure. But-- but we-- we-- we put out 15 or so billion net-- into stocks. And I like that. And-- and it wouldn't-- if I could find 'em and buy 'em in sufficient quantity, if that had been 50 billion, I would have been even happier in the first quarter. Or if we'd bought a $50 billion business. But-- you don't want to let money burn a hole in your pocket either. I mean, we-- we make-- if we buy a business, we buy it to keep. So-- if we pay X for a business or 2X for a business, the business doesn't know, it's doesn't adapt itself to what I'm paying. And it's going to earn the same, and so it – if I make a mistake on purchase price, Berkshire Hathaway lives with that mistake. Forever.

BECKY QUICK: And so, for the rest of us who see you sitting on $100 billion, we think that you think the market looks expensive and that you can't find anything that's worth putting your money into that's better than cash or short-term treasuries.

WARREN BUFFETT: We – we own $170 billion worth of equities. We go up every quarter, and we went up a fair amount in the first quarter. So – no, I would rather own the $170 billion of stocks we have than own treasury bills by a very significant margin. But there are limits to how much I can buy of -- of some of these companies that I like. Usually we quit at 10% almost always. So, no, if you told me I had a choice and I could make a change – if you told me I could make the choice of owning treasury bills, long-term treasuries or common equities, I'd buy common equities, and I-- I was gonna keep it for 10 years or 20 years, I'd do it in a second. And-- we'll get the money in play. We-- we've-- something will happen.

BECKY QUICK: Something will happen meaning a big deal?

WARREN BUFFETT: It could. Yeah. Sure. I could spend it all tomorrow. I mean, I wouldn't spend the whole 100. But I'd-- I-- I-- I-- although if a 100 million-- a $100 billion deal came along that-- Charlie and I really liked, we'd get it done.

BECKY QUICK: You'd get it done by spending it all or by a financing partner?

WARREN BUFFETT: Well, we'd probably have to-- we might borrow 30. 25 or 30. Or we might sell some things. I mean-- but one way or another, we'd get it done if we liked the deal.

BECKY QUICK: There are-- questions that came in from shareholders that I got this weekend. And I-- I-- I didn't get a chance to ask you all the questions that came in. Some of them said, "Is 20 billion still the amount that you feel comfortable holding?" Others asked, "If you've got all this and you're telling all of us to put our money in an S&P index, why don't you put that $100 billion in an S&P index?"

WARREN BUFFETT: It wouldn't be the dumbest thing in the world if we did. But-- that's a lot to move in and out. No index fund would take it, I mean, to start with-- knowing that we would want to-- might want to yank it out-- 50 billion of it out in a week. So we-- we-- we'd almost have to create our own-- index fund to do it.

BECKY QUICK: It wouldn't be hard.

WARREN BUFFETT: Well, it-- it-- it'd be a fair amount. I mean, they're better set up to do it than we are to buy 500 sto-- stocks in the proper proportions and keep an index. But we could create something that was a quasi-index fund. And-- that-- that-- that would have been smarter than what we've done, Becky. That-- that would have been smarter. You know, I mean, I've-- I've-- I've thought about that some. I think-- I think it's a little harder to act when you see something later on if you do have to unwind 500 positions and all. I-- I like to move when I move. So I-- but net, if you told me over the next 30 years that Berkshire would keep it's excess-- that we'd still have 20 billion in-- at least in treasuries-- but-- or treasury bills. But if you told me we were gonna follow-- for the excess money we were gonna follow an index fund policy versus a treasury bill policy, I would say the index fund policy would work well assuming we could execute it reasonably well.

BECKY QUICK: Okay. Let-- let's talk-- about Apple, the-- the place where you were spending the bulk of-- of that cash that you were in the first quarter where you were deploying it. $12 to $13 billion that you put in. That's on top of the, I think $27 or $28 billion you already-- maybe it was 29 billion you already owned in Apple as of the end of the year. That's a big chunk of that $170 billion. It's the biggest stock that you own by far. It already was before you bought these additional shares. 75 million shares. Why?

WARREN BUFFETT: Well-- I should say in the past we had plenty of times when-- when a single stock was a bigger proportion of our total net worth. But in terms of recent times-- well-- it-- it was-- it was-- it was a company I liked, a business I liked very much. And we could buy a lot of it. There are some others that-- that are much smaller companies we just can't buy that much. I might like them equally as well, but I can't put as much money in it. But I clearly like Apple. And-- and we buy up 'em to hold. And-- and we bought about 5% of the company. And-- I'd love to own 100% of it. But that's the test. Would you like to own 100% of a company? If-- if you're gonna by 5%-- we're not buying a stock when we buy Apple in our minds. We're buying 5% of a business. We buy 100% of some businesses. And when they're publicly held, we buy 5%. But we bring the same thinking to it. And-- and--we like-- we like very much the economics of their activities. And we like very much the management, and the way they think, and the way they act.

BECKY QUICK: Andrew?

ANDREW ROSS SORKIN: One of the-- other questions, Warren, that we didn't get a chance to ask-- over the weekend-- was one-- about USG. This is a transaction you-- you've been involved. You've historically avoided-- what are described as hostile takeovers and said you didn't want to be involved in them. This one's a little tricky-- because the US-- in the-- this case of USG, you have effectively backed a company-- that is trying to effectively take over USG. Can you-- can you talk about that a little bit?

WARREN BUFFETT: Yeah. We bought USG first 18 years ago. We made a substantial investment. In 2006, the company-- company had been-- went into bankruptcy twice. And-- and-- and the company faced these huge asbestos claims. And we backstopped singlehandedly, Berkshire did, a one-for-one stock offering, which is very unusual. And we backed with a billion six or a billion seven-- this company c-- coming out of bankruptcy having a one-for-one offering. And-- and then two years later, in 2008-- when the-- the crisis hit and also hit housing, the company found itself needing money again. And-- we put up 300 of the $400 million they needed at that time. And 18 years from the time we bought the first stock and 12 years from the time we in effect bankrolled the company in terms of coming out of bankruptcy, we've never received a dividend. And the stock that we backstopped in 2006 at $40 was selling-- has been selling for less than that. And-- and in general, the-- the earnings estimates, the new products, and that sorta thing-- you know, have fallen short. Now, that happens with companies we own, too. I mean-- business can be tough. But when they received an offer from another company that also had been an 18-year-old shareholder and perf-- perfectly responsible-- building materials company-- that actually competes with our company Johns Manville, this company, they made an offer. And-- the company did not-- we own 30% of USG. (The c-- the company did not call and say, "What do you think of this offer?" Anything of the sort. They just called afterwards and said that their board had unanimously decided that it wasn't in our interest to-- negotiate with them or anything. And-- and like I say, we own 30% of the company. And then the company made a second offer. And-- the German company Knauf. And, again, they were turned down with no negotiation or anything of the sort. So we really felt the directors were p-- probably f-- very fine people. I don't know them. But we felt that they-- they did not represent our interest and that-- and we said that-- we intended to vote against them at the annual meeting. We don't have a candidate of our own or anything like that. But we just think that directors are there to represent shareholders. And-- we do not feel that they were certainly representing us with a 30% interest. And I-- and it's been since then that two proxy advising organizations, ISS and Glass-Steagall -- Glass Lewis, have said that-- they think-- they recommend a vote against these directors as well. And now the company said it's going to negotiate with the-- with-- Knauf. So that's-- that-- that is the situation. We-- that-- that's the first time I think in the 53 years I've been at Berkshire that we've voted against a slate. We withheld our vote at Coca-Cola a few years ago about-- because of a compensation plan. And we voted a time or two against individual issues. Maybe on stock options or something of the sort. But-- but-- but it's just-- it's a question of-- of whether-- the stockholders should determine what-- what they think the value of the company is. All-- all I know is that-- that for 18 years it has not worked out that well. And-- and-- and management has been more optimistic than-- than-- subsequent events-- delivered. And-- and-- we thought they should sit down and negotiate. Warren, another question that came up from a lot of shareholders. We-- we covered it some in the question and answers period on Saturday, but I thought maybe you could go into a little more deal-- detail on it. Just the idea of consumer packaged goods. Companies like Coca-Cola-- which hit a 52-week low last month even though the company came in with better than expected earnings on issues-- and-- and a company like Kraft Heinz, which is down about 35% over the last 12 months versus the S&P being up 11%, it-- it has a lot of people thinking that consumer packaged goods-- don't have as a bright of a future. I-- I think-- Jorge Paulo may have even called them-- saying jokingly that he felt like a dinosaur at the Milken Conference recently. What-- what do you think when you--

WARREN BUFFETT: Well--

BECKY QUICK: --look at these areas?

WARREN BUFFETT: --it's-- they're still very good businesses. I mean, you've got a brand. If you look at the return on tangible assets, you know-- at Coca-Cola, or at Kraft Heinz-- you've got a very good business. It doesn't look as good as it did five or 10 years ago. In other words, There-- there's two reasons I think for that. One is, people are-- seem to me to be a little more willing to experiment with different diets or foods than they were--

BECKY QUICK: Give me. You mean--

WARREN BUFFETT: --five or 10 years ago.

BECKY QUICK: -- Some people would say healthy diets where they won't eat things that are packaged. They think that's bad for them. It's a millennial attitude, too, where they won't buy from the old brands.

WARREN BUFFETT: They're certainly— that's a factor in all of it, I think it may even extend beyond millennials to some degree. People are more-- well, they've gotten used to more change in their life generally. And-- and--and-- so I would say that the-- that there's still a huge loyalty factor. And there's-- but it is not as strong as it was five, or 10, or 20 years ago. And secondly-- there's always been a struggle between the retailer and the brands. I mean, they-- now, the-- you can't-- I mean, that's-- that's built into the American market system. And I would say that the retailers-- and-- and-- and they've-- they've always had private label b-- brands. In some other countries, private labels are much stronger than the United States, for example. And-- and the private label brands are priced below the big brands. And-- the retailer-- every time a retailer meets up with-- a packaged goods-- salesperson, they are arguing for lower prices and better deals. And I would say that their hand-- becomes stronger as the Costcos, and the-- and the Walmarts, and in other countries this other kinda-- as they become stronger-- the struggle can tilt a little bit one way or the other. I think-- I think a few years ago-- I-- I think Costco dropped Coca-Cola. And that's a real test if you want. And-- and-- and of course Sam's Club at that time started pouring it on with more Coke and everything. And-- and-- and that-- Coca-Cola's a pretty strong brand. So that Costco could decide to do that. But if Costco decided to drop a bunch of other brands-- that you could name-- they-- or Walmart decided to drop 'em, I mean-- the packaged good company might feel it more than the retailer would feel it. And they would come to terms faster. It's an-- it's an interesting dynamic. And it has gone somewhat against the packaged good companies. They're still good b-- very, very good businesses.

