tv The David Rubenstein Show Peer to Peer Conversations Bloomberg November 5, 2016 1:00pm-1:31pm EDT
warren: he said, what do i do with this money? i said, investing it is about assigning yourself the right story. i did not want to go to college. i went to omaha, i thought -- i $175,000. i thought that was all i would need. >> when you had your first annual meeting, how many showed up at that? warren: well, we had 12, but you had to count my and katie and my
uncle fred. david: any advice to a young investor who would like to emulate you? >> would you fix your tie, please? david: most people would not recognize me if my tie was fixed. just leave it this way. ♪ david: i do not consider myself a journalist, nobody else would consider myself a journalist. i began to take on a life of being an interviewer even though i have the day job of running a private equity firm. how do you define leadership? what is it that makes somebody tick? david: i appreciate it. warren: capital of the world. david: all right. we are at your favorite restaurant in omaha. why do you like it so much? is it the food, the price, the combination?
warren: it is the food, the price, the heritage. for generations of the family involved. i have known him since grammar school. the prices are right. it was not that expensive, and i enjoyed it. a lot cheaper than new york and washington. david: a lot. warren: that's right. i buy people lunch here, and they can buy me lunch in new york. david: good arbitrage. you grew up in omaha and then moved to washington when your father became a congressman. how to do start your business career in washington with various pinball machines and golf businesses? mr. buffett: i had a couple of those businesses going in, the pinball was the best. the wilson coin-operated machine company. we had our machines and barbershops and the barbers wanted the machines with flippers, but those cost $350. whereas an obsolete machine only cost 25 bucks.
we always a said we would take it up with mr. wilson. this is mythical mr. wilson. he was one tough guy. david: when you graduated from high school you are not interested in academics? mr. buffett: i was not interested. david: your high school yearbook said you are likely to be a stockbroker even the you were not good at math. why did you go to wharton? mr. buffett: my dad wanted me to go to college. i did not want to go to college. we did not have sats then. in the truth, i always wanted to please my dad, he was my hero. he kept jogging me along and said, why don't we fill out an application for the hell of it? he suggested wharton, and i got in. after the first year i wanted to quit and going to business and my dad said, give it one more year. so i went the second year and said, i still want to quit. he said, you have almost enough credits. if you go to nebraska for one year, you can get out in three years. so that is what i did. david: has wharton ever said you
are a half graduate, you should give us some money? or do they never bother you? mr. buffett: so poor they have not tried that line, but they may after they watch this. i won a minor scholarship in nebraska to go to any graduate school i wanted, they would give me 500 bucks. my dad suggested harvard. so, i applied. david: and you didn't get in. mr. buffett: i didn't get in. it took 10 minutes -- i spent 10 hours going to chicago to see him, and he looked at me and said, forget it. david: did you ever run into that guy again? or heard from him since? mr. buffett: no, he needs protection now. david: harvard does not come after you for money because he -- they turned you down. why did you go to columbia? mr. buffett: i was in the omaha -- the university of omaha, what was then the university of omaha's library in august, leafing through catalogs, and happen to see that columbia had graham and dodd as teachers. i had read their book but had no
idea they were teaching. so, i wrote dean dodd, and i said, i thought you guys were dead. now that i know you are alive, i would really like to columbia. can you get me in question mark david: you went to columbia business school? mr. buffett: i did ok there. it was terrific in the sense that i was working for my hero. but then he was going to retire for a couple years so i was only back there a year and a half. but every day, i was excited about being able to work for him. david: what you were good at was picking stocks, according to his formula, looking for companies undervalued, we call it value investing. did he have principles that were fairly unique and that is what -- why you followed his guidance? mr. buffett: by the time i went to work for him, i could've recited his books. i read them multiple times. it was more a question of being inspired by him than learning something from him. david: why did you come back to omaha? mr. buffett: i wanted to go to omaha.
