Warren Buffett on what he 'gets' about the economy, investing mistakes, and inflation

Berkshire Hathaway CEO Warren Buffett attends the Fortune Most Powerful Women summit at Mandarin Oriental Hotel on October 5, 2010 in Washington, D.C.

Perhaps no one in world of economics and business is paid attention to more than Warren Buffett. He runs Berkshire Hathaway, he has for decades, and throughout that time Carol Loomis of Fortune Magazine has been following his career. Loomis has just put together a new book called Tap Dancing to Work. Warren Buffett and Carol Loomis sat down with Marketplace Morning Report host Jeremy Hobson to discuss topics ranging from the economy to philanthropy, investing, and McDonald's.


On what Buffett "gets" about the economy that few others do:

Buffett: I have an overriding view that there has never been an economy like the American economy and that basically we're just getting started. We have a system that unlocks human potential. It's been doing it for a couple hundred years, it's going to be doing it for many hundred years to come. But I don't think that view is unique to me, but I do hold it consistently. And then I look at individual businesses as we go along to try and figure out ones that are going to do very well over time... I haven't been swayed by emotion as much as other people. It doesn't require any brains to figure out 15 years ago that maybe Coca-Cola has got something that's going to sell a little bit in the future. I don't get carried away with trends or get envious of how people are making money in something that I don't understand. I sort of stick with what I understand.

Loomis: I think he has an upbeat personality, but it's really grounded in rationality and intelligence. I'm sure I've been swayed by him, but I really believe in what he says and that he's thought it through and I would agree, I'm bullish about the economy as well. His genius is in capital allocation and that's the thing that he brings to the party that most other people do not bring. Some CEO's have no ability to deal with the allocation of capital. You better get away from those stocks, by the way.

Marketplace Morning Report Host Jeremy Hobson (L) with Fortune Magazine editor-at-large Carol Loomis (C) and investor Warren Buffett (R)Buffett (R) was joined in his interview with Marketplace Morning Report Host Jeremy Hobson (L) by Fortune senior editor-at-large, Carol Loomis (C), who compiled and edited articles about Buffett from the past 50 years into a new book called "Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2012: A Fortune Magazine Book."
 

 
On whether his success has something to do with living in Omaha, Nebraska:

Buffett: I think it helps to be away from lots of chatter no matter where it may be -- whether it's Los Angeles or New York, you name it. I don't want to hear what a lot of other people think. I just want a lot of facts. I want to sit there unaffected by whether it's sunny or cloudy outside or anything of the sort and certainly unaffected by whether the people around me are feeling great or feeling terrible. I just want to look at the facts and see where they lead me... I don't care what other people think at all. In the end, I'm not handing my money over to anybody else or my shareholders' money. If I can't understand it myself, I'm not going to do anything based on somebody else's view.

On the biggest investment mistake Buffett has made:

Loomis: Among the examples you would find in the book, he made a large investment in ConocoPhillips a few years ago that didn't work out that well. He sold it, took a large loss, which is not very common for Warren. I mean, he just doesn't have that many losses on his books to take. So that's probably the biggest thing that I think of right now.

Buffett: I bought a company called Dexter Shoe, for example, in the mid-'90s and paid $400 million, a little more than that, and it went to zero. But the worst part of it was I paid $400 million in stock, so considering where the stock is now, that probably cost me maybe $3 billion or something.

On whether there is trading being done today that doesn't need to be done:

Buffett: Oh overwhelmingly. People don't need to trade. I mean if you decide to buy a farm, you buy it... based on what the farm's going to do. You don't get a quote on it every day. You don't get a quote on it every year. You look to the asset itself to see whether you make a satisfactory investment. People -- when they buy stocks and sell them a week later or a month later or have target prices for them and all that -- it borders on gambling and sometimes it's outright gambling. People love to gamble. People travel thousands of miles to do unintelligent things. It's a very human characteristic, but it can be expensive if done any place -- and particularly in the stock market... The propensity to gamble is terrific. And then when you get things like the Internet that make it very easy to day trade or something of the sort. Just look at the lines around lottery tickets. I have no interest in gambling. I think investing is so much fun and profitable.

On whether Wall Street is still in the business of creating capital for businesses:

Buffett: Well, it does that. To some extent it’s like a large building and it has a wonderful restaurant in one place and it has a casino in another place. Sometimes the casino is too attractive to have many people in the dining room. 