BECKY QUICK: Is that-- the dynamic between the retailer and the packaged goods companies, is that a pendulum swing that swings back? Or is this--

WARREN BUFFETT: I hope so.

BECKY QUICK: Or is this a new--

WARREN BUFFETT: No, not necessarily. No, I mean you've got these German discounters coming over here now. And-- each company's got some muscle. And if you've been selling whether it's Coca-Cola, or, you know, whatever food you m-- may have eaten as a kid, or something like that, I mean, you were pounding-- you want the c-- consumer 'cause you gotta win with the consumer in the end. You've gotta have a product that's strong enough that the realer-- retailer has to c-- carry it to some degree and where their private label, even though it's priced below it, does not draw volume away. And if you take-- take Heinz Ketchup, it's very, very, very hard to take share away from Heinz Ketchup. It's hard to take share away from Philadelphia cream cheese, but I could name some other products which are-- w-- where it's easier to take-- share away. And-- the consumer is going-- the consumer votes every day. And some things are affecting the consumer like the feeling that th-- other things are healthier or something of the sort. Price affects the consumer. But just the prevalence and strength of the retailer can affect the consumer, too.

BECKY QUICK: Is that why there's so much pressure for some of these packaged goods companies to get bigger, for-- new deals to come in? Like-- I'm gonna take and wrap up with a lot of products, and then I have more heft against the retailers if they try and turn me around with their friends?

WARREN BUFFETT: You don't-- you don't get-- if-- if-- if Coca-Cola were to buy-- they've got the-- the-- the world's greatest distribution system. So they can-- they can push liquids through that. I don't know whether they could push cream of wheat, you know, or some things through their-- their distribution system. Obviously, a great distribution system is-- is worth an enormous amount. And-- and like I say, Coca-Cola has a great one. Coca-Cola incidentally, you know-- they're selling 5% more liquids. They are selling 100 ounces of liquids per capita in the whole world. 7 billion people are drinking their Coca-Cola product. And they're drinking that at the rate of 100 ounces a year. That's substantial. Leaves a lotta ounces to go. But-- but they are selling more ounces of liquid-- they've got more-- but they've got more brands now. But they are selling than they've ever sold. And it-- it grows year by year. And it's growing. And James Quincey is doing a sensational job on that. And first quarter even showed it. But-- but the-- if you've got a brand that's kind of lost out there or something of the sort, it's hard to get shelf space. And-- the retailer is going to stock what will move. And sometimes that involves price. And what you-- what you want to have is a product the retailer has to have.

BECKY QUICK: There are a lot of subjects that-- that drew some controversy and got a lotta headlines from this weekend-- including some back and forth-- between you, and Charlie, and then Elon Musk. And we're gonna talk about that in just a moment, but I-- I think we need to take a break. So Joe and Andrew, we will send it back to you in the studio. And we'll have more on that coming up in just a moment.

JOE KERNEN: Thanks-- Becky. You got a Wall Street Journal out there, too, Beck? You got one? They –

BECKY QUICK: Right here. What do you want me to look at?

JOE KERNEN: I want Warren to-- he may have already seen this Neil Ferguson-- piece 'cause-- it echoes some of the stuff that-- Warren was saying about this-- this China skirmish that--

BECKY QUICK: Here it is.

JOE KERNEN: --that we're having. Very interesting.

BECKY QUICK: All right. I'm giving it to him right now, Joe, so he can take a look at it.

BECKY QUICK: It's in the op-ed page. He'll read up on it--

JOE KERNEN: Excellent.

BECKY QUICK: --and be prepared.

JOE KERNEN: Excellent. 'Cause-- like-- like-- Mr. Buffett, I-- I think they think that it's something that because of the changing relationship we have-- and things have changed-- since—"Chi-merica" actually came about. And, you know, China's done well. And they need to come into the-- the real world. And maybe we're not wrong to be doin' it this way. That's the thrust of the piece. Anyway-- I would like--

BECKY QUICK: That's a good tease, too. We can talk more about that.

JOE KERNEN: Yeah, I'd like Warren's comments or-- or at least thoughts on that. We'll more from Becky and Warren Buffett-- on the other side of the break. In the meantime, let's get you caught up-- on the markets. We had Katie Stockton on last Thursday. And she was saying still thought the trend would reassert itself positively. And suddenly on Thursday we are down 400 points. Well below 24,000. But it closed up five that day. And then another positive session. And suddenly, we're about 700 points above-- the worst levels after she was on-- as it did reassert itself. There's the futures up 100 this morning-- just about on the Dow Jones. The NASDAQ up about 45. And we're watching oil this morning. Saudis reportedly want $80. And they'd like 80. And they seem to be getting their way-- this time around. The 10-year note, still below 3% though. 2.96 when I looked-- this morning. We'll have-- 2.959 now. And we'll have more Squawk Box-- coming up in a minute with investing legend Warren Buffett when we return.

BECKY QUICK: Good morning, everybody. And welcome back to Omaha, Nebraska, where we are live with-- Berkshire Hathaway's chairman and CEO, Warren Buffett, coming off of the 53rd annual shareholders meeting for Berkshire Hathaway. Warren, again, thank you for your time this morning.

WARREN BUFFETT: Glad to be here.

BECKY QUICK: There are so many things that we wanted to talk to you about this morning. One I've kind of been holding off, waiting to get your comments on is Elon Musk. Elon Musk was brought into the conversation this weekend at the shareholders meeting by a question. And I forget who asked it. One of the shareholders maybe. Bringing up this idea-- or maybe-- maybe it was Andrew. But somebody brought up this idea of-- of moats. Competitive advantages and moats. Elon Musk recently said that he thinks moats are stupid. People--

WARREN BUFFETT: He could give me his.

BECKY QUICK: And-- and that became a subject where Charlie weighed in and said, yes, he's-- he's right that actual moats around castles are stupid. But you guys got into a little bit where you were joking around, saying that-- you'd like to see him try and get into a candy store. He responded this weekend with some tweets, saying, "I'm starting a candy company, and it's going to be amazing. I am super, super serious. It just occurred to me that the plot of Willy Wonka is really messed up. Okay, okay. Just for the sake of argument, what do you wish for in candy? Cryptocandy. Then I'm going to build a moat and fill it with candy. Warren B. will not be able to resist investing. Berkshire Hathaway kryptonite. I'm killin' me. L-O-L." (THROAT CLEARING)

WARREN BUFFETT: Well--

BECKY QUICK: What do you think about all of this?

WARREN BUFFETT: Well, if you look at the leading candy bars, for example, for the last 50 years, I think you'll find Snickers on top. And then you've got M&M's. You've got two types. So they don't combine the peanuts with the-- the other ones. But I think they're number two and four. And, you know-- Hershey's in there at number three or something of the sort. Yeah. I can't take 'em on. I don't th-- I don't think Elon should take 'em on. You know? They have moats. When you go into-- a drug store, a 7-Eleven, or something and you say, "I would like a Snickers bar," and the owner says, "Oh, I've got something-- the Musk Bar at-- at-- at 10 cents off the Snickers bar," you say, "Give me the Snickers." And if he doesn't give you the Snickers, you go across the street and buy the Snickers. Brands-- brands are moats, I mean, obviously. And-- and-- and if you try to-- you know, this-- this-- this product is selling, you know-- to hundreds of millions of people who want Coca-Cola. And if you say, "I'll sell you something for two cents less," or, "I've got some celebrity's name on it, they actually-- Richard Branson tried Virgin Cola in the United States about 15 or 20 years ago. And a million others have been tried. So-- I don't really have the same urge to produce automobiles that he apparently has to produce candy. But I don't-- I don't suggest that he take on Snickers.

BECKY QUICK: You're taking me literally and stepping away from the real story here, which is kinda this war of words between you, and Charlie, And Elon. And I-- I just want-- do you even know Elon Musk?

WARREN BUFFETT: I've-- I've never-- I've never said anything negative about Elon. I mean, you're-- you're baiting me a little bit to do it, but--

BECKY QUICK: I am.

WARREN BUFFETT: But-- but I've-- I've never-- you know, I-- I-- people like his car and everything. But-- but somebody mentioned that now he's talking about financing. Something this morning about that. I-- I-- I thought I heard that earlier.

BECKY QUICK: Yes. Well, actually, War-- Andrew just read some headlines where it looked like they may be-- Tesla may be going back to market-- to-- to pick up some additional financing. I'm not entirely sure.

WARREN BUFFETT: That's--

BECKY QUICK: All I heard was the-- all I heard was the headline.

WARREN BUFFETT: That's what I call a counter-revelation. I'm talking-- (LAUGH) you know, because I think it was just a few days ago they said they wouldn't need financing. It-- it-- but, you know, he's-- he's trying something to improve a product. And I-- I salute him for that. And the American public will decide whether it's a success. And-- and-- and it's not easy. You know? So-- it's probably easier to develop a new car than it is to compete with Snickers. But some products have terrific moats. Probably Elmer's Glue does. You know, WD-40. I mean, there you go. You can-- there's just certain things that you are not in-- much inclined to be dissatisfied with and seek-- and I would say that-- incidentally that the the iPhone-- you know, has a terrific moat. I mean, people that have an iPhone-- or maybe have some other phone. But they-- they want to continue with the product that they've got. They-- they want-- they want the new version. It's just easier for 'em now that they've have learned how to do everything, and their life's built around it, and all of that. And moats are very useful. Costco has a moat in people's mind. I mean-- Amazon can raise the price of Prime, you know, 20%. And you can't do that unless you've built something within that image of the Amazon Prime that's based on reality that you're going to get a lot for your money and you're gonna wanna use it. And then you can raise prices $20. But if you're selling-- you know, if you're selling some commodity prod-- product, you can't do that. You need a moat.

BECKY QUICK: You mentioned Amazon. So let's talk about that. Because you did say over the weekend that Amazon is one of the shares that you haven't bought that you wished you had. Are you ever going to buy shares of Amazon?

WARREN BUFFETT: It-- it-- it'll probably be tough. I've probably got so many psychological problems with the fact that I didn't do it that it's very hard to do it. I-- I always-- when I first met Jeff, I-- I knew he was an incredible-- person. And-- and he still encloses his 1997 annual report, which I read at the time, with his current annual report. And he's an extraordinarily clear thinker as well as being a brilliant thinker. And-- and-- and then he-- he connects-- I mean, it-- it's far surpassed anything I would have dreamt could have been done. I mean, 'cause if I had dream it-- if I had really felt it could have been done, I should have bought it then. It-- I knew he would do the most with whatever idea he had. I had no idea-- idea that it had this potential. I blew it.

BECKY QUICK: Another stock that you mentioned over the weekend, saying you-- you should have known it early on-- w-- was Google, Alphabet, the parent companies of Google, because you knew how much they could charge you when it came to GEICO--

BECKY QUICK: Another stock that you mentioned over the weekend, saying you should have known it early on was Google, Alphabet, the parent company of Google.

