Live on Bloomberg TV

00:00I said What do I do with this money and I said investing is just about assigning yourself the right story. I didn't want to go to college but my dad want me to go to college. Why did you come back to him. When I came back I had about a hundred seventy five thousand dollars and I thought that all I would need to live the rest of my life. Have you ever run into that guy again. No he needs protection now. When you had your first annual meeting how many people showed up at that. Well we had 12 but you had to call my aunt Katie and my Uncle Fred. Any word of advice you'd give to somebody who was a young investor who would like to emulate you. Would you fix your time please . People wouldn't recognize me if my time was fixed but just saying just wait . All right . I don't consider myself a journalist and nobody else would consider myself a journalist. I began to take on the life of being an interviewer even though I have a day job running a private equity firm. How do you define leadership. What is it that makes somebody tick . Appreciate it. The capital. All right. Well just right. All right . We're at your favorite restaurant in Omaha. All right so why do you like it so much is it the food or the price or the combination of both. It's the food and the price and the heritage I have four generations of the Garrard family we're involved here. PALCA Right. And I went to grammar school together until I've known the people over the years the stakes are great. You know the prices are right. So I had lunch here earlier today. It was very good. It wasn't that expensive . And I quite enjoyed it. Lot cheaper than New York and walked out a lot. That's why I buy. I buy people lunch here and then they could buy me the New York. It's a good deal. Good arbitrage. You grew up in Omaha but then you moved to Washington when your father became a congressman. Right. How did you start your business career in Washington with various pinball machines or golf businesses. Yeah I was like that a couple of businesses going and the best business we had was the pinball machine business which was the Wilson coin operated machine company and that was named after the high school my partner and I went to but but we had we had our machines in barbershops and the barbers always want to put us in machines with flippers which were just coming in but those machines cost four hundred and fifty bucks whereas an old obsolete machine cost twenty five bucks. So we always told them we take it up with Mr. Wilson this mythical machine. He was one tough guy. I got to tell you. So when you graduate from high school you weren't as interested in academics I assume at that time. I was not interested in your high school yearbook said he's likely to be a stockbroker. He's very good in math. Why did you go to Wharton and why did you only stay two years there. I didn't want to go to college and my dad wanted me to go to college and we didn't have as a teacher then but he probably would have done the essay for me. So he in the truth. I always want to please my dad. I mean he was a hero to me and still is but so he kept kind of a Jihye Lee me along and said Well why don't we just fill out an application for the hell of it. And so he suggested Wharton and I applied there and they let me in. And after the first year I wanted to quit and go into business and my dad said well give it one more year. And so I went the second year and I said I still want to quit. And he said well you know you've got almost enough credits if you go to Nebraska which which I was quite willing to do for one year you can get out in three years . So that's what I did. As word never called you up and said well you were a half graduate you should give us some money or they never bother you. So far they haven't tried that line but they may after they watch this. So after that you want to go to business school. Yeah I'd I'd ones some minor scholarship but the Nebraska to go to any graduate school I wanted to do that they'd give me 500 bucks and so I applied. My dad suggested Harvard. So I applied. And you didn't get in. I didn't get it . I mean it took 10 minutes for the guy. Guy Johnson near Chicago interviewed me so I spent about 10 hours going to see him and he looked at me and he said forget it. Have you ever run into that guy again or you heard from him since. Oh he needs protection now. So I guess Harvard doesn't come after you for money because they turn you down. But you went to Columbia Business School and why did you go to cumbia. Well I was at the University of Omar. What was then called the university my library in August and I was leafing through catalogs and I just happened to see that Columbia had Graham and Dodd as teachers and I I read their book but I had no idea that they were teaching. So I wrote Dean died and I said Dear Dad I said I thought you guys were dead. And I said but now I'd really like to come to Columbia if you can get me in. So you did I assume pretty well at Columbia Business School. I did. OK there you go. You worked for Mr. Graham in his partnership and how did that work. Well it was terrific in the sense I was working for my hero but then was going to retire in a couple of years. And so I was only back there about a year and a half. But but every day I was excited about being able to work for him. So what you were good at was picking stocks according to