Transcripts For KQED Charlie Rose 20121127

Rose Warren Buffett and carol loomis are here. One of the worlds most successful investors and a long time friend of this program. She is the legendary Fortune Magazine writer who followed his career since he was a 35yearold Hedge Fund Manager from omaha. In 1966 she couldnt even get his name right. She spelled his name with only one t. It was an unlikely start to a beautiful friendship and to fortunes coverage of the man who weve come to know as a chairman of Berkshire Hathaway, tap dancing to work is carol loomis new book, its a collection of articles telling the remarkable story of Warren Buffett. Its also a story about friendship. Im pleased to have them together at this table. Welcome. Thank you. Rose so good to have you together. Terrific. I want to talk about the book and about the career and about Fortune Magazine and the relationship, but first this morning we all got up to read an oped by you called a minimum tax for the wealthy. And you start off bying a most investors you know, if its a good deal theyre not going to be upset about the fact that theyre going to have to pay some tax. Every investor i know. Ive never im 82 years old and im looking like diogenes at that investor who says i think ill look at this chance to pass on this money. Rose even if its a certain deal im going to call you tonight at midnight and say this is the best idea ive ever had. And will you say how much is the tax i have to pay . Rose i dont think so. You say in the meantime maybe well run into someone with a terrific investment idea who wont go forward with it with the tax he would owe when he succeeds. Send it my way. Let me unburden him. That offer goes to all viewers. Rose you have a serious purpose. What is the minimum tax that you think ought to be done today by congress and not wait for all the time it might take and all the deals it might take to reform the tax code. I think on incomes over one million that the excess over one million should be have a minimum tax of 30 . As you know, theyre talking about bringing the top tax rate up to 39. 6 and right now the tax rate is 36 . Rose if you make from one Million Dollars to ten Million Dollars a minimum tax of 30 . On the million to ten million and over ten million 35 . And the reason im suggesting that is because the 400 highest taxpayers in the most recent year we have figures for, 2009, who had average incomes of 202 million, half of those people paid at a rate below 20 . A quarter paid at a rate below 15 . And believe it or not, six, average income of 202 million paid nothing. They were members of romneys 47 . I mean and i suspect he got their vote. But just a bunch of moochers. Just a bunch of moochers. Rose they voted for him, did they . laughs but theyre well, weve conducted a survey three times in my office in three different years and the office has between 16 and probably 21 employees during that period and each time my tax rate was considerably lower im talking about payroll taxes plus income taxes considerably lower than anybody else in the office. These people made various incomes. And the tax law in many cases is not progressive. I think the tax law should be progressive. I think that when people make 15 or 20 million or 200 million and pay a 10 rate i think something should be done about that. Rose then people step forward and say well, thats because most of the income comes from dividends which is taxed at a lower rate. They would probably say most of it comes from Capital Gains and it taxed at a lower rate. Rose i mean Capital Gains. This just makes sure people who have really high incomes pay at the a rate that the people next door to them are. Rose if you had automatic powers to establish what the tax rate should be both for Capital Gains and ordinary income, what would you set it at . Well, i would probably have i would probably feel that Capital Gains should be at least at the 25 level and i would and dividends should be as ordinary income and i would have a more progressive tax system than we have. But since the lobbyists and the lawyers for the rich are so good at getting around these things i would have a minimum tax so no matter who your lobbyist or lawyer was, if you had 10 million or 20 million of income you paid at a rate comparable to what most of the people who are watching this program pay. Rose you write about and you know enormously successful businessmen and women. If you sat down on a oneandone conversation, do you think they would agree with him or not . Which are they . Well, i dont think it would be unanimous by any means. Well, the majority rose does he represent a voice in the wilderness for very wealthy people in the ideas he has about whats necessary and fair to do . I think there are a lot of people who agree with him. But im not sure that it would be over 50 by any means. Rose you think hes right . I do. I must say, my husband worked on wall street during a time when there was a lot of income associated with working on wall street and so im not talking as someone who wouldnt be subject to quite a lot of tax. And i e think problem is no ones ever talking about the payroll tax. That just doesnt ever come into the discussion. But when you add it in as warren has pointed out that you should do, it makes a huge difference and so i do think hes right. Rose you hope that the