WARREN BUFFETT: Yeah.

BECKY QUICK: Because you knew how much they could charge you when it came to GEICO.

WARREN BUFFETT: Yeah, here we were at GEICO, paying them 10 bucks or something for every click. I mean, you – 10 bucks. 10 bucks. And no cost to goods sold. I mean, and it produced results for us. That's why we paid them the money. So I had seen the product work. And I knew the kind of margins. I mean, I always said it's great to find something that costs a penny, and sells for a dollar, and is habit forming. This doesn't cost anything. And it's very useful. I mean, if you're looking up auto insurance on GEICO, you know, you've got an interest in auto insurance. I mean, it's a very directed way of talking to people. So the real question in my mind, I'd seen all of this to before I used to play bridge on all of this. And what I didn't know was whether there'd be more entrants. I didn't know enough about technology to know whether this really was the one that would stop the competitive race and all that. But I should have gotten Google, too.

BECKY QUICK: You say that Silicon Valley and a lot of the things that happen there is not really your field of expertise. But you've been around, and you've seen how a lot of things happen. Particularly with how Washington can have an impact. The reason shares of Apple were down earlier this year was in part because of the iPhone, but probably also in part because the FANG stocks overall were under pressure because of Facebook, the trouble it got into, the potential for regulators coming into this arena. What do you think broadly about some of these regulatory issues, some of these privacy issues or do you even consider it?

WARREN BUFFETT: Well, no, I think about that. But basically I like good news that isn't – or bad news that isn't going to last. And I'm saying that is one of them. But, I mean, bad headlines don't bother me. I mean, I had bad headlines when I bought that stock right after two or three months after Pearl Harbor and knew it was going to have bad headlines for a long time. So, I am not worried about – we've made the most money when there's been some temporary bad news. I mean, over time. Now, you got to be sure it isn't permanent or something of the sort. But if people get excessively worried about, you know, people changing their tastes and what they drink, they're going to drink 64 ounces of something or other. And carbonated soft drinks have lost share. They gained share just steadily for I don't know how many years, practically forever. But then – but bad news does not scare me.

BECKY QUICK: Just to put a finer point on that though, the regulatory issues concerning the FANG stocks, you think that's just a temporary headline where maybe there's much ado about nothing here? Or are you not sure?

WARREN BUFFETT: The regulatory issues on which?

BECKY QUICK: On Facebook.

WARREN BUFFETT: Oh no. I think that's – no, that's important. That's important. I mean, if you – 60 Minutes had two different ones. They had one back on October 8th. And then they had one a couple weeks ago that illustrated the effect of – well, the fellow said Facebook won the election for Trump. The fellow who managed their operation in the last election out of San Antonio, and has been appointed the head of their committee for 2020. And he – it's a very interesting episode. I mean, they really knew how to target everybody in the country basically with things that would appeal directly to them. And that could not only affect them in encouraging the followers to come bring out the vote, but it could suppress votes. And, I mean, they had – Facebook embedded – the fellow used the term embedded there. I mean, so it's a very, very important issue. And I think probably Congress has just begun to scratch the surface of it.

BECKY QUICK: What's different with what the Trump campaign did than what the Obama campaign did four years earlier where they were using Facebook and were kind of seen as, like, these technology wizards for figuring it out?

WARREN BUFFETT: Yeah. Well, they took a first step. And then – I don't blame anybody for doing it. And but my guess is they thought they were doing it as well in the Democratic campaign in 2016 as the Republicans were. But the Republicans were technologically—

BECKY QUICK: Advanced. Yeah.

WARREN BUFFETT: Yeah. Yeah. And Obama was advanced for 2012. I mean, the trick is to convince people. But the trick also is to get your vote out. And then the trick which is not – which is really tricky and is very counter-democratic is to suppress the other guy's vote.

BECKY QUICK: And you think that's the type of thing that will get regulators' attention or it will make Congress pay more attention?

WARREN BUFFETT: Oh, a lot of things in privacy will get it. You know, I am – people impersonate me, you know.

BECKY QUICK: Yeah, Joe does it very well.

WARREN BUFFETT: Well, but he's doing it to a very sophisticated audience in your case. But if somebody impersonates me on some website and says something I say, I may even be all over the world. It isn't me. No, this has brought a lot of new issues that are important issues out. And we're just in the early stages.

BECKY QUICK: Okay. We're going to talk more about this and many other things. We'll send it right now though back to Joe and Andrew in the studio.

ANDREW ROSS SORKIN: Okay.

BECKY QUICK: Andrew?

ANDREW ROSS SORKIN: Becky, we will be coming back to you in just a little bit. We have that question from Alex Ohanian, by the way, Becky, which we're going to have to ask at some point.

BECKY QUICK: Oh, good.

ANDREW ROSS SORKIN: In just a little bit. But we will get back to them in Omaha get their thoughts on China and whether or not a trade war is on the horizon. And don't forget today we're introducing the Warren Buffett Archive, the world's largest collection of Buffett speaking about business, investing, money, and life. It includes 25 full annual meetings going back all the way back to 1994. We have a highlight reel for each. Plus, CNBC interviews, a Buffett timeline, and a Berkshire portfolio tracker. Be sure to check it out. Buffett.CNBC.com. It is very cool. "Squawk Box" returns in just a moment.

BECKY QUICK: Good morning again, everybody. We are live from Omaha, Nebraska, the site of the Berkshire Hathaway annual meeting. Our special guest this morning is Berkshire Hathaway's chairman and CEO, Warren Buffett. And Warren, so many things that we've talked about this morning and over the weekend. One issue is just the economy. And I know you told us last week a little bit about it, that it does feel like things have improved a little bit. Things have picked up steam. I just wonder why you think that. What numbers you see. What are the things that kind of run through your head in determining the Berkshire economic index.

WARREN BUFFETT: Yeah. I see a lot of numbers. And I get them pretty fast. I mean, and business is generally pretty strong. I mean, you could look at railroad car – anybody can look at railroad car loadings, for example every week. They come out on Wednesday. And you can see them by category. 22 different categories. And I think Matt Rose may have mentioned the other day that 18 of the 22 are up and overall they're up. And they're carrying stuff because people are buying stuff. They're adding inventory. And you see it and you're seeing some inflation connect with some of this. But you see it in some building materials. We've seen it particularly in electronic components. We have an operation – most people probably don't even know anything about called TTI. And it carries close to a million different types of electronics. I mean, you can order any one of a million items from us. They're very small. But people buy them because they're using them. And, you know, we have a hard time filling orders in that business. And that's kept getting stronger now for a year right up to what we're talking here. So we're seeing pretty good business most places.

BECKY QUICK: The jobs number on Friday had some people speculating that we can't get much lower in terms of an unemployment rate. That it's hard to find bodies to fill the jobs that are opening. Do you experience that?

WARREN BUFFETT: Well, that's absolutely true. I mean, we have a lot of jobs. We have – if you want to be a carpet installer, you can make very good money because there's a shortage of people that know how to install carpet. And we can teach you to do it. It takes a little while. But that's a very good job. And our home builders— and you've read about this elsewhere – but we have, in addition to having a manufactured housing operation, we have a site build operation as they call them. And we're in Denver, and Austin, Texas. Various places. And we have a hard time getting people for certain of the construction trades. And, again, we're actually funding a school in Denver – we probably have other participants doing it – just to teach people jobs that can pay them 50 or $60,000 a year. And no, there's – employment is tight in some areas. There's no question about it.

BECKY QUICK: What do you do? Do you end up having to pay more than 50 or $60,000 a year? I'm just trying to find out how inflation gets started.

WARREN BUFFETT: Well, the market system in the end, if a resource is scare – whether it's human or otherwise – if a resource is scare, the price will go up. And probably – we are seeing prices moving now in some areas and less resistance to those prices in recent months.

BECKY QUICK: Which—

WARREN BUFFETT: This is not an explosion of World War II scarcity or anything like that.

BECKY QUICK: No. No, but I—

WARREN BUFFETT: But it's definitely going in that direction, Becky.

BECKY QUICK: And then you wonder where that gets us in terms of inflation that the Fed would start to see and potentially act against. And there are so many people who are trying to figure that out.

WARREN BUFFETT: Yeah. And I don't – I see all these figures, and I don't change one thing I ever do in terms of buying something. I've never changed an activity based on a headline in my life that I can remember, or an editorial opinion, or even the facts we get. I'm aware of them. And I like to know them. But it's going to be a different news year – we're going to own the company a year from now or five years from now. But I can tell you, I mean, if you're a policy center adviser or a member of the Fed board, I would be – I've got a responsibility then in terms of these figures. And I'm trying to steer them to some degree.

BECKY QUICK: But it may not have affected or impacted a decision on whether or not you were going to by a business. But it does impact your valuation, expectations in terms of looking at stocks versus bonds or stocks versus something else. You've told us on this program that inflation acts as a weight on stock valuations. And when interest rates are so low –

WARREN BUFFETT: It should push up interest rates over time.

BECKY QUICK: Right.

WARREN BUFFETT: And it's very easy to talk about having a 2% goal. But it's another thing to keep it from going – once it starts in either direction, we don't know how well that'll work.

BECKY QUICK: Let's talk about something that Joe alluded to earlier. And-that's China and Trade. Not just with China. With Mexico--

WARREN BUFFETT: Yeah, the world.

BECKY QUICK: --with NAFTA, other things that are happening. But our delegation just returned from China over this weekend. This is Steven Mnuchin, the treasury secretary, Wilbur Ross, Lighthizer. All of them-- coming back. And now we have to wait and see. We have to-- figure out if Trump's tough talk will start paying dividends-- and improved trade relations or if it-- pushes us the other direction and leads us potentially into a trade war. What do-- you think happens? By the way, here's a tweet from the president. I believe this was Friday night. "Our high-level delegation is on the way back from China, where they had long meetings with Chinese leaders and business representatives. We will be meeting tomorrow to determine the results, but it's hard for China in that they have become very spoiled with U.S. trade wins."

WARREN BUFFETT: Yeah. Well, the answer is I don't think we will have trade wars because-- of significance. We will have trade movements. But--in terms of the old fashioned thought of a trade war where-- you just keep piling it on-- I don't think that happens. It's counter to the interests of us. It's counters to the interests of China. It's counter to the interest of every country in the world. I mean, the world thrives on trade. We would not have the economy, nor would China, nor would the rest of the world have the economic wellbeing that they have without a lot of trade. And incidentally in 1970, we exported and imported exactly the same amount. It was about 5% of GDP. So our exports have grown to 11 and a fraction percent of GDP, which is a huge number now. I mean-- but the imports have-- there's about a three-point gap or thereabouts. And-- there will always be people trying to get edges and all of that sort of thing. But in the end-- China and the United States have a common interest in something very big. And then we have-- a less-than-common interest in some things around the edges. It-- we will-- the world will not do something stupid over time in trade.

