2006 年 Charlie Rose：Warren Buffett, Pt. 2

Warren Buffett, Pt. 2

Tuesday 07/11/2006

https://charlierose.com/videos/21205

The second of a three-part series, businessman Warren Buffett discusses the rise of Berkshire Hathaway to a $140 billion company.

Charlie Rose: This is the Berkshire Hathaway annual meeting. 20,000 people come from all over the world to Omaha, Nebraska, for a weekend of fun, shopping and to see their hero in person.

Unidentified Male: Warren Buffett! (MUSIC)

Buffett: See my agent.

Charlie Rose: They even get to see a movie about him.

Warren Buffett: It all began with the key strategic alliance. A merger 100 years ago between Microsoft, Wal-Mart, and Starbucks. Microwallbucks (ph). However, an elite rebel force of investment bankers created me, a biogenic being who can travel back in time and stop the strategic alliance from ever taking place. I am the warrenator!

Charlie Rose: This is the annual meeting in April, 2004, and Warren Buffett is front and center. (on camera): What do you think they most want to hear this morning?

Warren Buffett: Well, that's the nice thing about taking unfiltered questions is you find out.

Charlie Rose: Yeah.

Warren Buffett: I mean, you know, the press is naturally on governance issues --

Charlie Rose: Right. Right.

Warren Buffett: -- but in the end, you know, we'll talk about what shareholders want to talk about.

Charlie Rose: Yeah. It is a kind of weather vane --

Warren Buffett: Yeah. It's - yeah.

Charlie Rose: -- of where they are in terms of --

Warren Buffett: Because, you know --

Charlie Rose: -- what their concerns are.

Warren Buffett: Yeah, we'll get 50 or 60 questions by the end of the 3:10 this afternoon, and --

Charlie Rose: Yeah.

Warren Buffett: -- interestingly enough, every question almost comes from somebody outside of Omaha. The Omaha people don't -- they seem to defer to the out of - and but we'll find out what's on their mind.

Charlie Rose: Near the end of April in 2005, we went inside to see what happens. Warren Buffett and his partner Charlie Munger sat on stage and answered questions for more than four hours.

Warren Buffett: We work together. We really don't have any choice, because he can hear and I can see. A few years ago, we have a dinner at Gorat's the day after the meeting and we were in having -- the whole family was there having dinner, the place was packed, and it started raining cats and dogs. And a waitress came to me, we were eating, the waitress said - said "I've got to tell you" she said, "It's raining like crazy outside and there's a long line and Michael Eisner is standing out there getting soaked." So I turned to Suzy -- and Michael and Jane are friends of mine, good friends -- and I said to Suzy, why don't you go out there and help them out before they get drenched. And she looked at me and said, "I've waited in line at Disneyland."

Unidentifiede Female: My name is Molly Faner (ph). I'm 11 years old and from Long Island, New York. What is your view on PetroChina?

Warren Buffett: If you come up at the break, Charlie and I will have taken all the pieces out of here that we like best, and you will be - you will get the rest. Charlie, do you have anything to add to that?

Charlie Munger: She wants to know what you think about PetroChina.

Warren Buffett: We have real owners on our board and what they make for being board members is really inconsequential, as I get reminded occasionally. Compared to their investment. And they're friends of mine, they're smart, they're very smart. I mean, they are hand-picked in terms of business brain power and quality of human being. And I really think that, you know, we have the best board in the country, but the people who want to make their evaluations by checklist, you know, whether either in terms of diversity or in terms of supposed independence -- although I don't know how anybody that's getting half of their income from board memberships is going to be independent, you know, we don't -- we may not stack up so well, but - but it's - it's a kind of board that I want to have, knowing that if I die tonight that virtually everything I have goes to a foundation. I want the foundation to have as much money over the years to spend as possible, and there's no group of people I'd rather have in charge of the decisions subsequent to my death than the people that we've got on our board.

Charlie Munger: The correct system is the LAU Brook system. LAU (inaudible) three different cabinet appointments if I remember right. Said no man was fit to hold public office who wasn't perfectly willing to leave it at any time. And the fellow who wrote didn't approve of something the government asked him to do; he could always go back and be the most sought after lawyer in the world. He had an identity to go back to and he didn't need the government's salary. And I think that ought to be more the test in corporate directorships. Is a man really fit to make tough calls who isn't perfectly willing to leave the office at any time? My answer is no.

Warren Buffett: Yeah, we have one of our directors who was -- who's been removed twice from compensation committees of other corporations because he had the temerity to actually question whether the compensation arrangement being suggested was the appropriate one. I mean, it - it's not -- it's being put on the comp committee of American corporations, as I've said, they're not -- they're looking for Chihuahuas and - and not Great Danes and Dobermans and -- and I hope I'm not insulting any of my friends that are on comp committees.

Charlie Munger: You're insulting the dogs.

Warren Buffett: The degree to which the administration or other people are worrying about the deficit and Social Security, 25 years out when they have a $500 billion deficit excluding the Social Security surplus now, I mean, it just strikes me as nonsense. Here we are deploring something that's going to happen in 20 years that's a fraction of what is happening right now while they're cheering, you know, basically. And Charlie, what do you say?

Charlie Munger: Well, that's the view from Berkshire's Democratic chairman. And the odd part of Berkshire on this issue was that the right-wing Republican who is speaking feels more strongly than Warren that the Republicans are out of their cotton-picking minds to be taking on this issue right now. Remember that the annual meeting of Berkshire as it has evolved is without an equal or precedent in the history of the world. No capitalist enterprise had ever had an annual shareholders meeting anything like the one we have. We just morphed by accident into this enormous event that everybody loves so.

Warren Buffett: Charlie is the best partner a guy could have. Now, Charlie is -- he's in Los Angeles, I'm in Omaha, and Charlie has got multiple other interests, but anytime on anything important that I want to have the world's best brain working on-- and he can usually get the answer in about 15 seconds-- I can pick him up and talk to him about. He understands everything about me; he understands everything about Berkshire. He doesn't spend all day thinking about it like I do. He's got plenty of other thing he does. But when he's needed, he's there and he's right.