president will be responsive to this. You think its what ought to happen today. I hope the president and the congress is responsive to it. I think that i dont think we should wait around to have a there are all kinds of things wrong with the tax code. Reform is called for. Expenditure cuts are called for. But i dont want to wait around until all of that stuff is done to do some things that are obvious now. So the people who talk reform, some of them many of them really are seeking reform. But some of them are saying reform because it just means pushing things down the road another year or two. And i do not want to have something that obviously should be done be held hostage to getting everything done. Rose so therefore do the minimum tax now . Id like to say starting january 1. Rose what happens if the fiscal cliff comes and happens . What will it do to our economy . I dont think it will do that much because i think people will assume that a solution will be found quite promptly. Its a little like the debt ceiling question. I mean, people know the rest of the world may think that were idiotic at times but they dont think were going to commit suicide. And so i think if i hope something gets worked out before january 1, but if it goes a little beyond that i do not think rose so january 10 or if you guaranteed me that the fiscal cliff we would go past that, i wouldnt sell a share of stock today. Rose you have that confidence that in the end they will fix it . Yeah, and this that think economy works. Rose is it Getting Better . Its Getting Better. Its been Getting Better since really the summer of 2009. Weve had four years straight now where the stock markets given a profit of return. The economy is Getting Better. We had a tremendous bubble and when it burst it was it had ramifications for all aspects of society and it was magnified by the abuses that had taken place in wall street and all kinds of places. So the dominos were lined up. We had plenty of problems. But we have been on the mend now for three years and its taken a long time because it was a big problem but we are Getting Better all the time. Rose this book is called tap dancing to work. Why did you choose that title . laughs rose laughs ive learned a lot about the publishing world in the last few months and ive learned the title is a process of negotiation between the publisher and you and i came up with this after wed considered two or three others and the publisher just displayed great judgment. Said i think its a wonderful title, lets go with it. And thatsed what because he is a man who tap dancing to work. Has forever. Rose and has talked about it. You have talked about tap dancing. It is someone you explain what it means . It means i can hardly wait to get to work in the morning. Its the most exciting part of the day is getting there. And i theres never been a day i havent looked forward to it. Rose do you like monday through friday better than saturday and sunday . It depends whether nebraska is playing football. Rose or if theyre playing notre dame. Well, i dont want us to play notre dame this year. Rose what makes you think he doesnt go to the office on saturday and sunday . I go to the office on saturday. Rose but what you do at the office and at home is the same thing. Reading and on the phone. Im reading and thinking and on the phone and talking to friends. Theres very little difference in saturday and sunday from the weekdays. A little more action during the week, though. laughs rose this reminds me of what surprised you most about him in terms of advice. You asked him what was the worst advice . Well, we were doing a big action. He was going to be on the cover and so i without truly knowing the answer to the question i said all right, now, tell me what is the best advice youve ever gotten in your life from anyone . And he proceeded to talk for a long time about the worst advice that he had ever gotten. So i went back and told my managing editor this, which probably kind of with my head down in thinking well i hadnt come back with quite the right thing and we put him on the cover anyway. Rose well, whats interesting is the way you answered the question which is smart people told you dont go into the securities business. What did you read from that . Because you went into the securities business. Not only smart people, but people that love me and that i love them. So they were giving me their best advice. Rose because they thought you werent ready for it or because it was a bad business. They thought stocks were selling too high because the dow jones was above 200 and i always feel on almost anything that if youre going to do it, get started. And the idea of sitting around and waiting for a different time did not register with me. Now, its also possible that i was 20 years old then and that i was behaving like i was about 14 and looked like i was about 16 or something. So that may have been their nice way of telling me grow up a little bit before you do it. But beyond that, though, they did feel here are the two guys i admired the most in the world and they told me the stock market was too high. My father and ben graham and i said listen, i want to get going. I dont want to go to college. Rose youd already been going because youd been investing since you were 11 years old. Thats true but now im doing it full time. laughter