BECKY QUICK: Joe, did you want to jump in here? I know this is-- an issue you've been following very closely.

JOE KERNEN: It just-- I would just a little. I mean, the and I think Warren probably read this piece. But it is amazing when this alliance or whatever you want to call it between China and the United States started back in 2001, it was a different world. And-- China really was supplying cheap labor and cheap goods. And we were benefiting from that with low inflation. It kept our interest rates low. But the article, the Neil Ferguson article, points out China, no longer an emerging market. And they're looking more and more like us in terms of their economy, and consumers, and everything else. And-- at this point, it only makes sense that the trade deficit has to come down. And that's something that's not-- you know, it-- it's not unrealistic for the United States to be asking for that at this point. And China shouldn't be shocked that-- the-- and should probably make some concession. Warren, last week-- we went back and forth. We said China has more to lose. China said we have more to lose. And we went back and forth with that rhetoric. But the simple fact remains I think right now 4% of China's-- exports go to the United States. Less than 1% of our exports go to China. So-- I mean, we can affect them much more significantly than they can affect us. And it's not too much to ask for them for the trade defect to go down even though most economists say, "You shouldn't look at it that way." But, I mean, it's only fair in bilateral trade.

WARREN BUFFETT: I think it was in 2003, Joe, I wrote an article for Fortune actually about the trade deficit. I was worried about it getting too large then. Because, again, it was getting to be 3% or so of GDP. It-- wasn't specific to China at all. But it was just a question of how wise it is to let the trade deficit grow larger and larger. Because when you run-- when you are in effect buying more from other countries than they're buying from you, you are handing them investment funds. I mean, it's the nature. You give 'em little pieces of paper, and they can convert that into buying-- they can buy government bonds. They can buy buildings here. And-- Japanese bought Pebble Beach in the 1980s when they were running a big-- surplus. I mean, so you are giving up claim checks on our country essentially in exchange for having more consumption now than you're producing in this country. And so I do think that there's levels of trade deficit that bother me. I had some system that did not make it country specific. But I think-- the world has gotten better and better. And there's no question that-- that countries may try and take advantage in this or that. And-- we've actually been guilty of that sometimes in the past, too. I don't think leaders in other countries, whether China or 100 other countries, are not smart enough-- to realize that it's in the interest to keep promoting trade. The more we trade over time. And-- we don't want it to be a question of where we important 20% of our GDP and we export nothing. Now, we could all quick working, and we could hand little pieces of paper to the rest of the world, and they could keep sending us food. And they can send us autos. And they can send us all kinds of things. But eventually they have claims on all our wealth. So-- we do want to have policies where the overall trade deficit does not get out of hand in relation to GDP. And I've been arguing that for a long, long time.

BECKY QUICK: Guys, I'm going to take a break right now. We were going to keep going. We have both Bill Gates and Charlie Munger who are going to be joining us at the top of the hour. But-- Charlie Munger's here early, and I don't want him sitting on the sideline. So we're gonna take a break so we can bring him right over. And we'll have more coming up with these two-- in just a few moments. The guys are ready to kill me because I'm calling an audible, but Charlie Munger's sitting here, and I want him on set if he's here. So-- right now, we'll take a very quick break. When we come back, we'll be joined by Charlie Munger, the vice-chairman of Berkshire Hathaway. Stick around. We'll be right back.

BECKY QUICK: Good morning again, everybody. And welcome back to Omaha, Nebraska where we have been live for almost the last two hours with Warren Buffett, the chairman and CEO of Berkshire Hathaway. We are joined right now by Berkshire's vice chairman-- Charlie Munger, who's sitting down with us and joining us. And-- Charlie, thank you so much for being with us today. I really appreciate you being here.

CHARLIE MUNGER: Well, I'm delighted to be here.

BECKY QUICK: Well, let's talk about this. Between the two of you—

CHARLIE MUNGER: I'm delighted to be anywhere.

BECKY QUICK: Between the two of you, you have 181 years of experience and you've been doing this annual meeting for 53 years. I thought we could take just a minute or two-- for both of you to reflect on these meetings, how they've evolved over time and-- what it is that-- you enjoy so much about sitting with each other. Charlie, what do you think? Why don't you start?

CHARLIE MUNGER: Well, my hometown where I was raised. And, of course, I like the company and I like the shareholders and I like the festival and everybody's having a good time. And we're celebrating values as well as ourselves. And so, of course, I like it.

BECKY QUICK: Warren, what's it like sitting next to Charlie on the stage?

WARREN BUFFETT: I always learn something. And-- I certainly get surprised. And Charlie and I, we worked in the same grocery store less than four miles from here. We didn't work at the same time so we didn't know each other till 20 years later. But we've got an extremely good partnership. And-- business is more fun-- business life is more fun with a good personal partner. And to have great business partner-- you know, it just-- it-- we've accomplished more but we've also had way more fun. And Charlie and I-- and this is true, we've had-- we--disagree on a lotta things. Not-- that many, but some. We've never had an argument in the entire time we've known each other, which is almost 60 years now.

BECKY QUICK: What's one thing that Charlie's done for you? A decision, an arena-- something about your life that-- that-- that you listened to Charlie and you're better off for it?

WARREN BUFFETT: Char-- Charlie has given me the ultimate gift that a person could give to somebody else. He's made me a better person than I would otherwise have been. And that's the most you can do for somebody else. And-- I've listened to him. Not too many people I listen to but Charlie-- you know, he's given me a lot of good advice over time. And-- I may hate to take it to a certain degree, but-- sometimes. But my decisions have been better. But I just-- I've lived a better life because of Charlie.

BECKY QUICK: Charlie, has Warren done anything for you?

CHARLIE MUNGER: Well, he talked me outta leaving a law practice, which turned out to be a very good idea. Warren's-- this is a place, Berkshire, where everybody's done a lot for everybody else. And that's why people like it. I don't think all these people would come just to celebrating making a lotta money. They're here to celebrate I'd say a set of values. It's like the Catholic catechism.

BECKY QUICK: How so?

CHARLIE MUNGER: Well, it never changes, for one thing.

WARREN BUFFETT: Yeah. And usually has old guys in charge.

CHARLIE MUNGER: And there's old, white males in charge, absolutely.

WARREN BUFFETT: We're seeing the wisdom of that more and more. Now, Charlie was practicing law but I said, "Charlie, it's okay as a hobby but forget it." So.

CHARLIE MUNGER:H e was right. It took him a while to convince me. But I was-- I'm a slow learner sometimes.

BECKY QUICK: People wonder how long you guys can keep doing this. Charlie, you're 94. Warren, you're 87. But you made it look pretty easy up there onstage this weekend.

WARREN BUFFETT: It-- is easy, actually, at this point. At some point it won't be. But, no, I would say it's as easy now as ever. I mean, you didn't see me enter the race that took place (LAUGH) (UNINTEL) or anything of the sort. But this job doesn't really require-- doesn't require hand eye coordination or stamina or anything. You know, you just sit at a desk and you apply things that you learned 60 or 70 years ago and they come in a little different form now, maybe-- this way or that way. But-- it's the perfect job for somebody that wants to be working at 80 or 90.

BECKY QUICK: You mentioned that you have had disagreements in ways of thinking over the years. What's the biggest thing that either of you can remember disagreeing on? Even though it wasn't a fight or didn't get into anything, where is-- an area where one of you thought you should do something, the other one didn't, or vice versa?

CHARLIE MUNGER: I wanted Berkshire to buy the French stake in Costco when the French left.

BECKY QUICK: What year was that?

CHARLIE MUNGER: Oh, that was a long time ago.

WARREN BUFFETT: I was at a bridge-- I was playing at a bridge tournament. They actually called me outta this thing-- which is very bad etiquette at bridge tournaments. And-- Charlie is saying-- basically saying-- the French firm, big retailing firm there, had about a 15% block or something like that. Charlie said, "Shut your eyes and buy it." And--

CHARLIE MUNGER: He said, "I'm gonna shut my eyes and say no."

WARREN BUFFETT: I should've bought it.

BECKY QUICK: You should've bought it?

WARREN BUFFETT: Absolutely. I'll tell ya, I can't really-- I can hardly think of anything Charlie has recommended that I do that shouldn't have been done. I would do more things than Charlie would. But that's partly 'cause I'm there, you know, eight hours a day or something. I've got a little more inclination toward action. And Charlie wants to really wait for the fat pitch. I mean, he wants-- he would-- he would be very happy hitting ten homeruns and ten homeruns at bat in the final game of the World Series of his life and just have that be it. It in securities. And--that's the right way to proceed. But I like a little more action.

BECKY QUICK: All right, the billionaires keep showing up. Bill Gates is here. We're gonna have more from this Berkshire summit in just a moment.

JOE KERNEN: Welcome back-- to Squawk Box here on CNBC live from-- the NASDAQ market site in Times Square. I'm Joe Kernen along with Andrew Ross Sorkin and Becky is in Omaha. Big hour coming up. A billionaire summit-- in Omaha. Berkshire Hathaway vice chair Charlie Munger and Microsoft cofounder Bill Gates-- will join Becky alongside Warren Buffett live. That's-- coming up in just a moment. First though, a quick check-- on the markets. We've been right around triple digits on the Dow, either just above or just below, now up about 92 on the Dow, up about-- ten on the S&P 500. And the NASDAQ-- indicated up 41 points. The ten year has been under 3% for a few sessions now, 2.96%, 2.95%-- at this point. And-- I don't know if we-- think it's okay to, like, add up three guys, how much they're worth and say that's how-- yeah, that's not what it's about is it, Andrew? Really?

ANDREW ROSS SORKIN: It's not about money.

JOE KERNEN: Now, do you-- if-- correct me if-- when you get up in the morning, do you put on - I still put on one pants leg at a time--

ANDREW ROSS SORKIN: One pant--

JOE KERNEN: --you?

ANDREW ROSS SORKIN: --leg at a time.

JOE KERNEN: Can you ask those guys--

ANDREW ROSS SORKIN: And-- these guys do--

JOE KERNEN: Becky-- yeah, find out--

ANDREW ROSS SORKIN: They do.

JOE KERNEN: I don't know. Maybe they don't. Maybe they're able to get on a ladder and jump in--

ANDREW ROSS SORKIN: I assure you, they do.

JOE KERNEN: They do?

ANDREW ROSS SORKIN: We're goin' to get back to Becky, who is in Omaha this morning and she has three now very special guests.

JOE KERNEN: Six pant legs--

ANDREW ROSS SORKIN: Becky.

JOE KERNEN: Six legs.