Charlie Rose: Berkshire Hathaway is now $140 billion company. It began when Warren Buffett came back from New York after working with his intellectual mentor Ben Graham. When you came back from New York in '56 --

Warren Buffett: '56.

Charlie Rose: -- I think it was. Having studied and worked with Ben Graham, what was the dream? What was the ambition?

Warren Buffett: Well, it was kind of disgustingly low. I - I didn't know what I was going to do. I had about $150,000 at that time, and I felt, you know, if I earned 10 percent it would be $15,000 a year and I could live big on that at the time. I was - I was interested in reading and taking courses at the university. I took my father-in-law's course in psychology, and I thought I might go to law school. I knew there were a whole bunch of subjects I wanted to read about, and then I sort of stumbled into this partnership a few months later because seven members of the family said we want to -- we want you to handle our investments and I didn't want to do it one at a time or tell them what I was doing so I put the seven together in a partnership that had $105,100 in it. You can guess who the $100 was.

Charlie Rose: Yes.

Warren Buffett: And - and I thought that was it. And a few months later, a fellow named Homer Dodge, who had been a stockholder at Graham-Newman came out, saw me in Omaha and he said -- Graham Newman was liquidating and - and he said he'd asked Ben where to put his money and Ben said maybe Warren would be a good choice. So he joined me for I think about $100,000 at the time. And then four months later, some fellow in Omaha that read the legal notice actually, a friend of mine called me up and said what are you doing? And I told him and he did it. So I just kind of stumbled along.

Charlie Rose: You kind of stumbled along --

Warren Buffett: Yeah.

Charlie Rose: -- all of a sudden you have a partnership . . .

Warren Buffett: Right. I've never --

Charlie Rose: -- and you're making money.

Warren Buffett: And I couldn't sell (inaudible) now, but the partnership did well, and part of the partnership was buying what looked like cheap stocks, Berkshire Hathaway looked like a cheap stock. It wasn't a very - it was a terrible business.

Charlie Rose: What was your ambition then? Now you have a vehicle.

Warren Buffett: Yeah. Well, I started out by thinking I was a textile expert, but I was disabused of that notion fairly fast. I really did. I thought, you know, well, you know, what do these guys know about making textiles? They've only been doing it a few hundred years - I mean the Egyptians, I think, figured out how to weave. So, but I --

Charlie Rose: You've been in Omaha for a while or --

Warren Buffett: That's right.

Charlie Rose: I know a little bit about it.

Warren Buffett: Just turn me loose in the plant and see what happens. So, anyway, what happened was right at that period the textile business was good for a very short period of time, and so I was like a duck floating on a pond when it was raining. I was going up in the world, but I thought it was because I was flapping my wings but it was that damn rain that was coming down. And - and then when it quit raining, I mean I found out what do I know. Right.

Charlie Rose: Yes.

Warren Buffett: And then - then we went into other businesses.

Charlie Rose: Yeah. And what -- so all of a sudden -- I mean, was it -- you went into other businesses, many -- you have some cash flow coming in.

Warren Buffett: We had some cash, not - not very much.

Charlie Rose: Yeah.

Warren Buffett: But we had some cash around, and when Jack Ringwalt decided to sell his insurance companies in early '67, we paid $8.7 million, I think. $8.4 million I guess it was. $8.4 million, and we had -- in Berkshire we had, I don't know, maybe $4 or $5 million around. Maybe we borrowed a few million.

Charlie Rose: But that was your first entry into the insurance business?

Warren Buffett: That was the insurance --

Charlie Rose: Why was the insurance business attractive?

Warren Buffett: Well, it - it does control money and - and - and if you've got somebody that's doing a decent job on the insurance end and underwriting, it gives you money to invest on my end.

Charlie Rose: How much of your revenue comes from the insurance business?

Warren Buffett: Well, a lot comes from insurance, and then we have a lot of money that's generated by insurance.

Charlie Rose: Yes.

Warren Buffett: Insurance has propelled our growth, there's no question about that.

Charlie Rose: Because it gave you money to work?

Warren Buffett: It gave us money to both invest in marketable securities and also money to buy businesses outright.

Charlie Rose: And then in 1965, you have a chance to take over.

Warren Buffett: Right.

Charlie Rose: Berkshire. What happened?

Warren Buffett: After I while I realized what a lousy business I was in and we didn't get out of the textile business but I decided that - that to the extent we could, we'd try to add on other things. Interestingly enough, Charlie, I would have been better off if I did all the subsequent things without putting them in Berkshire originally. We just talked financially. Berkshire -- the textile business was a drag for 20 years, so if I instead of buying these things for Berkshire we just bought them in the separate entity, the --

Charlie Rose: Then why didn't you do that?

Warren Buffett: I don't know. But - but it worked out fine. And I've got --

Charlie Rose: But everything worked out.

Warren Buffett: Yeah.

Charlie Rose: If you look back --

Warren Buffett: Looking back, it was - it was - it was a big fundamental wrong decision from a financial standpoint.

Charlie Rose: To get involved in the textile business at all?

Warren Buffett: Yeah. I should have just gotten out of that and going on and done these other things, but --

Charlie Rose: But you tell me why you didn't?

Warren Buffett: I kind of stick with things.

Charlie Rose: It's that?

Warren Buffett: Yeah, I mean you do. Here are the things -- It's just my personality, you know? I mean, I'm driving a car after eight years, I'm living in the same house after 47 years.

Charlie Rose: Your net worth about that time was about $6 or $7 million.

Warren Buffett: That probably is about right, yeah. That's probably around right, because in 1962 when I formed - when I put all the partnerships together, it was about a million and when I wound up it was about $25. So, it probably was.

Charlie Rose: What are you thinking? I mean I'm just going to continue finding investments that I can make and everything will turn out all right?

Warren Buffett: In the mid '60s, I was running this partnership. So, I thought I was going to keep running --

Charlie Rose: Right.

Warren Buffett: -- the partnership, and then I - I got to where I didn't think I could do that well and --

Charlie Rose: Why did you think that?

Warren Buffett: Well, the market in the '60s --

Charlie Rose: Oh, the stock market.

