LIZ: A QUICK MENTION ABOUT CURRENCIES. I HEARD YOU SAY THERE IS A FOREIGN CURRENCY YOU OWN. I'M GOING TO TRY AND PROD YOU KNOWING THE ANSWER IS YOU WON'T TELL ME, BUT YOU LIKE ANOTHER FOREIGN CURRENCY?
BUFFETT: THERE'S ONE OTHER THAT WE OWN THAT I WILL TELL YOU ABOUT NEXT YEAR.
LIZ: NEXT YEAR.
BUFFETT: GET YOU TO COME TO THE ANNUAL MEETING NEXT YEAR.
LIZ: ALL RIGHT. OVERALL THOUGH YOUR SENSE OF THE MARKET AS AN INVESTMENT FOR A KNOW NOTHING INVESTOR WHEN I SAY THAT I MEAN AN INVESTOR WHO HAS ANOTHER JOB DOESN'T HAVE A LOT OF TIME TO DO THE KIND OF RESEARCH.WHAT'S THE BEST WAY FOR THAT PERSON TO INVEST?
BUFFETT: THE BEST WAY IN MY VIEW IS TO JUST BUY A LOW COST INDEX FUND AND KEEP BUYING IT REGULARLY OVER TIME BECAUSE YOU WILL BE BUYING INTO A WONDERFUL BUSINESS WHICH IN EFFECT IS ALL OF AMERICAN INDUSTRY AND IF YOU BUY IT OVER TIME, YOU WON'T BUY IT AT THE BOTTOM BUT YOU WON'T BUY IT ALL AT THE TOP EITHER AND YOU WILL HAVE VERY LOW COSTS. FRICTIONAL COSTS ARE VERY IMPORTANT TO INVESTORS. IF YOU HAVE 2% A YEAR OF YOUR FUNDS BEING EATEN UP BY FEES, YOU ARE GOING TO HAVE A HARD TIME MATCHING AN INDEX FUND IN MY VIEW. I THINK PEOPLE OUGHT TO SIT BACK AND RELAX AND KEEP ACCUMULATING OVER TIME.
LIZ: LET ME GET TO POLITICS BECAUSE IT MATTERS IN WALL STREET. HILLARY CLINTON WAS CAMPAIGNING IN COUNCIL BLUFFS IOWA LATE YESTERDAY.
BUFFETT: THEY ALL LOVE IOWA.
LIZ: I BET THEY ALL LOVE YOU TOO. I NOTICE YOU HAVE BEEN HAVING CONVERSATIONS WITH HER. YET I ALSO NOTICED THAT AT THE ANNUAL MEETING ON SATURDAY YOU HAD BARACK OBAMA'S BEST SELLER THE AUDACITY OF HOPE FOR SALE. IS THERE ONE IN PARTICULAR YOU ARE GOING TO SUPPORT OR SOMEBODY ELSE?
BUFFETT: I THINK EITHER OF THE TWO WOULD BE ABSOLUTELY TERRIFIC PRESIDENT. ANYTHING I CAN DO TO HELP EITHER ONE OF THEM BECOME PRESIDENT OF THE UNITED STATES I THINK I CAN DO. I THINK THAT BOOK IS A TERRIFIC BOOK OF BARACK'S. I THINK HILLARY IS TERRIFIC. I LOVE THE IDEA OF EITHER ONE OF THEM BECOMING PRESIDENT OF THE UNITED STATES.
LIZ: HOW DOES THAT GO OVER WITH THEM WHEN YOU TELL THEM THAT?
BUFFETT: I THINK THEY WOULD RATHER HAVE ME SAY ONE. IT DOESN'T GO BEYOND THE TWO. IT'S NOT THAT MUCH MONEY. I CONTRIBUTED THE MAXIMUM TO BOTH OF THEM. IF EITHER ONE OF THEM ASKS ME TO HELP, I WILL.
LIZ: MARK HAINES WOULD LIKE TO ASK YOU A QUESTION.
MARK: GOOD MORNING, GOOD TO SEE YOU AGAIN.
BUFFETT: HI, MARK, 35 YEARS SINCE YOU HAVE BEEN OUT HERE.
MARK: YES. I WENT THROUGH IN THE MIDDLE OF THE NIGHT BECAUSE I THINK SOMEONE WAS CHASING ME. ANYWAY YOU MENTIONED LOW COST INDEX FUNDS. DOES THAT INCLUDE ETFs. DO YOU HAVE ANY THOUGHT ON EFFICACY OF ETFs FOR THE RETAIL INVESTOR?
BUFFETT: WELL, I'M NOT AN EXPERT ON THAT MARK BUT IT JUST SEEMS TO ME THAT A VERY LOW COST INDEX FUND IS PRETTY HARD TO BEAT. I MEAN, YOU PUT IT AWAY. YOU HAVE NOBODY ENCOURAGING YOU TO TRADE IT NEXT WEEK OR NEXT MONTH. YOU KNOW, YOUR BROKER IS NOT -- I HAVE NOTHING AGAINST ETFs BUT I REALLY THINK AN INDEX FUND THAT CHARGES A FEW BASIS POINTS FOR MANAGEMENT IS PRETTY HARD TO BEAT.
MARK: YOUR THOUGHTS ON PRIVATE EQUITY, OF COURSE YOU REMEMBER WELL MOST OF US REMEMBER WELL BACK IN THE BUBBLE THERE WAS A LOT OF MONEY, THERE WAS TOO MUCH MONEY CHASING TOO FEW GOOD IDEAS. PRIVATE EQUITY'S BEEN RAISING A LOT OF MONEY. ARE WE IN DANGER OF REACHING THAT POINT WITH PRIVATE EQUITY, TOO MUCH MONEY, TOO FEW GOOD IDEAS?