i had many friends in new york, but we had two kids by that time and i lived in white plains, i had to take the train. it did not strike me as much of a life compared to being here in omaha. both sets of grandparents were alive at that time. uncles and aunts -- omaha was a more pleasant place to live. david: you buy a house here -- mr. buffett: i rented a house. i rented a house for $175 a month. david: and when did you buy the house you are in? mr. buffett: 1958, when my third child was on the way. david: how did you raise money? mr. buffett: i had $175,000, i thought that was everything i needed. i planned on going to school, thought about law school. david: think about how successful you could have been as a lawyer. mr. buffett: that's true.
i have regretted it ever since. david: your first partnership, you had people cobble together some money, how much money did you cobble together? mr. buffett: we met in may of 1956 and there were seven people there, aside from myself. they put in $105,000 and i put in $100 and i gave them a piece of paper called the ground rules. david: but you ended up partnership? mr. buffett: between may of 1956 and january 1, 1962, i started 10 more partnerships. i made a mistake, i had no more -- no secretary or accounting. every time i would buy a stock, i would break it into 11 books, filed 11 tax returns. i was worried, it was other people's money. finally i got wise and on january 1, 1962 i put all 11 of the previous partnerships together and ran that until the
end of 1969, at which time i dissolved it. david: then you started a new partnership? mr. buffett: no, by that time we had $105 million in the partnership, $70 million was in cash to be distributed and the balance was an three stocks, mostly berkshire hathaway that i distributed it pro rata to everybody. david: ok, and then you started buying more stocks through berkshire hathaway? mr. buffett: yes. david: what would you say is the reason for your ability to do this? did you study the companies more than anybody else, are you smarter, you didn't get caught up in fads? what is your reason for success? mr. buffett: we bought businesses that were decent at sensible prices and we had good people to run them but we also bought marketable securities at berkshire. over time, the emphasis shifted to buying businesses.
david: what was the theory behind buying a railroad, people thought they were fossils? mr. buffett: the railroad business is like -- had a bad century. the chicago cubs. everybody has a bad century now and then. ♪ >> david rubenstein show, peer to peer conversations, is brought to you by state street global advisors. there is opportunity in complexity. ♪
david: over the years you bought many companies, stakes in companies. one of those companies i know very well is "the washington post." how did that come about? mr. buffett: in 1973 -- the "washington post" company and gone public in 19 some new one, right about the pentagon papers. but in 19 some e3, the nixon bebeistration through
rebozo were challenging the licenses of two of the four television stations. the stock went from 37 down to 16. at 16, there were about -- it was selling for $80 million. it was ridiculous. -- that included the newspaper, other assets. the washington post company, intrinsically worth $400 million or $500 million, sold for $80 million. it was ridiculous. it was unquestionably worth five times what it was selling for, and mr. nixon was not going to put them out of business. david: when you do analyses, then and now, do you have computers that help you? how do you read -- did you get printed materials? in those days, how did you read about those or know about that today? mr. buffett: same way, but fewer opportunities now. i met bob woodward and he came up with all the presidents men. at 30 years of age he was getting quite wealthy.
we had breakfast or lunch at the madison hotel and he said, what do i do with the money? i said, investing is about assigning yourself the right story. imagine if ben bradley said to you, what is the washington post company worth? what would you do? you have to write the story in a month? you would interview tv brokers and owners and you would sit by and value each asset. i said, that is what i do. i assign myself the right story. it is nothing more than that. there are some stories i cannot write. if you ask him to write a story on what is some glamorous, nonprofit business worth, i do not know how to write the story. but if you ask me what potomac electric power is worth, i can write the story. that is what i am doing every day. i assign myself story. and then i go out -- david: you get annual reports and read them the way some people might read novels. mr. buffett: that's right. david: and you do the calculations for how things are worth in your head? do you have computers to help
if you need tot: carry something out to four decimal places, forget it. david: do you use a computer today? mr. buffett: i use it to search, a lot. i do not have one in the office, but i have one at home. david: like a smart phone, can someone get a hold of you on a smart phone or mobile telephone? mr. buffett: no, a smart phone is too smart for me. david: and a computer, you use barely. mr. buffett: bill gates and i say, who was on the computer more, excluding e-mail, and the answer is i probably am. i probably play 12 hours a week of bridge on it and i use it a lot for church. search. david: who'd you play bridge with? mr. buffett: my name is t-bone. i play with a woman in san francisco. she is a two time world champ and i am a two time world chump.