Warren Buffett: The stock market just went crazy and - and it was a little like, you know, in 1999 and 2000. I mean, I was left behind and I didn't want to do things I didn't understand and that didn't make sense to me, but I also didn't like sitting there while everybody else was, you know, running rings around me, and my partners were probably not saying it but they might think, you know, has this guy lost it? So -- so I gave them all the money back and I gave them the shares at Berkshire and got a lot of them myself as part of that. And then I -- I just kind of got more involved in Berkshire. You know, it - it became my painting. I was only painting an hour or two a day at the start and I started painting like crazy.

Charlie Rose: So you had a stake in Berkshire.

Warren Buffett: Right. And I actually bought more, but I just decided I'd put all my money in Berkshire and ride with it.

Charlie Rose: And ride with Berkshire as a vehicle, just as a vehicle?

Warren Buffett: As this is - yeah, as a kind of an extension, a corporate extension of me.

Charlie Rose: And are you out of the textile business by then?

Warren Buffett: We got out of it -- No. We did not get out of the textile business for 20 years. I even bought another textile company. I mean, this is a-you know, I'm going to confess, I --.

Charlie Rose: Yes.

Warren Buffett: This is like - this is like a revival meeting now. I'm - I'm going to just go up to you --

Charlie Rose: We need that.

Warren Buffett: Forgive me, will you, because I -- I - I bought another textile company. I bought something called Wamback (ph) Mills in Manchester, New Hampshire.

Charlie Rose: Why did you do that?

Warren Buffett: Only my psychiatrist knows. Again, I thought I was going to solve something by doing it. Maybe I --

Charlie Rose: Solve something?

Warren Buffett: Well, you know, I thought that these two put together would do better or some crazy thing, I mean. I did it myself, too, no management consultant told me to do it. So it was - it was 19-about '85, I mean 20 years later before we got out of --

Charlie Rose: The textile business?

Warren Buffett: We got out of the textile business. And I said it's a little bit like watching a parade with all these other textile companies, and you stand up on your tiptoes and then everybody else stands up on their tiptoes and all -- you don't see any better and your legs hurt. And that's what happened with textiles.

Charlie Rose: In 1973 was maybe your first big -- first run at the "Washington Post," you began to buy shares.

Warren Buffett: Yeah.

Charlie Rose: How did you come to the conclusion?

Warren Buffett: I'd looked at the prospectus in 1971, when Charlie and I first met Katie Graham one time, and they were going public, right at the time of the Pentagon Papers. And then in 1973, the stock got very cheap because their television licenses were under challenge by Bibi Rebozo (ph), Nixon's friend. And then the stock went from I think like $38 to $16 or so in a very short period of time. And when it got down to around 20, just in a few blocks, we bought almost 10 percent of the company, and that now is about 18 percent because they've repurchased shares. When it got to about $20, that meant the whole Washington Post Company-- it had 4,800,000 shares -- the whole Washington Post Company was selling for $100 million. Now they owned the "Washington Post," they owned "Newsweek", they owned four big network television stations --

Charlie Rose: Including Washington --

Warren Buffett: --

Cbs In Washington: Jacksonville, Florida.

Warren Buffett: I mean everything, and they didn't owe any money. And if you had taken those separate parts, you literally could have been out in the middle of the Atlantic Ocean, you know, at midnight in a row boat and you could have sold them for $500 million. People would have been swimming out in shark-infested waters if necessary to buy them.

Charlie Rose: And you could have had all of it for $100 million.

Warren Buffett: For $100 million. And you weren't going to get all of it, but - yeah.

Charlie Rose: Here's what I don't understand. How come 95 people didn't see that?

Warren Buffett: It was amazing. We were buying it from big institutional investors. And they were bailing out of it. And if you'd asked any one of them what the pieces were worth, they would have said something close to what I would say, but they thought the stock was going to go down. So - so what? You know. And the stock did go down. In fact, after we bought it, it went down a little more.

Charlie Rose: So what? Warren Buffett believes that I'm not looking at the price of the stock; I'm looking at what the value of this is.

Warren Buffett: I'm looking at the property, and I'm looking at the Graham family. I mean, that stock we paid about $10 million for is probably worth $1.5 billion or more today. And they haven't --

Charlie Rose: $10 million into $1.5 billion?

Warren Buffett: 1.5 billion. And they haven't struck oil, they have not invented a cure for cancer. You know, they've just taken those properties and kept doing reasonably intelligent things and sometimes very intelligent things, but the money generated by it, and they've developed the properties they've had and they've been terrific stewards of the money. But there's -- there's no miracles involved.

Katharine Graham: Warren bought into the company without my knowing, and that's why I say luck really plays a role in people's lives. It just does. A lot of people said stiff arm him, he's buying too much stock, he means you no good. And my native instinct was, let's take a look. Let's see what he's like. And everything I learned about him was very good. So I asked him to come and take a look at the company in which he just bought these shares. He had to write me a letter when he owned 5 percent of the company saying "Dear Mrs. Graham, I just bought 5 percent of your company, and I mean you no harm. And I think it's a great company and I know it's Graham owned and Graham run, and that's fine with me." And so I got to know him and I thought, whoa, this guy's really terrific. So after he joined our board, he used to come to board meetings with about 20 annual reports and he would take me through these annual reports. I mean, it was like going to business school with Warren Buffett.

Charlie Rose: You couldn't have a better teacher.

Katharine Graham: No, it was wonderful.

Charlie Rose: Kay Graham told me that you did -- when she met you, she'd never even understood how to read an annual report, but that's what you brought to her, some sense of being - and helping her come to grips with the idea of making business decisions.

Warren Buffett: Kay was very, very smart but she thought -- because she -- this had been pushed into her by her mother and her husband to some extent in the past, she - she thought only males who had been to business school could run businesses. I mean, she - she had been -- She had the intellect; but she didn't have the confidence. And I told her my job was to get her away from looking into that funhouse mirror that she was looking into about herself and distorting it and looking into a real mirror. And when she looked in the real mirror, she'd see a person who was perfectly capable of running the "Washington Post" or any other company.

Charlie Rose: How long did it take her to learn that?

Warren Buffett: Well, it was, you know, fits and starts over time.

Charlie Rose: Yeah.