BECKY QUICK: No, no, my guess is they put their pants on the same way you do, Joe. But I'd still rather hear their opinion than yours. Let's get to our billionaire summit this morning. Joining us right now is Bill Gates. He is the cofounder of Microsoft. He's also a Berkshire board member. Charlie Munger is the vice chairman of Berkshire Hathaway and still with us this morning, Warren Buffett, who's the chairman and CEO of Berkshire Hathaway. And gentlemen, welcome. Thank you all for being here this morning.

WARREN BUFFETT: Thanks for havin' us.

BECKY QUICK: I was tryin' to figure out how to get into these conversations with the three of you. And it's-- it's always difficult. The three of you are brilliant thinkers. It can be a little intimidating. But I was thinking back over the years of the times that we've sat down. And you are all very similar-- in a lotta ways. You're analytical thinkers, you're logical thinkers. You're voracious readers. And you're-- all people who think knowledge is the ultimate quest. You wanna figure out how the world works. But it occurs to me that part of the reason that you're friends is not just because of what you share in common, but that sometimes you have differing opinions on these things. And you probably like to challenge each other on some of these issues. And I thought maybe we could tease out some of those issues this morning, where you may not see eye to eye exactly on things. You may have more nuanced views on areas. So I'm just gonna throw up some areas this morning and see where you all agree and see where you all differ. And so I'll start with the idea of the markets because this is where we started with Warren this morning at 6:00 a.m.-- 6:00 a.m. eastern, I should point out. Just the idea of where the markets are right now. Are they fairly valued? Are they expensive? Is it hard to find things that you like? Bill, why don't we start with you since you're just sitting down with us. Warren pointed out that t looks pretty expensive to him on a lotta private deals that come along. And it's pretty hard to find bargains in the market. You're a big investor too. What--do you think when you look at the market today?

BILL GATES: Well, in terms of absolute returns, you've got the ten year around 3%. And so that's your risk free rate in dollars. So expecting to make a lot more than 3% on things-- you know, either you're being smarter than everybody else, or you're taking some level of risk. So with-- absolute returns are predicted to be lower-- over these next ten years than they've been in most ten year periods.

BECKY QUICK: Absolute returns on stock?

BILL GATES: On all asset classes. The--T-bill sets the rules. But strength of gravity-- and so I don't know-- you know, if you ask investors, I think they expect to earn, you know, just say state pension plans-- have 7.5%, a few still at 8%. That's an unrealistic expectation which makes those deficits a little worse. Actually, quite a bit worse than they appear on paper.

BECKY QUICK: Uh-huh. Charlie, what do you think?

CHARLIE MUNGER: I agree. I agree with Bill.

BECKY QUICK: You have nothing further to add?

CHARLIE MUNGER: I have nothing further to add.

BECKY QUICK: All right, we--

CHARLIE MUNGER: But-- except one thing. I think Berkshire's gonna do a little better.

BECKY QUICK: Bill, you agree with that too?

BILL GATES: Oh, absolutely.

BECKY QUICK: So what-- does Berkshire do that gives it that advantage? Is it--

CHARLIE MUNGER: We're less crazy. The way we just-- there're certain bad habits we don't have.

BECKY QUICK: Such as?

CHARLIE MUNGER: There're a million ways to be irrational. And while we are irrational pretty often, we're less often irrational than most people. That really helps.

WARREN BUFFETT: Our bad habits are not financial.

BECKY QUICK: I don't suppose you wanna go into any detail there.

WARREN BUFFETT: I'm talkin' about Charlie's-- I'm not gonna talk about--

BECKY QUICK: All right. Let's-- talk a little bit about-- the dabbling you all may do. You-- each have your own money, aside from Berkshire money, that you look and you invest. And Charlie, I know you've looked to China a lotta times when you start looking at places that you like.

CHARLIE MUNGER: The Munger family has invested in China substantially.

BECKY QUICK: Since when and why?

CHARLIE MUNGER: Since about 14 years ago. And I did it because I respected the man who was going to do the investing. And it all looked inexpensive to me. And the companies looked very strong to me. And, of course, this worked out. I've done way better than I had any right to expect.

BECKY QUICK: Does it still look that way when you look to the Chinese market?

CHARLIE MUNGER: I think that the best companies in China are cheaper than the best companies in the United States.

BECKY QUICK: The concern other investors might have before they-- follow in that way is that they don't know that much about Chinese companies and maybe--

CHARLIE MUNGER: They're just generally afraid of China.

BECKY QUICK: Is there a reason that they may have some-- I mean, you have people who are guiding you, who understand China well. If someone was tryin' to do this on their own, would it be a little more dangerous?

CHARLIE MUNGER: Sure. It really helps to understand the country you're operating in. Of course.

BECKY QUICK: All right, there's my that's a stupid question moment. You would not necessarily advise others to do this, I guess is my point, for investors who are sitting at home watching?

CHARLIE MUNGER: I don't think it would be all that hard for any smart person to find four or five great companies in China to invest in.

BECKY QUICK: All right. Bill, how about you? When you look around, what areas are catching your fancy? I know of things that you've done in the past, areas where you've-- kind of gotten into currency markets or done different things, but what are you thinking right now? What--captures your attention?

BILL GATES: Well, my tech-- investing is almost entirely the Microsoft stock. I think in terms of-- things that will have super high returns, there are tech stocks that are undervalued. You're just gonna get very high variance-- out of tech stocks because you have some markets where the winner ends up getting a substantial profit pool. Because I don't wanna have a conflict with Microsoft-- I don't invest a lot in other tech stocks. But I create a fantasy portfolio to see if my predictive powers is good or not. And outside of that, I have a team of people who invest. And they're quite diversified. They have-- a fair bit in China. China looks quite attractive.

BECKY QUICK: Who's on your fantasy technology league?

BILL GATES: I probably shouldn't--talk about that. I mean, there're some that are still private-- like AirBnB, which-- you know, at a fair (LAUGH) valuation-- that's-- a strong long term business.

BECKY QUICK: Why?

BILL GATES: Because they serve customers globally. And so the-- reputation and listings they have you can't just go into one city like you might for a ride service and bomb the prices, you know, go get the drivers and do a lot of marketing. And-- just compete in that one city. Here, you have to have a global reputation, global inventory. And so it just makes challenging that leader position far more difficult.

BECKY QUICK: I--mean, I've always kind of thought of AirBnB and the ride services as having some of the similar risks-- in terms of local regulations that could get in the way with things. Does that not concern you with an AirBnB?

BILL GATES: Oh, absolutely. But they're-- you know, city by city they get to deal with that. It's a barrier to entry for other people who come along. I-- the competitive dynamics for the ride services versus the-- AirBnB are different in AirBnB's favorite.

BECKY QUICK: I won't ask you for your entire list of fantasy technology companies 'cause you already told me you wouldn't tell me. But is Apple on that list with Berkshire plowing so much money into it?

BILL GATES: Well, Apple's an amazing company. And the multiple's not gigantic. And it's not a tech speculative company where it's still losing money or anything. So, you know, I think Warren's applied, you know, great thinking there. The top tech companies do have-- a very strong profit position right now. But Apple-- has the most of all.

BECKY QUICK: And Warren, I guess when you have described this company, the reason you like Apple is-- not reasons that are technology based reasons. You think of it as a consumer--

WARREN BUFFETT: It's a c--

BECKY QUICK: --goods company.

WARREN BUFFETT: I mean, it's the consumer behavior with the product-- what they do with it, how it becomes part of their lives and all that sort of thing-- that I observe and primarily reason from. Now, if there was something coming out tomorrow that would obsolete everything that made it attractive to that group, you know, Bill would know it before I would. But it has a position in consumers' minds that is-- and a utility to them that's very, very, very useful. And it's an incredible ecosystem that they have found ways to profit more from as they've gone along. I should mention that both of these fellows-- have done way better with their non-Berkshire holdings than I have.

BECKY QUICK: Warren, you don't even have an iPhone so--

WARREN BUFFETT: A fellow sent me-- a ten the other day. But I haven't-- I'm not using it yet. A very nice fellow though. He even explained-- I think he-- I think he pretended he was writing to his three year old child. And he wrote me this very nice letter and explained-- what to do with it, it wouldn't bite me or, you know, do anything like that. And--- I'm kind of screwing up my courage here. And one of these days-- I'll move.

BECKY QUICK: Charlie, do you have an iPhone?

CHARLIE MUNGER: Of course not.

BECKY QUICK: What do you think about Apple?

CHARLIE MUNGER: I've given up my adding machine.

BECKY QUICK: What do you think about Apple? Do you have a thought on the stock?

CHARLIE MUNGER: Yes. I wish we owned more of it.

WARREN BUFFETT: Yeah, we talked about it.

CHARLIE MUNGER: I wish we owned more of it.

BECKY QUICK: Why?

CHARLIE MUNGER: I think we've been a little too restrained.

BECKY QUICK: $43 billion's not enough?

CHARLIE MUNGER: No.

BECKY QUICK: What--do you like about the company?

CHARLIE MUNGER: Well, I like the fact that it's reasonably priced and strong. That's a very desirable combination.

WARREN BUFFETT: And the management--

CHARLIE MUNGER: I like the management--

WARREN BUFFETT: Tells us --

CHARLIE MUNGER: Yes. Oh, yes. Very intelligent management.

BECKY QUICK: Let me ask you, Charlie, about some comments that you made over the weekend-- that people paid attention to. My Twitter feed lit up when I tweeted about some of them. Specifically when you started talking about Bitcoin as turds. What-- why--

WARREN BUFFETT: I'm surprised that attracted any attention.

BECKY QUICK: Why did you equate the two?

CHARLIE MUNGER: Well, Bitcoin is worthless, artificial gold which, if it succeeded… a lot of illicit activity. Now, that is not something I think the world needs. And the fact that it's clever computer science doesn't mean that it should be widely used and that respectable people should encourage other people to speculate on it. Bitcoin reminds me of Oscar Wilde's definition of fox hunting, the pursuit of the uneatable by the unspeakable.

WARREN BUFFETT: Well, it sounds better than what he used before.

BECKY QUICK: We- asked earlier, Charlie, - Andrew brought it up with Warren, but--

CHARLIE MUNGER: I think it's a scum ball activity. Does that bet-- serve you better?

BECKY QUICK: Thank you. Yeah. We-- asked earlier about Goldman Sachs getting into the business of having a trading desk for Bitcoin. Berkshire Hathaway owns about $2.5 billion of Goldman Sachs. Does it bother you or does it not surprise you, just--

CHARLIE MUNGER: Well, I don't expect every investment bank to agree with everything I think. They have a lot of animal spirits in investment banking.

BECKY QUICK: Bill, Charlie and Warren have weighed in on Bitcoin. Do you own any?