rose the first time you met this guy you were doing a piece. Before you met him you were doing a piece on a Hedge Fund Guy named alfred wins low jones. Very famous. Rose very famous guy and the name buffett came up. Sam stamen, a bridge player, was an investor in this strange thing called Buffett Partnership limited. Rose yeah . And i just blithely went ahead and spelled it with only one t. So the first time he was ever in fortune we misspelled his name. I say thats the editorial we because it was i who did it. And its the only mistake she ever made. Shes never been wrong. laughs rose your husband, john loomis, met him first. Yes, he did. Rose and said what . He said i think ive just met the smartest investor in the country. And im sure like wifes do i rolled my eyes and thought, oh, yeah, yeah. Then i met him with his first wife susie and i realized how terribly impressive he was and from that day forward i thought that, too. Rose and then he formed Berkshire Hathaway. Well, hed taken over Berkshire Hathaway but it was nobody knew the name. It was totally insignificant. And so then we worked up from that one sentence with the word misspelled to two paragraphs in 1970. But by 1977 we had a 7,000 word piece by warren himself. We recognized that he was a very good writer and we went forward with that, too. And so this book has a dozen pieces by him and the one i just mentioned was only one. Rose what was that piece . The first piece. That was how inflation swindle it is equity investor. Rose people still talk about that piece. laughs im not sure what they say about it. Rose i read that. They write him about it. They write us about it. Its a famous piece. It really is. Rose if you were writing today the same kind of piece and perhaps you are other than the letter to stockholders, what would you be saying about where we are . I would do a lot of historical things and all of that but basically i would say that for most overwhelmingly for people that can invest over time that equitys are the best place to put their money. Rose i should also talk about the letter to the stockholders. You came in to do you knew her, you admired her, you thought she was the best Business Writer she ever met and still do. Yup. Rose tell me about the letter to stockholders and what you want to do with that and who youre addressing in your own minds eye . Im addressing partners that are 600,000 of them. But in my mind i usually have my sister two sisters bertie and doris. And theyre very bright. They dont work in the financial world. Theyve been gone for a year, metaphorically, and theyve got a lot of their money in Berkshire Hathaway and i want to tell them what i think is important to them. What i would want them to tell me if our positions were reversed. So i try to do that. Then i occasionally branch into an essay on something that i think may be important in the investment world generally. Rose or even the country. Yeah. Rose and you got involved in the beginning i i got involved in 197 and rose you want to take a look at this . Warren sent it to me and said im trying something new with the annual report, would you look it over and tell me what you think . And i was very timid in what i came back with. I think i suggested changing a the to an a and that seemed to work all right and so the next year he sent it again and then it became a routine where he would write it in long hand, his assistant would type it and it would come to me and then we would have drafts flying back and forth with suggestions from me. Rose well, i think theres a story in here, too, that the first thing you wrote the editors wanted to change some things. Was it the first thing . And basically they almost killed the article because you didnt want that much editing . Well, and i think that was the 1977 article. Megagreenfield, who was a famous writer for newsweek and rose right, yes. I showed her the article id written and meg very gently said to me warren, you dont have to tell everything you know in one article. laughter rose isnt there a story that one of the editors at fortune the one who was assigned to the piece and went out to omaha to get him to change certain things called up and said im not having too much luck getting him to change anything. Maybe we should think about not running this. And the managing editor said no i think its worthwhile. And so we did. 7,000 words without many pictures. Really not any pictures. Rose so what does she do now . Just dotting is and crossing laughter well, for one thing i rewrite it about ten times before i send it to her. And then i send it to her and she never tries to change content or anything but she points out when the flow is wrong, where theres lots of grammatical errors, all kinds of things and sometimes shell write this is my least favorite part of the report. laughter and usually it is, too. Rose how many years has it been, this friendship . Well, what is that . 35 . 