Warren Buffett: But - but she -- I had the right raw material. I mean she was good. She was good. And - and she'd had beaten into her over such a long period of time that that wasn't what she could do in life, that it took some convincing. And she had to see evidence of success and all that sort of thing. I said, Mrs. Graham, I said, you know, you control this company lock, stock, and barrel, but you're still worried about me. So I said what you're doing is you're looking at me and you're seeing fangs and I'm telling you these are baby teeth. And I said, they really are baby teeth, but they always look like fangs to you and there's nothing I can do except even - except take them out. I said even though they're baby teeth, I'm going to just take them all out. So I'm probably willing -- you call George Gillespie up here, your lawyer, and I said I'll sign an agreement that I'll never buy another share of stock in "Washington Post" unless you give me the OK, and I said I'm fine -- I want you happy with me. I don't want you nervous about me. And so George came up and I took out the baby teeth and she saw fangs falling to the floor and we got along great ever since.

Charlie Rose: OK. But then - but you already had --

Warren Buffett: We had - we had --

Charlie Rose: -- 10 million invested or not?

Warren Buffett: Yeah, we had $10 million invested. We had nine - we had 9 percent -- nine and a fraction percent of the stock. And I told her the smart thing is to repurchase your shares. I mean - and the shares I would otherwise buy you should buy for the company, and - and we'll all get richer if you do that. And - and she had a lot of other people advising her otherwise, but she finally -- she decided to do it and that's the reason we now own almost 18 percent, I believe, of the company instead of nine and a fraction percent. The "Buffalo Evening News" was bought in 1977 --

Charlie Rose: '77.

Warren Buffett: And I gave Kay first shot at that.

Charlie Rose: You did what?

Warren Buffett: I gave Kate first shot at that.

Charlie Rose: You said, I'm - if you - if you don't want to buy it, I am.

Warren Buffett: If you don't want it - yeah, I'm going to buy it.

Charlie Rose: Why would you do that?

Warren Buffett: I just felt that, you know, she'd been good to me and - and we were a big holder and they were in the newspaper business, and - and she wanted to buy things. So I just said, you know, I'm not going to - I'm not going to fight. Then I went up to see Vince Mann (ph) on a Sunday and bought this thing away from you, so -- that she otherwise would have bought, so I gave her a shot at it.

Charlie Rose: In 1983, you purchased Nebraska Furniture Mart --

Warren Buffett: Right.

Charlie Rose: -- for $60 million.

Warren Buffett: Mrs. B.

Charlie Rose: Tell me about her.

Warren Buffett: She was the woman that walked out of Russia, got on a peanut boat, landed in Seattle with a tag around her neck, couldn't speak a word of English, and the Red Cross got her out to Fort Dodge, Iowa, which is what the tag said. She couldn't learn the language. She moved to Omaha, because there were more Russian Jews here that she could talk with. Her oldest daughter started school, came home and taught her the words that she learned. She took 16 years to save $500 so she could start this company, selling used clothing, bringing her siblings and her mother and her father over here at $50 at a crack, and in 1937 took $500 and went into business and competed against all these people who had all kinds of advantages over in every way, and she killed them. And --

Charlie Rose: She killed them?

Warren Buffett: Yeah.

Charlie Rose: How was she able to kill them?

Warren Buffett: She heard about -- she was smart. She knew the limitations of her knowledge and she - she was confident within her circle of competence. She didn't get outside of it and she took care of her customer, she sold cheap, and it took her a long time, but she built the largest home furnishing store in the country in a town like Omaha with 700,000 people.

Charlie Rose: So, how did you come to buy it?

Warren Buffett: Well, I was in love with this operation. I mean, that's my kind of woman. I bought it when she was 89. She worked until 103. There was a period there where she left for a couple of years. If you went over to Mrs. B's house as I did, and you -- very nice house and you'd go in and on her sofa, her lamps, her bed there would be little green tags hanging down, because it made her feel like she was at the store. I mean, this is a remarkable, remarkable woman, and the punch line, Charlie, is, she couldn't read or write. And I - and I think every business school in the United States ought to study her. I mean --

Charlie Rose: What would they learn?

Warren Buffett: They would learn the essence of business. They would learn that taking care of your customer is what it's all about. Taking care of -- and by that I mean giving them good deals, you know, which nobody would touch and she -- and working, working like crazy. I mean, she was there day after day after day and she - she - she had a passion for it. And the truth is, if you took the "Fortune" 500 CEOs and I gave you first draft pick on 10 of them, and I'd put them in competition with Mrs. . , she'd have -- she'd win.

Charlie Rose: No doubt?

Warren Buffett: She'd win. Yeah. Michael Eisner was here, I told him the story, he loved it, and Michael wanted to - to get the movie rights. And Michael could be very persuasive, but - but I saw him stand there with Mrs. B's daughter, the same daughter I referred to earlier, you know, who's now -- who at that time was probably close to 80 or so, and - and Frances is this tall and Michael is that tall and Frances is saying "My mother wants a piece of everything." When you're an 80-year-old saying your mother wants a piece of everything, I mean --

Charlie Rose: That's great. So Mrs. B. - Mrs. B wanted them -- whatever they were going to do --

Warren Buffett: Whatever --

Charlie Rose: -- she wanted a piece of the action herself.

Warren Buffett: If they were going to make Mrs. . dolls, she wanted to own a piece of that.

Charlie Rose: And they didn't teach that in any business school to her? She picked that up from --

Warren Buffett: That's right. That's exactly right.

Charlie Rose: -- from understanding ownership was everything.

Warren Buffett: She understood business. She understood people awfully well, too.

Charlie Rose: In 1988, you started buying Coca-Cola. How come?

Warren Buffett: I don't remember exactly. Probably I read their annual report. Probably read the 1987 annual report. I'd been -- I'd watched it some. But there just comes a point, there's a tipping point, you know, in terms of knowledge you've accumulated over a period of time, price changes in the stock which had gone down some. There were heavy repurchases of their own stock. Roberto (ph) and Don (ph) were doing a terrific job. Nothing bad was going to happen to Coca-Cola, so I started buying it. Most of that in that period from the middle of '88 to early '89, but then a little program, but we put overall about $1 billion into it and it's probably worth about $8 billion now.