david: are you at a world-class level? mr. buffett: no. you could not have a better teacher than she is, but the student has limitations. david: you mentioned bill gates, how did you come to know him? mr. buffett: a given out because the editor of the editorial page of the post called me in the late 1980's and said war and -- warren, i have always loved the pacific northwest -- she had gone up there -- and i want to know if i would have enough money to purchase a vacation house near seattle. i said, anyone who asks me if they have enough money, does. so she bought the house and invited me and others to the house. she knew the elder gates. she called mary gates. mary went to work on bill to come, he did not want to come to meet a stockbroker. finally they started negotiating hours and she said for hours, -- four hours, and he said one
hour. when we met, we talked for about 11 hours straight without being interrupted. david: so that was the beginning of the relationship. mr. buffett: we hit it off. david: you never bought any of his shares? mr. buffett: i bought 100 shares just to keep track of what this young kid was doing. david: and he is now on your board? mr. buffett: yes. we have a lot of fun talking. david: let me ask about the philanthropic things you have done with bill and melinda. how did that idea of giving your money to somebody else's foundation come to you? mr. buffett: i originally planned that my first wife would handle the disposition of everything. we came to that conclusion in our 20's, we started the buffett foundation over 50 years ago. but i did not give away a lot of money during those intermediate
years because i thought it was compounding at a rate i could give away billions instead of millions of i waited a while. she died in 2004, so that plan disappeared. then i was faced with the question of, how do i give away this money in a way that goes to the people i want without me doing all the work? david: so you called bill or melinda one day, said guess what? i will give you the bulk of my fortune? mr. buffett: not as elegant as that. i did not just call them up -- it was done over the phone. david: you did not want your name on it? mr. buffett: that would not do any good. david: you were on the board? mr. buffett: true, but they run it. david: what are the highlights you are most proud of? the biggest deal you ever did was $37 billion.
mr. buffett: between $32 billion and $33 billion of cash, and we assumed $4 billion of debt. david: did you spend a year studying the company? mr. buffett: no. david: how much time did you spend with the coo? mr. buffett: i met the coo july 1 of last year. he happened to be calling on certain shareholders. one of the fellows in our office at a position in the stock for some time. it was an accident i met him. if i had been out playing golf it never would have happened. i win and i liked him. i heard him talk for 30 minutes. i said i will call in tomorrow. -- i said call him tomorrow. if you would like to receive a cash bid from berkshire hathaway, he would receive one. and if he didn't, forget we ever called. david: do you ever higher investment bankers to analyze the company? mr. buffett: no. sometimes they are involved in the deal and we are perfectly willing to pay a fat commission.
david: one time you told me about a story how an investment banker was there -- mr. buffett: what happened on that, i said we would pay $35 a share. american energy hired an investment banker, they sent a big bill at the end and said you have to increase your price. i said, i am not worried about whether you look good. i hung around for a week in the -- for about a week, and finally they called back and sort of pleaded, can't you increase your price somewhat so we can send the bill and get paid appropriately for our non-services? i said, ok, you can tell them we will pay $35 and five cents. and you can set you got the last nickel out of me. david: do you ever do unfriendly deals? mr. buffett: no, no. berkshire hathaway was originally an unfriendly deal. not that unfriendly deals are
necessarily bad. there are management that must be replaced. david: people must call you every day and say, i have a deal for you. how often do they pan out? mr. buffett: they do not call every day. we have made our criteria fairly clear. does relatively few that call. when somebody calls, i can usually tell within two or three minutes whether the deal is likely to happen. there's a half a dozen filters, and it either makes it through the filters or it does not. david: one time i was told you got a letter from israel, someone asking to look at your company. what are the odds that they would send you a prospectus over the transom, you would say you will buy it? and you did buy it. mr. buffett: we bought 80% of it. david: before you bought it, did you go to israel to look at the company?