his formula which was to look for companies that were undervalued. Now we call it value investing. Did you realize that he had some principles that were very unique and is that why you followed his guidance . Well by the time I went to work for him I probably could have recited the words in his book better than he could. I read his books multiple times and so it was more a question of being inspired by him than it was by learning something new from him . Why did you come back to him. I want to come back to him all . I had made many friends in New York had a lot of friends in New York but we had two kids by that time and I lived in White Plains. I take the train and they take the train back and it didn't strike me as much of life compared to being here and all all and both sets of grandparents were alive at that time and it just and uncles and aunts and I'm always a more pleasant place to live. All right so you buy a house here. I rent a house . You rent it out. I rent a house at four hundred seventy five dollars a month. OK. And when did you buy your house that you're still in in 1958. My my third child was on the way. So you start a partnership here and how did you raise money. Well actually when I came back I had about a hundred and seventy five thousand dollars and I thought that was all I would need to live the rest of my life. I could take care of everything. So I really planned to go to school. I thought about going to law school. Just think how successful you could have been as a lawyer. That's true. I've regretted it ever since I know. So you had your first partnership when you had people cobbled together some money. How much money did you actually cobble together. Well we met one night in May early in May of 1956 and there were seven people there aside from myself and they put in one hundred and five thousand dollars and I put in one hundred dollars. So we started with a hundred and five thousand one hundred dollars and I gave them a little piece of paper called The ground rules but then ultimate you ended that partnership . I thought well what happened was that between Nikkei 56 and January 1st to 62 I started 10 more partnerships. I made a mistake. I had no secretary no accounting or anything so I . Every time I buy a stock I break it into eleven tickets. I write eleven checks. I kept eleven sets of books filed eleven tax returns. And I did it all myself and I took delivery of all those stocks as I was worried it was other people's money. So I go to the bank and have these things delivered draft. Finally I got wise and on January 1st 62 I put all eleven of the previous partnerships together and something called a buffet partnership . I ran that till the end of 1969 at which time I dissolved . Dissolve that one but then 1969 you started a new partnership . Now in 1969 I male. By that time we had about one hundred and five million dollars in the partnership and about 70 million or so all of that was in cash to be distributed and the balance was in three stocks mostly Berkshire Hathaway that I distributed pro-rata and everybody OK. And then you started buying more stocks through the vehicle Berkshire Hathaway stocks and businesses. What would you say is the reason for your ability to do this is that you studied the companies more than anybody else. You stuck to your principles. You're smarter than other people people were just caught up with fads you didn't get caught up with fads. What would you say is the reason for this success. Well the first two to quite an extent. We bought businesses that we thought were decent businesses at sensible prices and we had good people to run them. But we also bought marketable securities in Berkshire. Over time the emphasis shifted from marketable securities over to buying businesses . What was the theory behind buying a railroad because people thought they were kind of fossils as businesses. The railroad business had a bad century. They're kind of like the Chicago company everybody has a bad century now that over the years you've bought a number of companies and had stakes in companies one of the ones that I know very well is Washington Post. How did that come about. Well in 1973 the Washington Post Company gone public in 1970 one right about the Pentagon Papers type time but in 73 the Nixon administration was through. Bebe bozo was a pal of Nixon's. They were challenging the licenses of two of the Florida television stations the post on so the stock went from 37 down to 16. Now at 16 there were about 5 million shares outstanding so the whole Washington Post company was selling for 80 million dollars and that included the newspaper for big TV stations Newsweek and some other assets and no debt to speak up. So the Washington Post Company which was intrinsically worth four or five hundred million dollars was selling for about 80 million on the market. We bought most of our stock at about the equivalent of 100 million in the market . And it was it was ridiculous. I mean you had a business that unquestionably was worth four or five times what was selling bore and Nixon wasn't going to put him out of business when you're doing these analysis then and now do you have computers that help you or how did you actually read on and when you get pretty materials or how did you in those days you get the materials to read about the Washington Post and how do you do it today. Well pretty much the