On what Loomis has learned about Buffett in writing her new book:

Loomis: I’m not sure I learned anything new. I really know Warren Buffett well. I could have written several books probably. But I really was impressed early in the book to come across an example of when he was helping run [Grinnell College’s] money. He just stood by while other people invested Grinnell’s money in a company being started by Bob Noyce -- that was going to turn out to be Intel, a very famous company. And Warren, he didn’t object at all, but he just said, ‘you know, I don’t know anything about semi-conductors, and so this is really not something into which I should have any input.’ And that consistency in how that carried forward -- he was saying the same thing in the bubble while being amazed at how far the bubble was going. I think I really came away impressed by his consistency of thought.

On how it feels to make others into millionaires:

Buffett: Well, it’s nice -- there have been some billionaires too [laughs]. They went with me early, they are my age, in their eighties. They give away a lot of money. It’s been particularly helpful in Omaha and Nebraska. It’s nice to have your friends grow prosperous with you. 

On whether giving away money is a responsibility of the wealthy: 

Buffett: It's hard for me to understand why they don't. I have everything in the world I want. There's literally nothing that money can buy that I want. If there were, I'd go out and buy it today. I have all this excess left over and it can do a lot of good for other people, it can't do any good for me. I'm enormously fortunate. Everything I want, I have. I think when you get to that stage in life and your money will let people live, it will let people get educated, it will do all kinds of things for other people. And all it will do for you, maybe you want to build a tomb like the pharaohs or something like that and have people come around a thousand years from now and say, 'There's where old Warren is.' I just think it's a little crazy if you don't get it into the hands of people where it's useful.

On whether the so-called fiscal cliff will be avoided:

Buffett: I don't know the answer to that. We may run over a little bit. We're not going to run over by six months or anything of the sort. It may be that it requires the passage of New Year's Eve to get people to act, but it will not be something that we're talking about a year from now.

On how to get past gridlock in Washington:

Buffett: We finally get 535, or a majority of 535 people to realize that they really have to behave like grown-ups, and they have to raise, perhaps 18.5 percent of GDP in revenues and they can spend 21 percent. And if they do that, they’ll have a happy household. And no matter how rich a household is, if it spends way more than it takes in, it’s going to be unhappy and its going to have unhappy members. It’s not a complicated proposition, they really all know the equation. We’ll get an answer.

On how the U.S. can back to 4 percent or more growth:

Buffett: Well, 4 percent's a pretty big number. But even, take a subpart, 2 percent. If we have 1 percent population growth and we have 2 percent real growth in output, that's 20 percent in 20 years. If every generation lives 20 percent better than the generation before it, that is not bad. I think we'll do better than that, but 20 percent is not bad. 

On what his biggest economic concern is in the year ahead:

Buffett: I think we run the risk always of substantial inflation. Not immediate, but it's so much easier for legislators to print money to try and solve problems. And it solves them for a very short period. It feels very good. If I had a printing press in my basement, I'd probably use it. So I can't really condemn those legislators. But I think in a democracy it always looms as a threat and only vigilance on the part of legislators and the Federal Reserve and really the public will really keep it from being abused at some point. 

On Buffet's best and worst year in business: 

Loomis: Oh my goodness, well statistically I’d have to have the annual reports [laughs]. Warren help me out – what is the best year you’ve had?

Buffett: The best year I’ve ever had is 1954. That actually was the best year for the stock market in my history. I did almost 100 percentage points better than the Dow Jones average in that year. I was working with a very small amount of money, that made it a lot easier, but listen, the best year is the next year.

Hobson: You’re always looking forward, and what about the worst year?

Buffett: Well, the worst business year -- the worst year personally is when somebody close to me would die, obviously. But, statistically, perhaps 1999 or some year like that when the Internet bubble was on and we weren’t participating. But that doesn’t really make any difference to me. I’m looking at what I’m doing with the money, if I feel satisfied with it. What other people are doing does not bother me. 

On what his favorite meal is from McDonald's:

Buffett: It depends on what time of day. I get a Sausage McMuffin in the morning. Sometimes I get two of them and I put the sausage parts together. I call that a "Sausage McBuffett." But I'll get a quarter pounder and fries at lunch. A lot of times I'll send out and just get a strawberry malt for lunch. I like the same things I liked at my fifth birthday party. That was a big day -- hot dogs, hamburgers, chocolate sundaes.



About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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