mr. buffett: no, i did not go to israel. i hope it is there. david: and you are happy with what you bought? mr. buffett: absolutely. david: and you bought a railroad. and that has worked out? mr. buffett: absolutely. david: what was the theory behind that? mr. buffett: the railroad business had a bad century. they are like of the chicago cubs. everybody has a bad century. but finally, the railroad industry got modernized and it is a good business. it is not a great business, but a good business. in the fall of 2009, we already owned a fair amount of burlington northern santa fe. the price looked like we could do it at a sensible price. that was a thursday. friday i said we would pay $100 per share of the directors were interested. he checked over the weekend and the following sunday we had a contract signed. david: somebody from the white house calls and says, would you mind having a tax named after you? i said, of all of the diseases, why should -- i will take a tax. ♪
since 1776. and enjoyed what happened subsequently. we had roughly 2% or slower -- david: we had roughly 2% or slower growth the past four or five years. is it possible to ever grow 5% in this economy? mr. buffett: there will be some years. but 2% growth, if you have less than 1% population growth, means in one generation, 25 years, we will add $18,000 gdp per capita, family of 4, 70 $5,000, so we are just beginning. 1%, my life has had a lot of -- a product of compound interest. it may be better to do it at
higher rates, but if you already have a prosperous economy, and we have the most prosperous economy the world has ever seen, and you keep compounding it, over time, people will be living far better 20 years from now than they are now. david: your secretary pays a higher tax rate than you do. mr. buffett: counting payroll taxes, yes. david: you are in favor of changing that. mr. buffett: some years ago, someone from the white house called to say that they had read my views on taxation, and said, would you mind having a tax named after you? if all the diseases have been taken, i will take a tax. they refer to this -- i really do feel that anybody making billions of dollars per year should have a combined payroll and income tax of at least 30%. in my office, everybody in the office does have that except me. david: how did you become a democrat when your father was a big republican and you live in a very conservative state? how did that evolve? mr. buffett: civil rights more than anything else. i do not think about it when i was 12 or 14 years old. there was a school for blacks a few hundred yards away, it never
dawned on me how different life was for other people. then as i got to see more of the world, i decided there were a lot of things unfair and democrats seemed to be doing a little bit more about it. david: in berkshire hathaway today, you have an annual meeting that attracts roughly 40,000 people. when you had your first annual meeting, how many people showed up to that? mr. buffett: we had 12, but you have to count it katie a local fred. david: did you ever think you could build a company that would become one of the biggest in the world? mr. buffett: no. i have always just put one foot in front of the other. david: what would you like to have as your legacy? mr. buffett: i would like to be the oldest man that ever lived. i like teaching. i have been a decent teacher, -- and i have a lot of university students come out every year. david: and today, is there anything on your bucket list you
would like to do that you have not done? mr. buffett: if there is anything i want to do, i do it. money has no utility, time has utility. in terms of more trips or houses, has no utility to me whatsoever. david: what motivates you to run a company when most people your age are relaxing? mr. buffett: they spend all week planning their haircut. i get to spend all week with people i love, that is the best. david: so the greatest pleasure in your life is looking at new companies, giving away money, your grandchildren? mr. buffett: all of the above. i regard berkshire hathaway the way a painter regard to painting. the difference being the canvas is unlimited. but there is no finish line. it is a game you can continue to play.
david: any words of advice to young investor that would like to emulate you? how would they build something close to what you have done? mr. buffett: look for the job you would want to hold if you did not need a job. you're probably only going to live once. you do not want to go through -- sleepwalking through life. what you make is not remotely important, as marrying the right person, or finding something you would do if you did not need the money. i have had that job for 50 or more years. i was lucky in that i found it
early on. do not settle for something, do not worry about making the most money. when i was offering to work for ben graham, i said i would work for nothing. and i meant it. just the idea of being turned on. look for the job that turns you on, find a passion. ♪ >> david rubenstein show, peer-to-peer conversations, is brought to you by state street global advisors. there's opportunity in complexity. ♪
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