same way except there's fewer opportunities now. But I met Bob Woodward back and he'd just come out with all the president's men and all of a sudden there's a bull 30 years of age he was getting quite wealthy. We had we had breakfast or lunch over at the Madison Hotel. I said What do I do with this money. And I said I said investing is just about assigning yourself the right story. I said imagine Ben Bradlee this morning said to you what is the Washington Post company worth. What would you do if you have to write the story in a month. You'd gotten interview TV brokers and newspaper brokers and the owners and it's trying to value each asset. I said that's what I do I assign myself the right story and it's nothing more than that. Now there's some stories I can't write . If you ask me to write a story on you know what is some glamorous but non-profit making business worth I don't know how to write that story. But if you asked me to write a story on what is Potomac Electric Power or something like that I can write the story and that's what I'm doing every day. I'm assigning myself a story and then I go often. So you get the annual reports and then you read them just like other people might read novels you read annual reports right and then do you do the calculations of what things are worth in your head. You have computers that help you know if you need you need to carry something out to four decimal places forget it today. Do you use a computer today even. I use my bridge and I use it. I use it to go to search a lot. So you use a computer in your office use. I don't use it. I don't have one in the office but I have one at home. And like for a smart phone if somebody wants to you know get a hold of you can they get a hold of you on a smartphone or a mobile telephone. I know a smartphone is too smart for me and a computer you use rarely. Well I use it quite one of the trick questions that the Bill Gates and I give when we're talking nods is who's on the computer or more excluding email. And the answer is I probably am because I probably play twelve hours a week a bridge on it. And then I use it a lot for for search but who do you play bridge with. Is it anonymous people on bridge or no. Hi my name is T Bone and I play with a woman in San Francisco goes by the name of Sherlock and she's a two time world champ time world champion. So we're good. We've been playing together for decades and are you a world class level after all these years. No I I she. You couldn't have a better teacher than she is. But the student had limitations . Now you mentioned Bill Gates. How did you actually come to know Bill Gates. It came about because a Meg Greenfield who was the editor of the editorial page of The Post called me in the late 1980s and she said Warne I've always loved the Pacific Northwest she'd grown up there and she said I want to know whether I have enough money to be able to afford to buy a house a kind of a vacation type house on Bainbridge Island near Seattle. And I said Meg. Anyway the calls and ask me whether they've got enough money does have enough money so they don't call they don't have it. So she bought the house associate invited me and Kay Graham and a few people out to the house and she knew the elder gates. So she called Mary gates and then Mary went to work on bill to try and get him to come and Bill said I'm not gonna go down and meet some stockbroker or. And Mary wasn't very firm. Diamond said you're coming into that I'm not coming but they started negotiating HOURS AND SHE SAID FOUR HOURS AND HE SAID ONE HOUR. And this went back and forth and he came down to when we met we talked for about eleven hours straight without paying him. So that was the beginning of a relationship. Yeah we hit it off but you never bought any of his shares or you just never I bought a hundred shares just to keep track of what those young kid was doing. OK. And he's now on your board. Is that right. Correct. So the relationship has become very close and you get involved with him in many philanthropic things as well . Oh yeah yeah. We we have we have a lot of fun talking. So let me just ask about the philanthropic things that you've done with Bill and with Melinda. How did that idea of giving away your money to somebody else's Foundation come to you. Well I originally planned that that my first wife would handle the disposition of well everything that we had when we came that conclusion when we are our 20s and we started something called the buffer domination over 50 years ago. But but I didn't give a lot away a lot of money during those intermediate years because I felt I was compounding at a rate that I could give away billions instead of millions if I waited a little while. She died in 2004 so that that plan disappeared and then I was faced with the question of how do I give away this money in a way that that goes to the people I want. Without me doing all the work. So you called Bill or Melinda one day and said guess what I'm going to give you the bulk of my fortune. What was their reaction. It wasn't quite as elegant those that actually I you know asked that I don't remember that clearly but I just saw Boyd. I didn't call him up . It was not over the phone I think. And you didn't ask them to say we'll call the Bill and Melinda Gates and Warren Buffett Foundation. You don't want your name on now. I did not think that would do any good. So you