BUFFETT: I THINK THERE'S NO QUESTION THAT EITHER THAT HAS HAPPENED OR WILL HAPPEN, AND, YOU KNOW, THE INCENTIVES TO RAISE MONEY FOR PRIVATE EQUITY ARE HUGE. IF YOU ARE GETTING A COUPLE PERCENT ON 20 BILLION, YOU ARE GOING TO WANT TO RAISE ANOTHER 20 BILLION THE ONLY WAY YOU ARE GOING TO RAISE THE SECOND 20 BILLION IS TO GET THE FIRST 20 BILLION OUT. SO THE PUSH TO DO DEALS IS HUGE IF YOU ARE RUNNING A FUND LIKE THAT. FRANKLY IT MAKES IT VERY TOUGH COMPETITION FOR US.
MARK: YOU WERE TALKING EARLIER ABOUT NEWSPAPERS YOU MENTIONED THEM IN YOUR LET TORE SHAREHOLDERS BACK IN -- LETTER TO SHAREHOLDERS BACK IN MARCH. IS RUPERT MURDOCH WRONG?
BUFFETT: NO, HE'S NOT WRONG. IT DOES FIT WITH CERTAIN THINGS THAT NEWSCORP DOES. AND PLUS, YOU KNOW, HE WOULD LOVE TO OWN -- A LOT OF PEOPLE WOULD LOVE TO OWN IT. A LOT OF PEOPLE CAN'T AFFORD IT. BANCROFT FAMILY DOESN'T HAVE TO SELL. THEY CAN ALWAYS GET $60 A SHARE. THAT IS NOT A HIGH PRICE FOR DOW JONES AND COMPANY IF YOU HAVE THE INCOME YOU GET PLUS THE CASH INCOME. IT IS NOT LIKE THEY ARE PASSING UP THE OFFER OF A LIFETIME IF THEY TURN IT DOWN.
MARK: LAST QUESTION, KIND OF A SOFTBALL. HAS TO DO WITH EXECUTIVE COMPENSATION. I MEAN, I INTERVIEW EXPERTS, PEOPLE WHO I DON'T THINK HAVE ANY STAKE IN THE MATTER, AND MANY OF THEM BUY INTO THIS IDEA THAT THERE'S SO FEW GOOD MANAGERS OUT THERE, THAT YOU HAVE TO PAY, YOU KNOW, THESE KING'S RANSOMS, AND, YOU KNOW, YOU CAN CITE MEG WHITMAN TO THEM WHO IS PAID 1.7 MILLION A YEAR. YOU CAN CITE WHOEVER IS RUNNING TOYOTA. WHY ARE PEOPLE SO WILLING TO BUY INTO THIS IDEA THAT WE HAVE TO PAY HUNDREDS OF MILLIONS OF DOLLARS FOR GOOD MANAGERS WHEN CLEARLY IT'S POSSIBLE TO FIND PEOPLE FOR LESS, GOOD QUALIFIED PEOPLE?
BUFFETT: WELL, YOU HAVE THE CEOs TELLING THEM THAT. YOU HAVE THE COMPENSATION CONSULTANTS TELLING THEM THAT. I WOULD JUST LOVE TO BE ABLE TO TAKE 10% OF THE SAVINGS IF I GOT TO NEGOTIATE SOME OF THOSE CONTRACTS MYSELF. IT ISN'T -- IT'S NOT A FAIR FIGHT. I MEAN, THERE'S NOT A PAIR DI OF INTEREST. WHEN A LABOR UNION IS NEGOTIATING WITH MANAGEMENT THEY STAY UP TILL 3:00 IN THE MORNING AND HAVE IMPASSES WHEN IS THE LAST TIME YOU HEARD OF THEM STAYING UP TILL 3:00 IN THE MORNING NEGOTIATING WITH A CEO?
LIZ: I HAVE ONE LAST QUESTION TOO. ABOUT CHINA, EVERYBODY IS TALKING ABOUT HOW CHINA IS GROWING.CHINA HAS AWAKENED. YOU HAVE HAD OPPORTUNITIES TO BUY INTO CHINESE BANKS. WHY DID YOU PASS?
BUFFETT: I JUST DON'T UNDERSTAND THEM. I DON'T HAVE THE FAINTEST IDEA WHEN A CHINESE BANKS SAYS LOANS ON ITS ASSET SIDE 28 BILLION I DON'T KNOW WHAT'S THERE. IT IS ENOUGH TROUBLE FIGURING THAT OUT WITH AMERICAN BANKS. IT IS NOT A NEGATIVE VIEW. IT IS AN I DON'T KNOW VIEW. I'M AN AGNOSTIC NOT ATHEIST ABOUT IT.
LIZ: COULD WE EXPECT TO SEE SOME OF BERKSHIRE'S SUBSIDIARY PRODUCTS HOPEFULLY SELLING INTO CHINA FOR EXAMPLE FRUIT OF THE LOOM?
BUFFETT: THERE WILL BE PLENTY OF BUSINESS DONE BY BERKSHIRE IN CHINA.
LIZ: WE WILL BE LOOKING FORWARD TO THAT. MR. BUFFETT I WILL LET YOU GET UP TO YOUR BOARD OF DIRECTORS MEETING. MY THANKS TO YOU WE APPRECIATE YOU COMING ON "SQUAWK ON THE STREET" AND OF COURSE ON CNBC. WARREN BUFFETT.
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