35 years. Oh, the friendship has been longer than that. The friendship goes back to 1967. She has a charm bracelet four charm bracelets, a replica of every report. Rose whats the secret to the friendship . Well, certainly on my part all kinds of things. Shes a wonderful friend but shes also one of the smartest people ive ever seen and shes objective and in a very, very nice way she tells me when im full of baloney. laughter rose is that how you see it . Well, i do think im one of the few people who argue with him. I do think that. And i do sometimes about rose you dont have people argue with you . Um rose laughs charlie my partner charlie weve never had an argument, we had a lot of disagreements and wherever we have a disagreement his clincher always is warren, when we get through talking about this youll agree with me because youre smart and im right. laughter and im one of the few people who do argue with him. I think its only a handful. Rose will argue with him. Here is what interests me. Why is he does she the record he does . And you have said in a conversation with me he understands how to look at accounting statements and find the telling point. And it may be in a footnote. Thats true. Rose so that hell see opportunity and see the future. He will. He has an ability to do that that i think is matched by very few other investors. And he has this broad, Extensive Knowledge of business. And i think maybe i said this to you. So when something new comes up, he has a frame of reference in which to place it. And then he adds this rationalety that i really think just a handful rose what do you mean, rationalety . Well, he doesnt let emotion take over when hes considering whether to buy. He goes at the decision in a very rational way and then the price goes down and hi buys more. Whereas most people panic and sell when the price goes down. And he just is hes extremely disciplined in the way he thinks about investments. Rose this will take a long time to explain, but how is it that you know value so well . So that if it goes down you know the value hasnt changed so you buy more. And so that you know the value so youre not going to pay a nickel more than the value you see. Rose i dont want to get into the situations where i do know the value. Theres thousands of Companies Whose value i dont know. But i know the ones that i know and incidentally, it is you dont pinpoint things. Somebody walks in this door now and they weigh between 300 and 350 pounds, i dont need to say they weigh 327 to say that theyre fat. laughter if theyre in that zone im fine with it. But im also i know there are all kinds of companies i cant figure out. So i dont i do know i usually know when im dealing with companies that i understand and then i do accountings of language, and its a language that i like. Rose a language you not only understand but like. I like it. Rose because it speaks to you. It really speaks to me and when it speaks in a false voice i can detect that sometimes, too. So, you know, i mean its it is almost like playing music, you know when you look at an accounting statement. And thats not true of all companies, not true of all companies at all. But you dont have to be right about i dont have to be right about the ones i ignore. Rose when you see a footnote that says something to you, you just kind of feel an emotional its in the footnotes. Youre right. The footnotes are rose good or bad, theres a story. Theres a tipoff there. And carol is very, very good at this, incidentally, herself. Well, so far down the latter on this compared to where he is. Rose lets look at the investments that Berkshire Hathaway you still have a lot of cocacola. A lot. laughter rose you saw the value of that early on. Well, not early enough. I mean, i probably had my first soft drink in 1935 and i didnt buy the stock until 1988. laughter so i would put me in the slow category on that one. laughter rose you still have a lot of wells fargo and buying more. A lot of wells fargo. Rose value there. And the qualitys you look for, management is one. Sure. Some kind of an enduring competitive advantage. Enduring being the emphasis. I mean hula hoops were great for a while or bedrocks. But i like something where i think i can look out five or ten years and still see the same sort of advantage that maintaining. Rose so you just invested in john deere. That wasnt me. Nope. We have two other rose okay. Okay. Rose but you know what theyre doing, do you not. No. I dont want to know what theyre doing. Rose theyre hired to they manage something around 4 million. Rose you dont want to know what theyre doing . No. They have the responsibility for managing that money. Theyve got to have full authority. They cant look at me and see whether im smiling or frowning and they get paid based on how those securities do. Rose you have said youre hunting for a big elephant. You bet. The bigger the better. Rose what qualifies as a big elephant . Well, in terms of our resources probably something from 20 billion maybe up a little bit. Rose how high . Well, it would depend on how attractive that elephant was. laughter not all elephants look alike. laughter rose coming to you, carol, in just a moment. So youre looking around. How will you go about this process of looking for a big elephant . Because youve said the trigger is youve got your hand on the trigger. Absolutely. Rose youre ready to fire. You bet. Rose youve got the money. Youve got 45 billion or whatever it is. Enough. Rose enough. Youve got it sitting right there. Youre prepared to do it. How do you find the candidate . If youre talking about buying an entire business, which were talking about in this case im familiar with all the companies when you get to that size. Ive seen all the elephants. So its really a question of when