BILL GATES: Somebody gave me some for my birthday. And then a few years later, I thought, "Hey, I'm gonna sell that." So no. There's some really good technology in terms of sharing databases and verifying transactions-- that is talked about as block chain. That is a good thing. Bitcoin and eye codes, I agree completely-- it's one of the crazier speculative things where it's not as an asset class, you're not producing anything. And so you shouldn't expect it to go up. It's-- kind of a pure, greater fool theory type-- investment. So, you know, I-- agree. I would short it if there was an easy way to do it.

WARREN BUFFETT: One of the-- interesting things. If people react-- when you criticize their investment, if they get mad, they're gambling. You know, if somebody criticizes Apple or Berkshire, we like it. I mean, if the stock goes down, we'll buy more of it-- because-- it's-- we don't care whether it just-- we don't feel that it has anything to do with us. But if we criticize something that they own because they only want it to go up tomorrow-- they feel we are hurting them. And therefore, they get very upset about it. If they really liked what they owned, what difference would it make, you know? If I criticize their wife or something, they don't get all upset about it.

BILL GATES: That's a bad habit.

WARREN BUFFETT: Yeah, that's-- yeah. Yeah, it's probably not the perfect-- example to use.

BECKY QUICK: In terms of privacy issues-- we--spoke with-- Warren about this earlier. What's happened in Silicon Valley, privacy issues surrounding Facebook and Twitter and Google and Apple and how that has kind of weighed on those same stocks has a lotta people looking towards Washington, wondering if there will be regulation that comes down-- and looking towards the European Union, where regulation is coming this month. Bill, you've dealt with regulatory-- close scrutiny in the past. Is this something that you think is likely to have an impact in Silicon Valley? Will the regulators come? Will it change things in Silicon Valley and will it make it tougher for these companies to follow their business models?

BILL GATES: Well, privacy's a super important issue. But I do think that the big companies, even as regulation comes, which is-- inevitable-- they'll be able to handle it. People don't mind having a little bit of demographic information about themselves used to target ads. That's-- value added to the user. And there are issues about medical records or the content of your communications that are-- very private. One challenge with the privacy laws is making sure small companies can still-- get involved in the ad market. These rules could block-- lots of new companies. So I-- think the challenge of privacy can be met. The challenge of what gets published on a platform-- hate speech, free speech-- fake news and what you allow people to get outraged about, you know, and what you should do, every government has a view. And so making sure the government takes responsibility for those rules, I think that's one of the toughest things for any platform where people are expressing opinions. So--

BECKY QUICK: I mean--

BILL GATES: --that's a separate issue. And I think the harder of the two.

BECKY QUICK: You mean acting as a publisher rather than a bulletin board, going all the way back to CompuServe?

BILL GATES: Right. And if people expect you to stop certain things and not others, they'll always do that in retrospect. And it's a real-time system with millions of people writing things. Those judgment calls, you need-- some standards group of the government, not a private corporation to make those calls.

BECKY QUICK: Charlie, what do you think?

CHARLIE MUNGER: Well, I think we always use television ads to flog the idiots of each party to the polls. And to-- sell 'em in a very misleading way. And we're just shifting the misleading ads to a different medium. I do think it works better. In other words, I think the Facebook thing, it's really good at flogging angry idiots to the polls. And I think that changes the equation some.

BECKY QUICK: Changes the equation meaning you think it would--

CHARLIE MUNGER: Meaning it has an effect on politics.

BECKY QUICK: It has an effect on politics and therefore will bring in regulation?

CHARLIE MUNGER: I don't-- I think it therefore won't bring in regulation.

BECKY QUICK: 'Cause the politicians--

CHARLIE MUNGER: It's hard to control people who want to be silly about politics.

BECKY QUICK: Andrew has a question too. Andrew?

ANDREW ROSS SORKIN: I was just gonna ask Bill, but everybody can weigh in on this. Given the ownership of Geico, maybe you have some insight into it as well-- Warren and Charlie. I was thinking of autonomous vehicles, where you guys were talking about technology and even Elon Musk-- with Tesla. When you look at the cars that are-- and the car market that's out there, do you see in terms of technology any of them-- doing better-- than the other? And--what do you think of Tesla actually-- as an investment itself?

BECKY QUICK: Bill?

CHARLIE MUNGER: I don't wanna weigh in on Tesla.

BILL GATES: Yeah, Tesla's-- making a great product. They have a very high valuation and they will experience-- all the auto makers coming in and competing with them. And-- so it's not like some tech markets that the leader gets all that-- market share. It's gonna be a tougher thing. The-- move to autonomous and electric are proceeding in parallel. And if you take-- you know, 15 year timeframe, it's gonna be a very, very dramatic change. You know, I tend to be optimistic about technology adoption. And I think worldwide, while there's a lot of cities that wanna be the first to get in with these cheap autonomous services. So-- it's exciting and the other car companies now have been forced to have strategies for electric cars and autonomous. Some have very impressive plans.

ANDREW ROSS SORKIN: Are there lower insurance--

BECKY QUICK: Warren, what-- what does-- oh, go ahead, Andrew.

ANDREW ROSS SORKIN: I was just gonna say are there lower insurance rates, talking about-- thinking about Geico, for a Tesla or for the new Cadillac that has-- some kind of-- semi autonomous driving you know, some of these new features that-- that allow the computer to drive a little bit more than the human?

WARREN BUFFETT: Yeah, the-- presumably, any cars that catch on big are going to be safer. And a safer car is going to bring lower insurance rates. There's one some-- there's-- modest offset to that in that, in terms of-- collision activity-- the damage is done to a car by-- in terms of a bumper or-- a side rearview mirror something. Costs far more now-- it's a much more complex product. So the damage per accident, not human damage, but physical damage to the car, that will probably go up substantially. But the number of accidents won't-- you won't see widespread adoption unless they're safer. And-- we want a safer car. So it's-- net, it will be bad for the-- auto insurance industry over time if autonomous cars become-- a big part of the fleet.

BECKY QUICK: Bill just mentioned that over the next 15 years you are gonna see some pretty significant changes. Is that the timeframe that Geico is looking at that too?

WARREN BUFFETT: Well, it-- we don't know, I mean, what it'll be. And you've got 260 million cars on the road. Let's just say that 10% of the people took up-- autonomous cars in a year. Now you're talking about-- a million eight outta the 18 million. And-- there's-- a big life cycle to it and all that. But what does best for the consumer and is safer over time really will prevail-- over time. It-- and that's good for the American public. It's very hard to tell who the winner will be. Or there-- won't-- it-- was hard under the conventional car to pick out which would be the company that was doing the best ten years earlier. That's why Charlie and I have talked about the auto industry for-- forever. So it's very hard to pick winners. And it'll be hard to pick winners five years from now. Nobody's gonna own the market or anything of the sort.

CHARLIE MUNGER: I am amazed at how good almost all the cars are. With all those several mechanisms and all that electricity scattered through, you can buy a car and drive it ten years with practically no trouble. It's an amazing achievement.

BECKY QUICK: I mean, you were big on the electric vehicles too with BYD.

CHARLIE MUNGER: Well, you gotta remember in China, you couldn't breathe the air in the city. So I thought they might end up with more electric cars. Wasn't a very difficult idea.

BECKY QUICK: Let's talk a little bit about Berkshire overall and some of the changes that we've seen this year. Ajit Jain and Greg Abel named as-- co-vice chairmen along with Charlie on this. How has it changed your day to day life, Warren?

WARREN BUFFETT: Well, not a lot, but it's made it easier. It was already easy to start with. I mean-- but -- the-- really easy. But the 5% that I didn't like, I just said, "Well, those are your new-- responsibility--" that's the way I selected what their responsibilities would be. And-- it-- well, Charlie could tell you, it's changed our lives very little, but all for the better. It's been very, very good for Berkshire and it's been even better for me.

BECKY QUICK: Charlie, you were a proponent of this. I think it was your idea-- to name them vice chairmen--

CHARLIE MUNGER: Well, it was hardly-- you could hardly find two people who've done better in their jobs in all of America. Very outstanding people. The truth is that we're too late.

BECKY QUICK: Bill, I know succession is-- a common, or constant-- topic with the rest of the board members. What does the board think about this, about these positionings and now that they're both board members too, what does that mean just from board's perspective?

BILL GATES: Well, it's exciting to have two, you know, highly energetic, super capable people helping out Warren. And now as board members. I've gotten to know both of them-- for over ten years. And I'm just amazed at-- what they bring. They understand the Berkshire culture because they've been inside it and have benefited from it. So it's great news.

BECKY QUICK: There're people who are wondering if this was creating a horserace for-- successor. I heard Ron Olson s-- knocking down that idea over the weekend. How-- would you respond to that?

BILL GATES: No, it's-- not a horserace or-- being the successor. That's-- that's not a good way to characterize it.

BECKY QUICK: What is the right way to characterize it?

BILL GATES: That-- the number of businesses that report to Warren-- is a pretty unbelievable number. And so now you've gone from one person with all those businesses reporting to him, to three people. So the company's not adding, you know, a lot of staff, you know, under Greg and under Ajit. You just have three great business minds-- managing, you know, over 50-- business entities. So it's still one of the leanest management structures you ever seen. If you draw it out as an org chart, you have to have one of the widest pieces of paper ever, even with the three now. So-- you know, Berkshire's still very, very unique.

BECKY QUICK: All right. Folks, we are gonna have more of this conversation with Warren Buffett, Charlie Munger and Bill Gates. We will be back with more from Omaha, Nebraska, right after this. (MUSIC)

BECKY QUICK: Welcome back to a special edition of "Squawk Box." We are live from Omaha, Nebraska. And we are joined this morning by Bill Gates, the cofounder of Microsoft and a Berkshire board member. Charlie Munger, who's the vice chair of Berkshire Hathaway, and Warren Buffett, who is the chairman and CEO of Berkshire. And gentlemen, the last half hour we've kind of been delving through your thoughts on the markets, on technology, on privacy issues, on Bitcoin. I thought we might take this next half hour and go a little broader because all three of you have big ideas about the world and how to fix it. You have spent a considerable amount of money and time on philanthropic projects, on trying to find ways to move beyond. And you all happen to know a lot about so many different things. One of the issues that's been so much in the headlines over the last six months or so has been Berkshire's move to go along with JPMorgan and Amazon to try and come up with a way to reign in health care cost and health care cost inflation in the United States. Warren, we've talked with you about this but we haven't gotten the chance to talk with Bill and Charlie so much about this. For those who don't know it, by the way, Charlie for the last 31 years, has been the chairman of the board at Good Samaritan Hospital in Los Angeles. So he knows an awful lot about health care. Bill Gates has worked tirelessly when it comes to health care issues around the globe. In fact, the Gates Foundation has invested $12 billion in global health initiatives just over the last five years. So for anybody who's wondering about your credentials on this, there they are. Why don't we start with you, Bill? What do you think about the idea of trying to tackle health care cost inflation and how that might be tackled in the United States? Is this something that could get traction?