Charlie Rose: And you have no intent to sell?

Warren Buffett: No.

Charlie Rose: You have said, though, that in -- during the bubble --

Warren Buffett: It got overpriced.

Charlie Rose: There were some things that you might have sold

Warren Buffett: Sure.

Charlie Rose: -- and would have been wise to have sold them at that time.

Warren Buffett: If I wa running the partnership like I did back in the '60s, I definitely should have sold those stocks. I mean, they -- stocks went crazy, and --

Charlie Rose: But you do not today look back and say "I should have sold Coca-Cola when the bubble was there", because

Warren Buffett: It just -- it wasn't me. I mean, I wouldn't -- you know, I - I -- I knew it was selling at a very fancy price and I even wrote about it, same way with Gillette, but -- but, you know, I - I don't do that very often. I'm not saying I wouldn't ever do it. I mean, if we went into the wildest speculative orgy in history - orgy in history and some of these things went crazy, maybe I would sell some. But I - it's not mine -- it goes against the grain. For one thing, wonderful businesses are not that common. And if you get a big position in a wonderful business, not a bad thing.

Charlie Rose: What is this single best investment on a large scale that you have made?

Warren Buffett: Geico, twice in my life. Three times in my life has been a good investment. I mean, it was a good investment when I was -- when I was really 20 years of age and when I -- when I bought -- I put three quarters of my net worth in - in Geico when my net worth was, like, $10,000. And - and that caused my net worth probably to double or something like that. And that was - that was great at the time. In 1976, the company got in trouble, and we bought what turned out to be half of the company for, like, $40 million. And then in 1995 or so, we bought the other half for $2 billion. And that was a good deal. So it's been a triple play.

Charlie Rose: Help me understand this. You -- you're sitting with more than $40 billion essentially in cash --

Warren Buffett: Right.

Charlie Rose: You could buy some big businesses, I would assume, for $40 billion --

Warren Buffett: Right.

Charlie Rose: -- but you don't see any at a price that you want to own?

Warren Buffett: That's right. And - and when I look at the deals that have been made in the last year, there's not one I'm envious of. So I mean, it isn't like we missed them. It may turn out that - that I should have bought one of them, but I mean there's none that I feel, gee, I wish I'd bought that last year. But I hope I'll buy one tomorrow.

Charlie Rose: I mean if there's nothing, you know. You don't look at General Motors and say --

Warren Buffett: I look at General Motors. General Motors is selling for about $15 billion now. There's 500 million shares; 28 or 29 something like that. You know, and the whole General Motors company, $15 billion, and of course, that was the most powerful company in the world, you know, back when I was a kid, Charlie.

Charlie Rose: And you could - you could have it in a second.

Warren Buffett: Well, I don't know about that. But - but I certainly could buy - I could buy plenty of it.

Charlie Rose: What don't you know about that?

Warren Buffett: Well, I mean I -- buying the whole company is a different story.

Charlie Rose: How much is the whole company?

Warren Buffett: The whole company would cost $15 billion, 100 percent of the stock.

Charlie Rose: So why couldn't you pay $15 billion and get General Motors?

Warren Buffett: Well, they might not like me doing it and some other things --

Charlie Rose: Oh, sure, sure. I understand.

Warren Buffett: But nevertheless, I could buy a lot of stock at a valuation of $15 billion.

Charlie Rose: And you think it's a good buy today?

Warren Buffett: I think it's too tough to figure.

Charlie Rose: Too tough to figure?

Warren Buffett: Yeah. You know, it is a company that sells 25 percent of all the vehicles in the United States and one seventh of all the vehicles in the world and employs hundreds of thousands of people, but it's got some terrible obligations outside outstanding.

Charlie Rose: Like Fiat or --

Warren Buffett: Well, Fiat's I probably -- well, the Fiat deal they solved for $2 billion. But still $2 billion out the door.

Charlie Rose: Things like that.

Warren Buffett: But the big problem was that they really entered into contracts with the UAW that were based on their -- the economics of market dominance, and they don't have market dominance anymore. But they still have got the contracts. And I don't blame the UAW. I mean, you know, it was a free will negotiation, but they signed up. I think they're paying like two and a half people that don't work for every person that works or something like that, you know, in terms of retirement and health care, and that gets to be crushing if you're competing with people that don't have the same obligations.

Charlie Rose: You've looked at this closely.

Warren Buffett: Oh, I look at all the things.

Charlie Rose: When you read eight hours a day, you have a chance to cover a lot of --

Warren Buffett: Yeah. But General Motors -- listen, I think they're doing a great job considering the hand they're dealt. But General Motors is a huge annuity and health insurance company with a major auto company attached. And unfortunately, the huge annuity and health company has got a terrible bunch of contracts on them. It is worth some big minus number. And the question is whether the auto company is worth a big enough plus number to offset that big minus number. But you can't separate the two.

Charlie Rose: And you can't figure it out?

Warren Buffett: Well, I can figure it out, but I can't --

Charlie Rose: No, no, you can't what?

Warren Buffett: Well, in the end I can't come to a conclusion that it's obvious that --

Charlie Rose: Well, that's what I mean. You can't come to a conclusion?

Warren Buffett: Right.

Charlie Rose: Because you don't have all the facts or --

Warren Buffett: No, I've got the facts.

Charlie Rose: What don't you know? Why can't you reach your conclusion?

Warren Buffett: I don't know whether you can exist with the kind of obligation they've got and 25 percent of the market and very tough people like Toyota and all kinds of people coming at them who don't have those costs, they call them legacy costs.

Charlie Rose: Here is the dilemma. You've got $40 million in cash.

Warren Buffett: $40 billion.

Charlie Rose: $40 billion, I'm sorry.

Warren Buffett: There's a difference.

Charlie Rose: There's a difference. And you've gotten so big that you've got to make a big play.

Warren Buffett: Right.

Charlie Rose: That's your problem.

Warren Buffett: That's my problem. And I thought it was a problem when we were a lot smaller, and it was, but it's a bigger problem now. And if I'm lucky, it will be an even bigger problem five years from now.