they somebody at the company, the c. E. O. , the board is actually thinking about doing something. And then i can tell very quickly rose you know whether they are open to yeah, whether the initiative has to come from them because, you know, cocacola isnt for sale, wells fargo isnt for sale. Rose i. B. M. s not for sale. Sure. So i know the universe of companies of this size were talking about and if i pick up the phone one day and somebody says, you know, weve really been thinking about things and we feel that wed do better as a part of berkshire, im ready to rose this is whats amazing, carol. A lot of companies that come to Berkshire Hathaway, they wanted to be there. Thats right. They thats absolutely right. Rose think about the israeli company. Somebody says mr. Buffett, can i come to omaha and talk to you. Right. Rose and youre pretty quick on the draw to figure out whether or not you want to go forward. Five or ten seconds, yes. laughter rose talk about that. Because merge herbs is he does make up his mind in literally minutes if not seconds as to whether this is something he wants to consider further. And he will within that much time say to the guy on the other end of the phone, well, im interested. Or, well, i dont think this is for us. And he knows. Hes seen this great universe of companies and this is what im talking about. He brings this frame of reference to it and knows that this company has nothing of kind of eternal nature to offer. Like cocacola has something eternal to offer. Rose you also get in this book about biggest mistakes, right . I do. Rose whats the biggest mistake this guy has made . Well, warren himself would say that there are acts of omission where he has known that he should buy a stock and hasnt bought it. One that he cited there is fannie mae. This is before fannie mae got into trouble. But he would have gotten out, i think. But he did get out of freddie mac, which was a case where he bought a lot and did get out at the right time. And so the biggest mistakes, well, a couple of times hes been hurt by people who erred in the way that they acted. Theres no question about that. The person im thinking about had done a remarkable amount david sokol had done a remarkable amount of Berkshire Hathaway and so i dont think it was something that warren could have known that presented with a certain set of facts that david sokol acted in a way that didnt work. I bet you asked yourself that question, didnt you. Rose yeah. How could i have not seen i dont know the answer. And he did a lot of good thing for berkshire. Rose of course. But youve said the hardest thing to do and it doesnt happen that often is to fire somebody. Yeah. Its absolutely miserable. And, you know, i dont have to do it very often. But id pay a lot of money to have a designated firer. But the trouble is i cant do it because these are people that are friends of mine. Rose one of these cover stories and you have to remind me which one it was signal, i think it was the one you wrote, the big profile, of the transition from investor to c. E. O. And manager. Showing that Warren Buffett had those skills as well. Right. Well, there are several articles in the book that really pertain to that. But i think the one that you have in mind is the inside story of Warren Buffett. Rose that was the first big profile. And it was the first big article id ever written about warren. It was 1988 and he was making a transition then. At the time he had Six Companies that he called the sainted six six or seven in. I think it was seven. Thats right, sainted seven. Named like fetchheimer. But he was clearly headed in that direction and charlie was helping him because charlie was pointing out the virtues of things like cs candy and they were really at that moment transitioning to a company this had been distinguished by its investments to a company distinguished by the companies that it owned entirely. And even today i think that Berkshire Hathaway is underestimated. Warren is not underestimated. But Berkshire Hathaway and its power and might i do think is a little bit underestimated. Rose but you have a reputation for delegation. Yeah. Abdication, actually. laughter id like other people to do the work, charlie. Rose but youre not out on a boat somewhere. You dont delegate because you want to do something else. What you want to do is the same thing youve been doing everyday for a long time. You bet, yeah. I like knowing whats going on but i dont want to direct the orchestra, i want to listen to it. Rose i once asked what was the allocation of capital, he said well, send the money to omaha. Thats what allocating of capital is. Rose and the c. E. O. S of the subsidiary say they dont have to worry about it. They just ship it off to ohm ma, thats it. Rose well make it, you spend it. Is that what Berkshire Hathaway great . It gives us something to work with. Rose all right, these are pearls of wisdom. Rules of investment. Number one never lose money. Number two never forget rule number one. laughter and career advice this is important. I always tell College Students to take the job you would take if you were independently wealthy. Youre going to do well at it. You and i, true. Thats absolutely true. You know that in most companies merit is recognized and so what you need to do is to get into a company and show how good you are and you will