BILL GATES: Well, I think other than improving the education system, making sure that health care costs don't continue to go up so rapidly is the biggest issue. If you look at state governments, over time, they've had to shift money away from education and infrastructure, into the various health care expenses they have. And so it's a problem for the government, it's a problem for business. So any effort to take a look at this system and how we use the latest technology to make it more efficient, to reward the low cost providers so that they gain market share, I think that's fantastic. I've studied it a lot. And I don't think it's an easy thing to fix. But it's fantastic that the three companies are going to work together. To the degree they succeed, there are hundreds of companies that would love to join in. But first, they've got to hire some people and it's got to come into focus.

BECKY QUICK: Charlie, let's just talk about how fixable you think this problem is. Do you see a lot of rampant waste when it comes to these issues at least from your perspective at the hospital?

CHARLIE MUNGER: Rampant waste is a good phrase, of course. But our system is shot through with rampant waste. And a lot of the medical care we do deliver is wrong. And so, expensive and wrong is ridiculous. A lot of our medical providers artificially prolong death so they can make more money. I regard that as deeply immoral. And there's a lot of it. And so I think the first time the Democrats control all three branches of government, we will get single payer medicine. I think it's so bad, that people will reach out for a complete change forced by the government. To have a young person have a $5,000 deductible when he has a baby, that's not insurance anymore. It's some stratagem to make things better for some insurance company. But it's not really medical insurance. This whole system is shot through with defects. And, of course, I welcome the fact that Berkshire is trying to make it a little better in some ways.

BECKY QUICK: If you could fix it, how would you go about doing it? Are there maybe not easy ways, but are there obvious ways of trying to tackle that?

CHARLIE MUNGER: It's very hard to get to a system like Singapore's, which costs about 20% of what our system does and works better. From where we are now, we will never get there, in my opinion. In a big, rich nation like ours. But we can have a better system than we have now.

BECKY QUICK: Would universal health care be the answer? You said you think that's what would happen.

CHARLIE MUNGER: Well, there're many defects in universal health care. But universal health care with an opt out, which they have in all the advanced nations – England, Canada and so forth – it's a perfectly reasonable system. And it exists everywhere else. So I'm not frightened of it.

BECKY QUICK: Universal health care with an opt out being basically universal health care that rich people pay more for and get a different level of care, is that—

CHARLIE MUNGER: Sure. Even in Singapore if you want a better hospital room, you don't get a better doctor or a better nurse, but they'll give you a better hospital room if you want to pay for it.

BECKY QUICK: Andrew has a question.

CHARLIE MUNGER: I see nothing wrong with that.

BECKY QUICK: Andrew has a question too. I'm assuming it jumps onto this. Andrew?

ANDREW ROSS SORKIN: It does on the health care front. And it's for Warren. Warren, historically, you've allowed all the managers at Berkshire to run their groups autonomously and haven't imposed different programs from headquarters. I'm curious when you do implement the health care program with Amazon and JPMorgan, whether it will be voluntary for the managers to effectively choose to be part of it, or whether it'll be something that they're going to have to do.

WARREN BUFFETT: Well, A, I may not be around when that takes place. That may be sometime in the – this is an extraordinarily difficult project. I mean, this is not – and I think it might well be reasonably easy to make – do a little something here and there. But we're really hoping that something that has gone from 5% of GDP to 18% of GDP and just keeps moving, we can do something about it. You know, we have not picked an easy task. You've got $3.3 trillion or something like that spent on the health care system. And every dollar, just like in government, every dollar has – hits a constituency, has a defender. And I do think it's so important that it should be tried. And what I would tell our managers, and I've told our managers, that we will never – we will not be coming up with something that hurts them in terms of the care they receive. And it's going – if we come up with any kind of an improved product, I can guarantee you they will like it. I won't have to – no one will have to stuff it down their throat. I mean, and we will have people join us. But it is really an uphill climb. But we should be doing it.

BECKY QUICK: You said over the weekend that you hope to have a CEO named for this new initiative between the three companies in the next couple of months.

WARREN BUFFETT: Yes.

BECKY QUICK: Has it been narrowed down significantly, the search?

WARREN BUFFETT: It's been narrowed down to, yeah, a very few. And it's by far the most important decision we'll make. I mean, there's no way – and we've got plenty of people who want the job. But it is an extraordinarily difficult job because you have to be very – you have to plenty knowledgeable about, enormously knowledgeable about the system. But you have to be able to get your mind beyond it and you have to understand who your opponents will be, you have to understand public opinion. And you have to, you know, you could bargain down costs in some areas 1%, or 2%. But we really hope we can find the perfect person in terms of being able to make a real jump. And as Charlie will tell you, there's some history in terms of what happened.

CHARLIE MUNGER: When Rockefeller totally revolutionized American health care for the better, he went after the low hanging fruit. He went after the charlatans and the quacks and so forth. And my guess is that Berkshire will find some low hanging fruit.

BECKY QUICK: If you had to guess where that low hanging fruit would be—

CHARLIE MUNGER: Oh, I know there's a lot of low hanging – I don't want to say.

BECKY QUICK: Okay.

WARREN BUFFETT: We will whisper it to our new CEO, though.

BECKY QUICK: Well, speaking of the new CEO, I realize that this is something that Todd Combs is heading it up. But given your expertise, Charlie and Bill, have you had any input into what should happen with this, who the new CEO should be?

BILL GATES: Well, Todd's a great learner. And he and I have brainstormed about, you know, what health care looks like. But not specifically on who gets hired. You know, I think there's three things that are very separable. If Berkshire, you know, finds a way to optimize its health care cost, versus the entire U.S. health care system and access versus cost are two different things. If you add access, unless you're very careful like a universal coverage, it will actually drive up costs pretty dramatically.

BECKY QUICK: And potentially lower standards or lower what access people get.

BILL GATES: Right. So when, you know, Vermont costed out what universal care would cost, even the proponents were stunned at the cost. So we have to perform two miracles. We have to get better access in America and get the cost down.

WARREN BUFFETT: Probably couple other miracles we don't even know about. The goal is not to reduce Berkshire's costs. And we will have a CEO and I hope, I would expect within a couple of months. And we will need a remarkable individual. That person will have to also have a number of remarkable people who wish to join the person. That's one of the things, you have to have somebody that does attract other talent, so on. And so nothing's going to happen fast, except we do want to get the CEO in place, obviously. But they're not going to turn the whole system upside down immediately. But you want somebody that thinks about where you want to be in five years and figure out some path toward that.

BECKY QUICK: I mean, obviously the person has to be an expert in health care, but from which arena? Because whatever arena they're coming from—

WARREN BUFFETT: Well, sure. Yeah, if you'd talk to somebody that's run a hospital for 20 years, they think everything but the hospital's a problem, you know? And if you talk to some, I mean, it's just the way it is.

BECKY QUICK: Right. Let's talk a little bit more broadly about some of the issues that we're seeing today. Earlier, we spoke with Warren about trade issues, particularly with China, with our delegation just coming back from China. But trade has been a big issue when it comes to NAFTA, when it comes to our trade agreements around the world. And the strategy from the Trump administration has been a little different than what we've seen from previous administrations. Maybe now we're going to find out if it works or not. We're at that point. Charlie, what do you think about whether or not we're going to wind up in trade wars or whether you think we get better trade agreements as a result?

CHARLIE MUNGER: I'm pretty optimistic about China and the United States working together. It would be insane for them not to work together and not to develop a trusting, constructive relationship. And I have no reason to think that that won't happen.

BECKY QUICK: Bill?

BILL GATES: I agree. Although I would say the U.S. is making that a bit challenging right at the moment in terms of predictability and stability and finding the right approach. You know, we're all big believers in the large benefits of trade. And so, the fact that the sentiments have turned against it, you know, do you need to do more to help those who aren't hurt by trade? Politically, it's impressive that free trade was not supported by either candidate.

BECKY QUICK: You mean in the U.S. election?

BILL GATES: Exactly.

BECKY QUICK: Right. It may be the blowback after what happened in 2008 and 2009. People who felt like they got left behind and who haven't caught up with others. I'm not sure how else to handle that. What the right way about going to do that would've been. But Bill, you're somebody who has to go from nation to nation, country to country, and through the foundation and your work there, kind of hope that everyone can work together. Has it gotten tougher to do that, or is it the same as it was before?

BILL GATES: Well, the most important relationship in the world is between the United States and China. And you could imagine lots of win-win things with trade, with innovation, with helping to drive stability for the world, where countries with very different histories, very different governments. And so you do worry as you watch even in these last few months, the sparks fly. But I think logic will prevail. Our foundation has worked a lot with the Chinese government. And we're excited they're becoming a bigger aid donor. So even for the work we do to help poor countries, having this relationship be strong would be very, very helpful.

WARREN BUFFETT: Bill and Melinda as well have actually done very big and important things in terms of getting countries to work together in the health field. And they have brought the world closer together in terms of attacking particularly vaccines, but a number of things to do with health. And over time, that sort of thing will prevail in the world. I mean, when people see something working and their lives greatest better, and you mentioned the problem of the prosperity, I mean, if countries get far more prosperous, they should figure out a way that all of their citizenry participate in some way. You want to keep the market system – does wonders and all of that. But you have seen what you can actually look at what Bill and Melinda have done. And they have influenced other countries to act cooperatively. And it's a tremendous achievement.

BECKY QUICK: You all have been incredibly philanthropic. You've given billions and billions of dollars away. But if you had to look and try and find one arena, one topic, one place that you think gets underserved, aside from what you're already doing with your own money, with the foundation money, is there an area where you would look and say, "Hey, here's another thing that needs some additional funding. It's overlooked and it's very deserving"? Bill, what do you think?

BILL GATES: Well, there are so many important causes out there. You know, we picked global health and education. And by sort of specializing in those, you can do a good job. But-- the-- the needs are-- are really vast. Some philanthropists are working in the U.S. Justice System-- to deal with the inequities there. We do some work on poverty, but there's many others-- who have different cuts on that. You know, the beauty of philanthropy is you're taking on-- you know, these social-- goals-- that are very, very difficult to achieve and trying to show government how to do-- a better job. And so it's been rewarding. There's a lotta progress. But there're so many causes. And-- as Warren and I encourage other people to do philanthropy, you know, we hope they'll pick-- one of these unmet areas and get a passion for it and bring their same skills they had in business-- because that's-- huge probably rather, even beyond the money.

BECKY QUICK: You're talking about through the giving pledge, where you--

BILL GATES: Through-- ideally, through the giving pledge. I mean, we sit and talk to people about philanthropy. And most of those people do end up -- joining the pledge.