Charlie Rose: And you.-- so tell me how the dilemma plays itself out for you.

Warren Buffett: The odds are good, Charlie, that one way or another we will find reasonably intelligent things to do with most of the money. But they won't be as intelligent as the things that we could find 30 or 40 years ago with much smaller amounts of money. Nowhere close to that.

Charlie Rose: Because there are fewer there.

Warren Buffett: Right. It just won't happen.

Charlie Rose: What's the test? What test does it have to meet?

Warren Buffett: It has to be a business I understand. It has to be a company that I think has some kind of enduring competitive advantage. It has to be a management that I like and trust, and it has to be a reasonably attractive price. Price is the least important, but it's still important.

Charlie Rose: And you'd like to own all of it?

Warren Buffett: I'd like to own all of it.

Charlie Rose: But not necessarily?

Warren Buffett: But not necessarily.

Charlie Rose: A very small -- that's a small field to --

Warren Buffett: It's a small field when you get to have as much money as we have. It was a big field 30 or 40 years ago. When I bought the Washington Post stock in 1973, and '74 there were hundreds of companies that met my test. It was just a question of..

Charlie Rose: Choosing the best.

Warren Buffett: Deciding. Absolutely.

Charlie Rose: And the one you liked the most, the combination.

Warren Buffett: Yes.

Charlie Rose: You don't have any single candidate right now?

Warren Buffett: That's true. That's why you see these tears in my eyes.

Charlie Rose: It is. Tell me the emotional feeling.

Warren Buffett: No, no, no..

Charlie Rose: I don't mean tears, but there is a certain sense of --

Warren Buffett: It's happened before. I mean, I closed up my partnership in '69 because I didn't feel there were any opportunities then in what I was doing, managing money, and there weren't. I mean, at least for me. And, you know, in 1990 and in 2000 in the general stock market, there was certainly nothing attractive and we found some businesses then. But it happens from time to time. I mean, I am not in a business where you can do something smart every day. I'm not even in a business where you can do something smart every year. But I may be in a business where you can do something smart every three or four years.

Charlie Rose: But I read every day about one more big deal by a group of private equity guys in the paper today.

Warren Buffett: Right. And they're using other people's money, and they get an override (ph), and their calculus is not the same as my calculus. And right now that enables them to pay way more.

Charlie Rose: Tell me how their calculus is different.

Warren Buffett: Well, they just -- it's money that they get from somebody else that they get paid quite a bit of money on if they don't do anything, and then they get a percentage of the upside and they don't take the down side. That is a different calculus than Berkshire's.

Charlie Rose: You have the upside and the downside.

Warren Buffett: The upside and the downside, and I'm going to keep them forever and I'm not going to dress up the accounting or rearrange things a little and resell it --

Charlie Rose: And not going to take a big fee for doing it?

Warren Buffett: No, so I don't have an exit strategy, and I'm not getting paid just to sit with a whole bunch of other people's money. It's my money.

Charlie Rose: We sat down again with Warren on June 29th, 2006, after he had made some acquisitions since we last spoke with him. Let's talk about the future of Berkshire Hathaway.

Warren Buffett: Right.

Charlie Rose: The last time we talked about the rise of Berkshire Hathaway, you were sitting on, give or take a billion dollars, about $44 billion. You didn't find anything that you were very interested in making an investment. Since then, you've made some investments.

Warren Buffett: Yeah, we've spent over $10 billion this year.

Charlie Rose: One was Iscar.

Warren Buffett: One was Iscar, which was $4 billion, 80 percent of a $5 billion business. Pacific Corps was five and a fraction billion. And we're finding a few things. The important thing is to find big things.

Ok: I'm looking for elephants.

Charlie Rose: But my question is, did anything change between, say, 2004 and 2006? I mean, because you don't look at the economy as much as you look at the business.

Warren Buffett: I only look at the business. There's never been a business that I've passed up that I liked because I had some view on the economy that maybe it would be better next year. There's never been one I've bought because I thought the economy was going to do particularly well this year. You know, I look at -- I look at a business, we're going to hold it forever. If I hold -- let's say I live 20 years. That's pretty optimistic, but let's just say I do. In those 20 years, there can be a lot of good years, there can be a few bad years in the economy, but what difference does it make? It's like playing 18 holes of golf. There's some par threes and par fives, and the only way to get to the clubhouse is to play them all. If you like golf, you play them all. I like business. So we're going to play the tough years, we're going to play the easy years. And if we got the right businesses and the right managers, it's going to work.

Charlie Rose: Why couldn't you have seen Iscar in 2004? Because it was just that company. Nothing happened to them, or nothing happened to you to make the investment in 2006 rather than 2004 except the CEO wrote you an e-mail.

Warren Buffett: That's right. I've never heard of the company in 2004. Very hard to do it if you haven't heard of the company. And I'd never heard of Eitan Wetheimer. But he wrote me a letter --

Charlie Rose: This is the guy who was the CEO.

Warren Buffett: He's the CEO and the owner and his family. And he wrote me in October of 2005. And he said -- he told me a page and a fraction about the company, and he said Berkshire's a logical home for us. And he said, I'd like to talk to you. So he came over from Israel and we talked. But if he'd written me in 2004, we would have made the deal. It would have been cheaper, too. It would have been cheaper in 2004.

Charlie Rose: But my point is understanding why you didn't see companies was nothing having to do with the economy, nothing having to do with anything other than you just simply hadn't seen one.

Warren Buffett: Yeah. Yeah. It's availability. It's availability. Sometimes it's something that happens in a family, you know, there may be more people or they may owe taxes or who knows what. I mean, we buy when they're ready to sell. And I don't go out prospecting. I let my interests be known, but I get a lot of people saying why don't you call in this person, why don't you call on that one, you know, soften them up. You know, and I don't do it, because my batting average would be terrible. You'd just -- you've got to wait until they're ready to do something. And that's when we hear about companies.

Charlie Rose: They come to you when they're ready?

Warren Buffett: When they're ready. My phone rings.

Charlie Rose: At this stage in your experience, you know pretty quickly if it's right.