get pushed up. Rose thats exactly what i say. I moved to new york when i was 23. We had a child, we another one on the way and i took a job with ben graham, who was my hero. And i do not know my paycheck until i got my pay until i got my first paycheck. I never asked what the salary was. I just knew i would love the job. Rose he and your dad still remain the people that had the most influence on you in terms of well, they were huge but ive had others, too. Joe rosenfield, tom murphy. Certainly my wives. Carols had a lot of influence on me. Rose she played bridge with you. laughs rose you call her up everyday. Just about everyday. Rose or she calls you . No i call her. Rose whats the conversation about . Did you see this . Just depends whats going on. Rose did you read this story . That kind of thing . Theres plenty to talk about. Big business events. Sfp your show last night. Rose which you saw the next morning. If the internet wont change chewing gum, i try to figure out how an industry or company can be hurt or changed by it and then i avoid it. Take wrigleys, i dont think the internet is going to change the way people chew gum. Well, you know, the innovations are enormously important for society. But they disrupt a lot of things and, you know, i used in one of the articles in the book the auto industry. Theres a couple thousand Auto Companies and a few succeeded barely. So auto was enormously important. I love the fact that it was invested. The airplane was important. But if you take all of whats happened in the Airline Industry since orville was down there in it theky hawk, some capitalist should have shot him down because he cost us money. Rose whats the whats wrong with the Airline Industry . Well, its a commodity product. The incremental seat cost is nothing. So they have the temptation to fill the last seat at any price and if you get four or five guys trying to fill the last seat at any price you dont get good prices. Its structurally set up so that its very, very difficult to have a sustained competitive advantage. And you get this enormous fixed investment in planes. Now youve got the plane. It costs you a couple hundred million and youre trying to fill a seat and you read in the newspaper today that your competitor is charging and you have to charge the same price. Its got terrible structural aspects to it. And i bought into it. laughs rose you also bought into the Railroad Industry. Yeah. Rose freight carrying Railroad Industry. Yeah. Rose burlington b. N. S. F. Burlington northern santa fe. Rose why did you do that . Well, the Railroad Industry carries 42 of all tonage intercity. It care reeds it carrying a ton of cargo 500 miles on as gallon of diesel. Its an enormously efficient way of moving things. And now you have four huge railroads in the United States. Theyre not going to build any more of them and it will be the backbone of the movement of goods 50 years from now or 100 years from now. Rose whats the this history with derivatives . Well, he has a checkered his we with derivatives. First of all, one of the best stories in the book is from 1987 right after the crash of 87 and its a letter he wrote congressman dingle in which he rose john dingle. Absolutely. In which he warned about what could happen with Index Trading futures Index Trading futures trading of index which was just then being about to be approved by congress and was approved by it and warren warned about that and if he had been listened to i think we would be far better off today and he has always so thats an early thing about derivatives. I think i wrote the letter in 82. Well, you wrote in the 2 but we printed it in 87 after the crash. Rose you wrote it and it wasnt printed until 87 . Fortune printed it and ran it. Then on derivatives, what i say about warren is that he really cannot ignore securities that have are mispriced. I think that he has you noticed that, huh . laughter you know, he doesnt go out and buy raw cotton or anything like that, or not very often. But derivatives in his eyes have often been mispriced so on the one hand he will be writing in the annual report warning about derivatives and on the other hand hell be buying those that are clearly mispriced. Rose mr. Buffett, i plead you. I know every single derivative we own and theyre all the product of my purchase. Now, weve bought a Company Called general rhee which had 23,000 and it cost us 400 million before we got out of those. We tried to liquidate every single one. But the 200 some that i picked i think well make money on. But im a familiar with every one of those. I think when you have an well lehman had probably a million and you get huge counterparty risks. General rhee when we went in we had over 900 counterparties. I didnt know who 300 or 400 of them were. I couldnt pronounce their names. Thats not my idea of prudent finance. Rose doesnt doddfrank speak to derivatives . It does, to some extent. But im like warren, i havent read the whole thing and i have not written about in the which case i really would have an opinion. But i could not express a strong the volcker rule appeals to me. Rose does it appeal to you . It appeals to me. Rose its the right thing . In general. I think the more banks stick with just pure banking the better i like it. They have a franchise from the United States government in that people look at their deposits