were on the board of the Bill Melinda Gates Foundation now. That is true but they run it . I'm going to give my stock. What would you say are the some of the highlights the deals that you're most proud of. You know let's take one that you did recently the biggest deal you've ever done was Precision Castparts about thirty seven billion dollars per day. Yeah it was it was between 32 and 33 billion of cash. And then we assumed about four billion in debt. OK so how much did you spend. Thirty seven billion humans who spent a year studying the company. No . How much time did you spend with the CEO I met the CEO I think on July 1st of last last year and he happened to be calling on certain shareholders and one of the fellows in our office had had a position in the stock for sometimes. So it was an accident I met him. If I'd been out playing golf or something I never would have happened but I went in and I liked him I heard and talked for 30 minutes and I then said to the fellow in our office I said call him tomorrow and say if he would like to receive a cash bid from pitcher Hathaway we would supply one that he wouldn't like to receive one. You know forget we ever called. That was it. Did you hire any investment bankers. How about the analysis. No. Do you ever hire investment bankers to help you analyze a company not to help analyze. Got me sometimes sometimes they're involved in the deal and we're perfectly willing to pay off that commission . One time you told me a story about how an investment banker was hired by somebody you were going to try to buy. What happened on that was. I said we'd pay thirty five dollars a share for a company then. Then American energy and they hired an investment banker and their best manager came out and spent about a week and they they. They want to send a big bill at the end. They said well you've got to increase your price to make us look good. I said I'm really worried about whether you look good. So they hung around all mall for about a week and finally they call up and sort of pleaded and said you know catch you increase your price somewhat so that we can send a bill and get paid appropriately for our non services. And so I said OK. You can tell them we'll pay thirty five dollars and five cents and you can say you got the last nickel out of me. So that's what we paid thirty five or five. Normally you make a price and you don't buy and you ever do any unfriendly deals. No no no I didn't say Berkshire Hathaway originally was an unfriendly deal . But now we're we're just not interested. Not that unfriendly deals are necessarily bad. I mean there are managements that should be replaced but now people must call you every day and say I have a deal for you it's perfect and how often do any of these deals ever pan out. They don't call every day and we've made our Arkwright criteria fairly clear. So there's relatively few that call and when somebody calls I can usually tell within two or three minutes whether a deal's likely to happen or not . There's no there's just a half a dozen fillers and neither makes it through the filters or it doesn't. One time I was told that you got a letter from somebody from Israel correct saying I like it a I look at my company. Now what's the likelihood is somebody from Israel sends a company prospectus to you over the transom and you say you're going to buy it. And you did buy it . Yeah. We did buy it. We gave. We bought 80 percent of it at that time for 4 billion and then we later bought the remaining 20 percent. What for you bought it. Did you go to Israel to look at the company. No I did not go to Israel. I hope it's there and you were happy with what you bought. Absolutely. And you also bought one of the biggest railroads in the world . That's correct. And that's worked out OK. We has worked out OK . What was the theory behind buying a railroad because people thought they were kind of fossils as businesses the railroad business had a bad century there they're kind of like the Chicago company everybody has a bad century now and then but finally the railroad industry got rationalized to quite an extent modernized and the railroad business is a good business is not that it's not a great business but it's a good business . And in the fall of 2009 we already owned a fair amount of BNSF Burlington Northern Santa Fe and the price it looked like we could do it at a sensible price. So that was a Thursday and on Friday I said we would pay a hundred dollars per share if the directors were interested . Then he checked with the directors over the weekend then the following Sunday we had a contract signed somebody from the White House called and said Would you mind having a tax named after you. And I said if all the diseases have been taken away why shouldn't I. I'll take a tax your view still is the best place in the world to invest as the United States. Well certainly it has to be the best. It's the best I know of. And so it's been wonderful. I mean nobody has sold America shorts in 1776 and and enjoyed that. What happened subsequently. But we were having them roughly 2 percent or less . Slower growth in the last couple of years. You think that it's possible to ever grow 3 and 4 and 5 percent again in this economy. There will be some years but two percent growth. If you have a little less than 1 percent population growth means in one generation 25 years call it that we will add