Warren Buffett: Yeah, like about two minutes. I read the letter from Kathie, I knew it was right. You can tell. Have you ever met girls, Charlie, that you knew it was the right thing? I mean, I don't want to get personal, but there's some, you know --

Charlie Rose: And you know that other people would like them, but it's just not for you.

Warren Buffett: They're just not for you. They're just not for you.

Charlie Rose: Yes, exactly. But that has to do with -- I mean, you can see the numbers immediately, you've got to make an evaluation of the management. How can you do that so quick? You just have at this time in your life an instinctive knowledge.

Warren Buffett: Yeah. It's not going to always be right, but it's usually going to be right.

Charlie Rose: One more time for the criteria. It is, in terms of earnings that --

Warren Buffett: We're looking at earning $75 million pre-tax.

Charlie Rose: $75 million. You're looking at management, you're looking at --

Warren Buffett: A simpl business, one I can understand, which really means simple. And we're looking for management in place, and we're looking for a seller that knows the price he wants for his business.

Charlie Rose: The seller must know the price?

Warren Buffett: Yeah.

Charlie Rose: Is it a hard negotiation or is it pretty quick?

Warren Buffett: Very quick, because they know -- I mean, if I like the price -- if it meets the test, I can say yes very fast. I mean, it doesn't take any time really, Charlie. Now, there's others if I spent two years on them I wouldn't know the answer at the end of two years, but I do know the difference between the ones that take two years and the ones that take two minutes.

Charlie Rose: And you like the ones that take two minutes?

Warren Buffett: Yeah.

Charlie Rose: And you don't go to some investment bank to do the due diligence?

Warren Buffett: No. No. If I need them -- you know, I need a doctor maybe to tell me about my health, but if I need them to tell me about a business, they ought to be running Berkshire. I did not take money from 400,000 people to essentially start farming it out and say, well, I lost your money but this guy, I thought he was good. He just happened to be wrong. It's my job to know what I'm doing. And if I don't know what I'm doing, I don't do it.

Charlie Rose: Well, we have established that you know what you're doing.

Warren Buffett: No, no, not always.

Charlie Rose: Coca-Cola is one example. The value of your holding has gone down by about $8 billion, haven't they?

Warren Buffett: That's -- you hit it right on the button. Let's keep this quiet.

Charlie Rose: I mean, does it ever -- do you ever say, man, what am I doing here? My commitment to the end is --

Warren Buffett: No, I -- looking back, I made a mistake by not selling Coca-Cola stock when the stock was $80 a share or something. Yes, but I don't look back on things.

Charlie Rose: OK, but let me just stay with that idea. So you look back and you say when it was $80 a share I should have sold it, because that was at its top, say, or close to its top.

Warren Buffett: Fifty plus times earnings.

Charlie Rose: Fifty times earning. But it's not in your blood to want to sell.

Warren Buffett: No. But I do sell marketable securities sometimes. I don't sell businesses. But I do sell marketable security.

Charlie Rose: Sure, and this is a marketable security.

Warren Buffett: That was a marketable security.

Charlie Rose: As is American Express. As is --

Warren Buffett: Yes. But I don't sell See's Candy or the Buffalo News. I don't sell businesses.

Charlie Rose: So you're married to them for better or worse?

Warren Buffett: Yes. I've got one section in the annual report and I put it in every year, that if a business like that promises to lose money indefinitely or if they have major labor problems or something, but just because I don't think it's going to do very well or I could use the money better elsewhere or because I get offered a crazy high price for something, I don't sell them. I got offered a crazy high price for something here recently that we own, and I told the fellow that called me. I said, "I don't do it. You can look in the back of the annual report, and you'll see, I don't do it." And he said "well, I read it, but I didn't believe it." I said "Believe it now."

Charlie Rose: He thought he could buy it.

Warren Buffett: He (inaudible). He named a number to me.

Charlie Rose: And it was a good number?

Warren Buffett: It was a good number. If I was the trustee of a children's home and that was the only asset of the children's home, and it was my responsibility simply to get the best economic result for the children's home, I would have had to sell it to them.

Charlie Rose: Exactly. Since I last talked to you, you have with the consent with the -- in concert with the other members of the board, have chosen the successor?

Warren Buffett: Well, what we have, Charlie, is we have three that could do it, and every meeting of the board -- we don't have many meetings, but every meeting of the board, that's the subject. And the question is, if something happens to me that night, who do they put in charge? So they always go away knowing what they would do the next day. Now, there's -- there may be a pool of three, but we have settled on one at any time. And so if something happened to me tonight, tomorrow morning the board of directors at Berkshire would convene and they would know exactly who they were going to put in charge.

Charlie Rose: You will run Berkshire as long as --.

Warren Buffett: As long as I keep my marbles.

Charlie Rose: And you have somebody that will come to tell you that you don't have them if necessary?

Warren Buffett: Well, I -- yes, I've assigned that job to my children. I tell them they are better off if all three come in together, because if just one comes, I'm cutting them out of the will.

Charlie Rose: You have said that you want to keep -- if you could find $30 billion in acquisitions, you're prepared to do that. You just want to keep in reserve $10 billion.

Warren Buffett: About $10 billion, yes.

Charlie Rose: Now, why that break-up? Why the divide?

Warren Buffett: I think the company that writes the catastrophe insurance and all of that sort of thing that we do should have plenty of liquidity. I want Berkshires always to be the rock of Gibraltar. We've got 400,000 shareholders. We have got people who have worker's compensation claims against us who are quadriplegics that are going to be getting a check from us 60 years from now. I've got no business fooling around with anything close to the solvency of Berkshire. So I will keep it way, way over on the safe side in every respect, and having a lot of money around, you know, when you're in the insurance business like we are, I don't want to depend on letters of credit from banks or anything of the sort, you know? I don't want to -- no too big to fail doctrine to bail us out. I really want us to --

Charlie Rose: And $10 billion is the right number? Thereabout?

Warren Buffett: Well, it's the right number --

Charlie Rose: Is the insurance business still as attractive to you today as it was from the beginning?

Warren Buffett: It's always been a business that sort of fits me. I mean, it gives you the money first, so it -- the investment element is important. It also is a business that, you know, you're calculating odds on things --

Charlie Rose: That's what you like.