BECKY QUICK: Charlie, how about you? What-- area –

CHARLIE MUNGER: Well, better drugs and devices have the advantage. They work almost automatically. And the one I see-- that will change the world is the new IUD is a huge contribution to human civilization. And it's just sweeping. It'sand it's gonna change-- that's gonna change lives. And the beauty of that, it didn't require any government, didn't require any pompous bureaucracy. S-- they just invented a better way of doing it and it spreads automatically. We-- I love that kinda thing. And, of course, I like the vaccinations. Think of the good that it does to do the vaccinations. And, of course, if you vaccinate and I don't, it doesn't work as well. So naturally, the nations cooperate. But Bill's gonna get more cooperation than Warren is.

BECKY QUICK: Because?

CHARLIE MUNGER: He-- has more incentive for the people to be-- agree with Bill. Warren's taking -- interests aren't gonna like it at all.

BECKY QUICK: Bill, very quickly, before we go to Warren on this-- can you give us an update on where polio stands right now, just speaking of these vaccinations?

BILL GATES: Well, we have two countries that we haven't gotten rid of polio and it's-- Pakistan and Afghanistan. We're making sure it doesn't travel to other parts of the world. So we have to keep the vaccination rates up. And-- we're doing a better job getting out to all the children in those two countries. So with luck, this could be the last year with cases. But it's very tough. You know, it's-- every morning I get up and see, okay, what-- does the case count look like? And we actually sample the sewage to see if there's any-- polio being transmitted. So we're very close. But zero's the magic number. If you miss it then, you know, you have to go another year. So we've-- we've got our fingers crossed.

BECKY QUICK: The reason that you sample sewer-- samples is because --?

BILL GATES: Amazingly, if a kid has polio and they're in that city, if you go look in the sewage, there-- there're so many viruses-- out of even a single kid, that we can detect it. And we can see which virus it's like. And so we can understand where it came from. So that's actually our best tool, is that-- we politely say environmental sampling.

WARREN BUFFETT: You could see why I delegate philanthropy. I-- my-- urge to sample sewage has not been--

BILL GATES: We're back--

WARREN BUFFETT: I've gotten to 87 without any urge -- any urge to sample sewage. Bill gets excited about it.

CHARLIE MUNGER: Well, Bill Gates has-- a huge advantage. Nobody's in favor of infantile paralysis. And a lotta people are in favor of medical practice as counterproductive.

BECKY QUICK: Although-- it's not a slam dunk for the vaccinations. You've had trouble-- with some cultures-- who don't like you coming in there and some vaccination workers who have gotten into big trouble too.

BILL GATES: Well, you get rumors about vaccines-- even in the U.S.-- that is this good for the child if you s-- have a child that gets a fever afterwards, people worry about that. So you have to constantly remind people of how beneficial it is. And-- every once in a while, when you-- coverage rates go down, then you'll get lots of measles-- or pertussis-- coming in. So-- y-- t-- people who understand really want these things. And the progress has been phenomenal. But we have to create demand as well as supply to meet our goals.

BECKY QUICK: Warren, I wanna come back to you just in terms of-- finding a cause that you think is important, that you maybe hope somebody else will-- spend some time on.

WARREN BUFFETT: Well, I think the number one problem of mankind is weapons of mass destruction. I mean, we have learned since 1945-- how somebody with bad intent or some organization with bad intent or m-- occasionally, some government with bad intent, the-- knowledge is there of how to-- kill millions of people. And-- in some cases, the intent might be there. The materials have been hard in the case of nuclear to some extent, and now you've added cyber to the equation. So that's the n-- I consider that the number one problem of mankind. I'm-- I don't how to use money to fight it-- particularly. And-- but then I believe in-- in-- in-- in-- in women having the right to decide-- what to do with their bodies. And that's been-- advanced very considerably. But there's-- still a lot of work to be done there. But-- I believe the number one problem to get beyond weapons of mass destruction in the United States is to figure out-- how to maintain all the benefits of a market system works-- which works wondrously in creating more output all of the time. And-- at the same time, make sure that people-- that are-- really don't fit a market system very well, still lead des-- l-- live decent lives. And-- we've got the resources to do it. And-- we've made a lotta progress on that. Social Security was progress. I mean, we-- we take better care of our young and old. But we don't-- we haven't figured out the way to take some-- very good care of somebody that just doesn't fit into the market system but is a perfectly decent citizen. And a rich society should-- solve that one.

BECKY QUICK: Andrew has a question as well. Andrew?

ANDREW ROSS SORKIN: I don't have a serious question, Becky. I have-- a hopefully fun question for the-- for the bunch. This is actually a question-- Warren, that came in over the weekend-- from a guy who was in the audience, Alexis Ohanian, who's the CEO of Reddit. He's also the husband of Serena Williams. He was desperate for us to ask this question so I'm gonna ask of you. Bill Gates has, by the way, already been asked this question. It's a famous question on Reddit-- in these Ask Me Anything-- sessions that they do. It's a bit of a logic train-- question. So the question is this, and I don't know if -- you've ever heard it. Would you want to battle a – one horse sized duck or 100 duck sized horses? And there's huge debate on the internet about what the right answer is to this question.

WARREN BUFFETT: Well, you've gone to the wrong place to find the answer. I'll-- I will-- go out and buy a bunch of ducks that meet the test and horses that meet the test and we'll have a real life illustration. But-- I do not bring any insight into that one. Bill probably knows the answer already.

CHARLIE MUNGER: My attitude is that Warren knows more about it than I do.

BECKY QUICK: Hey, I'll ask you guys a question that I was surprised didn't come up this weekend. You all are voracious readers. And-- generally, somebody will ask you guys at the-- at the annual meeting what you've been reading recently. Let me just toss that out. Bill, you constantly have a list of what you've been reading. Have-- what-- makes it this year?

BILL GATES: Well, the-- the top would be this new Hans Rosling book called Factfulness. It's very readable. Talks about how the world has changed and Hans shares how he had some misperceptions that he didn't see all the progress. And I-- talks to you about how to-- how to think about-- news and where we're going. So that's-- brilliant.

BECKY QUICK: Charlie?

CHARLIE MUNGER: Well, I read a book by a Chinese-- economist who had worked in the World Bank. And his general idea was that we had learned better how to help a poor nation develop. There was a lotta stupidity in the early days when we'd give some very poor and backward nation a big steel plant. Of course, it wouldn't work. And-- I think this economist was right. So I think generally speaking-- there's a lot that's right in the world.

BECKY QUICK: Uh-huh. Warren, have you been reading anything lately that's caught your attention?

WARREN BUFFETT: Well-- yeah-- but I- narrow it down a little bit more. I've already recommended chapter eight, you know, of The Intelligent Investor, and-- which stays up there among the top sellers-- for years. But so in that same spirit, I would re-- re-- recommend reading chapter four of-- Steven Pinker's new-- book. And-- there're some very interesting reasons to be optimistic ab-- about the world in-- in-- in-- in that chapter.

BECKY QUICK: What does it focus in on?

WARREN BUFFETT: Yeah. Tell 'em the name of the book, Bill--

BILL GATES: It's called Progressive Phobias, the chapter name. And the book is called Enlightenment Now. It's another book like the Rosling book that talks about the progress we've made and how we could learn from the places we've made even faster progress. It came outta the work he did in his previous book-- Better Angels of our Nature, where he saw that violence was going down. And now he's looked at a lot of other things-- like workplace safety and happiness. And-- it's-- a more serious read-- than a lot of books, but really fantastic.

BECKY QUICK: We-- we've-- spoken a little bit with Charlie and Warren about what they've learned from each other. I'll ask each of you as we're wrapping up this hour what you've learned from Berkshire-- broadly. As board members, as-- people who travel together, who work together, who have fun together and spend time together. Just what it's meant over the years. Bill, I'll go ahead and start with you because you haven't gotten to weigh in on this yet. Something you've learned from-- Charlie and or Warren and-- the-- board at large.

BILL GATES: Well, from Warren-- the whole approach to thinking logically-- thinking long-term. It's been an incredible education. And totally shaped how-- I think about things. The fact that then there's this incredible set of people including Charlie and the managers that I've gotten exposed to-- we have in our second board meeting, a bunch of man-- the managers come in and talk about their businesses. And it's one of the most fun times of the year to hear about very different businesses and the competitive dynamics and how technology affects them. And how a system where you have these great long term thinkers with very high integrity who are dealing with these-- challenges. So, you know, my whole business education-- started the day I met Warren. And-- the Berkshire team has-- has helped keep it going at full speed.

BECKY QUICK: Warren?

WARREN BUFFETT: Well, it's very important in life to associate with people that are better than you are. And it's the most important decision -- you will go in the direction of the people that you associate with. And you'll get ideas from them and you'll see how their behavior works and all of that sort of thing. And the most important decision usually in that respect-- is your spouse. But it's enormously important among your friends to have people that you admire as well as have a lot of fun with. And you will move in the direction of their better behavior. And-- -- with both-- Bill and Charlie, I-- I've learned a lot, I've had an enormous amount of fun. But I pick up on their ideas. And-- that's been a very good thing.

BECKY QUICK: Charlie, I'd like to have you have the last word today on that topic.

CHARLIE MUNGER: Well, I said to the Berkshire managers this year as I looked out over the crowd, "The nice thing about this room is that we would all feel pretty safe just delivering our children to almost anybody selected at random from the group." You couldn't say that at most places. I should say there's a horserace for power and prominence or something or other. So we have a very admirable bunch of people. And we have less bureaucracy than almost anybody. And so that is not a small achievement. I don't think of a single-- I can't think of a single company of our size that has less bureaucracy than we do.

BECKY QUICK: Did you set out to do that at the beginning?

CHARLIE MUNGER: Well, we always hated bureaucracy. And so I would say, in a sense, yes. Wouldn't you say, Warren?

WARREN BUFFETT: Yeah, absolutely. No, we both--

CHARLIE MUNGER: We both hated it.

WARREN BUFFETT: And we had the ability-- or-- you know, were fortunate. We could create the company, to some extent, that we wanted to have. And I've always said it was crazy to be a painter painting something at the end you didn't-- it's not the painting you wanted to have. And Berkshire is a sort of painting. And we have ha-- we haven't walked into some huge organization, had to claw through the progressions and the politics that went. And we have created what we wanted to create.

BECKY QUICK: Warren--

CHARLIE MUNGER: I don't think we could fix a big bureaucracy.

WARREN BUFFETT: No, we couldn't. No.

CHARLIE MUNGER: We-- could create something that didn't become a big bureaucracy. But we-- we couldn't fix one--

WARREN BUFFETT: No.

CHARLIE MUNGER: --that's already bureaucratic.

BECKY QUICK: Charlie, Warren, Bill, I wanna thank all three of you for your time today. We truly appreciate it. Folks, that does it for us today. Make sure you join us tomorrow. Right now, it's time for Squawk on the Street.

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