maybe 18 or nineteen thousand dollars of GDP per capita a family of four seventy five thousand. So we're just beginning that 1 percent . You know my my life has been a product of compound interest that it's maybe better to do it at higher rates. But if you have an already prosperous economy and we've got the most prosperous economy the world's ever seen and you keep compounding it over time people will be living far better 20 years from now than they are now. You have said your secretary pays a higher tax rate than you do and counting down and counting payroll taxes . Yes. Right. And so in favor of changing that some years ago somebody from the White House not the president called and said that they'd read my views on taxation and they said Would you mind having a tax named after you. And I said well if all of the diseases have been taken away why shouldn't I. I'll take a tax cut. And so they've referred to this but I really do feel that anybody that's making millions of dollars a year should have a combined payroll and income tax that that is at least 30 percent. And in my office everybody in the office does have that except me. How do you think you became a Democrat when your father was a big Republican and you're live in a very conservative state. How do you think that evolved civil rights more than anything else. I mean I I didn't think about it when I was 12 years old or 14 years old and I went to Alix steel and it was a school for blacks just a few hundred yards away and it just never dawned on me how different life was for other people and then as I got to see more of the world I just decided that there were a lot of things that were unfair and the Democrats seem to be doing a little bit more about it . In picture Hathaway today you have an annual meeting that attracts roughly 40000 people. When you had your first annual meeting how many people showed up at that. Well we had 12. But but you had to count my Aunt Katie and my Uncle Fred and a couple of managers. We usually had about two outsiders and when you started Berkshire Hathaway did you ever in your wildest imagination think that you could build a company that became one of the biggest in the world. Was that ever in your plans. Well no I just I've always just kind of put one foot in front of the other. What is it that you would like to have as your legacy as you think. I'd like to be the oldest man that ever lived. But now I like teaching and so if if I'd been a decent teacher and I have a lot of university students come out every year and today . Is there anything on your bucket list that you would like to do that you haven't done. I'd have done it. If there's anything I want to do I do it. That money has no utility any time as utility to me. But but money in terms of going making trips or doing only more houses or having a boat or something it has no utility to me whatsoever has a lot of you suddenly the other people which is the reason for the giving pledge. What motivates you to still run a company when most people your age are playing shuffleboard or they're relaxing or doing something . Yeah. They spend all week planning their haircut. I get to do everyday what I love with people that I love. I mean it doesn't get any better than that. And so the greatest pleasure in your life other than doing interviews like this is is what looking at new companies making investments. Giving away the money what gives you the most pleasure your grandchildren all all of the above. I mean but the truth is that I regard Berkshire Hathaway sort of like somebody that a painter regards a painting. The difference being that the canvas is unlimited so there's no finish line at Berkshire and it's it's a game that you can continue to play it. Any word of advice you'd give to somebody who was a young investor who would like to emulate you what you would recommend that they do to kind of build something close to what you've done. I think you should look for the job that you would want to hold if you didn't need a job. You're probably only going to live once Shirley MacLaine may differ with that few people but you don't want to go sleep walking through life and you'll be whether you make X or one hundred and twenty percent of X really isn't remotely as important as to whether in most cases you marry the right person and you also find something that you would do if you didn't need the money . And I've had that job for four more years and I was lucky in that I sort of found early on what turned me on that way. But but don't settle for something if you couldn't possibly. Don't worry about making the most money this week or next month. I mean when I went there I offered to work for Ben Graham. I said I'll work for nothing and I'm out of it. I mean just the idea being turned on. So look look look for the job that turns you on. Find a passion .

No schedule data available.

The David Rubenstein Show: Warren Buffett

"The David Rubenstein Show: Peer-to-Peer Conversations" explores successful leadership through the personal and professional choices of the most influential people in business. Renowned financier and philanthropist David Rubenstein travels the country talking to leaders to uncover their stories and their path to success. The third episode features Berkshire Hathaway Chairman and Chief Executive Officer Warren Buffett. (Source: Bloomberg)

More From TV Shows
All episodes and clips