Warren Buffett: -- and I guess I was probably destined to be a bookmaker, but my dad wouldn't let me.

Charlie Rose: You can calculate odds. But, I mean, in the insurance business, there is the increasing number of hurricanes, increasing number of terrorism as a fact of life today.

Warren Buffett: I think so.

Charlie Rose: No matter how you can write a policy against all those things, I mean, does it make it any less --

Warren Buffett: Well, you have to get the right -- you have to calculate the odds right. You've got to get the right premium. And you never know whether you've gotten the right premium. I mean, you know over a lifetime whether overall you've gotten the right premiums for things, but you lose on some policies, and on other policies nothing happens. So you don't know at any given day or week or month whether you're doing the right thing, but over time you'll see whether your judgment has generally been right. And it's an interesting game.

Charlie Rose: Has the scandal affected it at all?

Warren Buffett: No, I wouldn't say so.

Charlie Rose: All of the controversy about AIG -- I mean?

Warren Buffett: We do a lot of business. We've got a lot of different irons in the fire in the insurance business. We've got Geico, the auto insurance, so we've got a lot of different insurance businesses, and it will be the most important business of Berkshire throughout my lifetime and probably a long time thereafter.

Charlie Rose: One thing you're doing is looking to international companies. Is it for the first time?

Warren Buffett: No, I've always been interested, but we haven't been on the radar screen very much for entire businesses abroad. People did not think of us in Germany or the U.K. or -- up to now Israel if they had a business to sell. Now, I've always looked at international stocks, and we've always owned some international stocks.

Charlie Rose: Tell me how you see the economy today.

Warren Buffett: Well, the economy is still pretty good as we sit and talk today. You know, people, they've taken lots of equity out of their -- or they've taken -- they have extracted the equity that's appreciated in their houses big time in the last few years and all that. But if you looked at the economy right today, you'd have to say it's good. Now, we've got plenty of problems, but they are not manifesting themselves in business today.

Charlie Rose: Do you worry about inflation?

Warren Buffett: I worry some about inflation, sure. Sure. Inflation is never gone, it's always in remission. And, you know, it's very easy..

Charlie Rose: Never dead but always --

Warren Buffett: It's never dead. But it -- and it's something that is man-made and governments can create, and it often times seems preferable to some alternative that's in the here and now. So you have to worry about -- any time you have governments, you have to worry about inflation.

Charlie Rose: And what about oil prices?

Warren Buffett: I'm no good on oil prices. We're using 84 million barrels a day or so in the world of oil, and if something disrupts three or four million barrels a day of supply, like something happening in Iran, perhaps, the marginal barrel will go crazy.

Charlie Rose: We're on the edge.

Warren Buffett: Yeah, yeah. We've got less reserve capacity by far than we had 15 or 20 years ago.

Charlie Rose: When you think about the dollar --

Warren Buffett: I think the dollar over time will go down, because I think we're following policies that the -- in connection with trade that will cause the dollar -- I don't know whether it will be in six months, six years, 10 years, but the policies we're following as a country will cause the dollar in my view to decline.

Charlie Rose: Primarily our trade deficit?

Warren Buffett: Our trade deficit, right. And the flip side of our trade deficit is when we consume more than we produce, we have to trade the rest of the world something for that, and we give them our assets. We give them IOUs of the government, we give them dollars initially, and then they can convert those into other assets in this country. So we are trading away assets in order to overconsume.

Charlie Rose: As you said to me earlier, we're giving away pieces of the farm.

Warren Buffett: Yeah. We're giving away pieces of the farm. We want to consume more than we produce, and so we trade away a little bit of the farm. And we've got such a big farm. I mean, you know, this is one prosperous country. So we can trade away -- we don't see it day by day. But it adds up. And it has consequences.

Charlie Rose: More severe to you than the fiscal deficit?

Warren Buffett: That's true. Yeah. Fiscal, our national debt in relation to GDP is not extraordinary. We've had plenty of times in the past when it's been higher, particularly after World War II. And I don't like it when it keeps going up as a percentage of GDP, but a very rich country can stand more debt than a poorer country, and we can handle a lot more debt than in the past. Now as that debt gets to be more and more owned by the rest of the world because of the trade deficit, it can cause problems down the line. But if you -- if you ask me whether I'd rather cure one or the other, I would rather largely cure the trade deficit.

Charlie Rose: Do you accept the argument that countries like China are locked into this dance with us because they need our markets so they're unlikely to dump American securities?

Warren Buffett: Oh, yeah, if they wanted to sell American securities, if they sell them to somebody in the United States, they get dollars with them, so they have to buy something else for the dollars. If they sell them to the French, the French now have them, you know, and the Chinese have got a claim on France. But they can't really get rid of them. They can change their asset preference about the American assets they own, but China can't get rid of American assets, basically, or the rest of the world can't unless we start exporting as much to them as we're importing, and that day is not coming.

Charlie Rose: But there are people who will suggest that there may be some catastrophic day, and we had that little tremor from the South Koreans about a year ago.

Warren Buffett: There could be a catastrophic day. I don't know the answer to that. But any time you have huge imbalances in the world and you have lots of people on hair-triggers trading currencies and stock and bonds, you have the potential for catastrophic days.

Charlie Rose: Back to the fiscal deficit and your sense of where we are. A lot of people look at the budget that they see today and they look 10 years out, and they say with the baby boom generation coming in and Social Security and Medicare, that we are looking at a huge problem downstream, that either we've got to raise taxes, cut spending, or change the age of the beneficiary.

Warren Buffett: We have to change the promises. A lot of what you see coming down the road as really large looming problems revolve around promises. And we won't in my view ever change the promise on Social Security. We may change it when you get into Medicare, something of that sort.

Charlie Rose: No politician will suggest that.

Warren Buffett: No, the wouldn't. But this country has incredible resources. It has more resources per capita than it had five or 10 or 20 years ago. I mean, we're not going backwards economically as a nation, but we have made a lot of promises. And we can have a very rich family, Charlie, and our income could keep going up. But if I promised the elder members of the family that they would all live like multimillionaires, we could get in trouble.

Charlie Rose: Tomorrow, a $60 billion friendship.