and as guaranteed by the u. S. Government. Thats not totally correct but thats what they and when you have the ability to take in money from people who feel that they have the u. S. Government behind it, theyre going to give you money whether youre credit worthy or not and therefore you need some real regulation to make sure that people dont go wild with that franchise and banks with those funds and with that trust can some do some pretty extreme things. Particularly when theyve got the upside belongs to management. I dont worry about moral hazard with stockholders. They get killed in all these banks but management made lots of money and they didnt go away broke. Rose how do you assess i mean, this is part of that, i think what happened in 2008 and the subprime . Well, it wasnt just subprime but it we left rose that was part of it. We had a housing bubble like the world has never seen. Well, housing was 22 trillion at the peak out of maybe total assets in the United States of 60 trillion or something. So it was an enormous asset. 50 Million People, families, had borrowed against that and they borrowed 11 or 12 trillion. So you had an asset that had a huge bubble that was owned on margin, basically. And people thought it could do nothing but go up like in the 20s they thought stocks could do nothing but go up. So when that bubble burst, not only in housing, it just started rippling through the economy. And we found out that almost every company in the United States was a big domino and they were lined up very close to each other and they started toppling. Rose do you believe the executive there is knew what they were doing . Well, they did not see the consequences of the dominos starting to topple. People when the dominos topple, eventually they get to everybody and people did not realize how big they were, how close to each other they were and people looked at freddie and fanny which were the first ones to get in trouble in september, more or less, then wamu then lehman and then Merrill Lynch and suddenly people realized they had bank lines that wasnt going to happen so it was as close to the wildest panic i ever saw. Rose the wildest you ever saw . By far. Rose you got out of the Hedge Fund Business in end of 1969. Rose because . I got out because i didnt i had a good record up to then. I had all these people counting on me and i thought things were getting speculative and i didnt know how to make money in that period and i was competitive enough to feel that i dont want to do lousy compared to other people yet i didnt want to do the other things they were doing so the only thing i wanted to do was give the money back and i gave the money back. Rose what do you think of hedge funds today . Well, i think that i made a famous bet that carol has been keeping track of where im betting that hedge a large group of hedge funds, funds of funds will underperform the s p over time. Rose whats the bet . Well, weve got a milliondollar bet for charity out in something called long bets. But calling yourself a hedge fund is that it gives you no special way to make money and the fees associated with it are very, very high. And im i do not think the results of hedge funds in aggregate will be better than the s p which you can buy for rose in the couple years that you didnt do as well as the s p. Well, theres been a number of years. Yeah. Rose how does that make you feel . Makes me feel like i better do better next year. laughs thats my job. Have you noticed hes competitive . laughter i wouldnt be in this business if i wasnt. Rose theres also the question which is always asked of you, succession. You have said the board of directors knows who my successor is as of this moment. They know tomorrow. If i die tonight tomorrow morning they will appoint somebody they know. Rose and the person they appoint doesnt know he is the one to be appointed. Thats correct. Rose and will the role be the same role that you have . No, it will be half my role. It will be running the businesses and there will be they will run investments. My job will be split. Rose but running the business is as important to you as the investment aspect of it . Well, running the businesses will be more important over time sure. It is right now. Rose does it have the same running a business has more psychic satisfaction. Rose the friendship with bill gates, you and i have talked about this many time, with you and with bill. But for this audience at this moment, from the moment that you two had dinner together at bills mothers house and bills father started asking questions about what was the quality that was most admired and i think bill said focus. We both answered focus. Yeah. Rose and then you make a decision that when it came time after susies death that you wanted to do what she would have done to make do philanthropic you chose bill because you thought the Gates Foundation did it right . I chose five but the gates was the largest one. Rose but the friendship itself is born out of with what . Well, im its like with charlie you find the other person very interesting. You find them trustworthy. You have a good time with them and but its important to point out that there are five foundations. I just doubled what i give to each one of my childrens foundation. So they have over two billion each there but they couldnt scale up the same way as bill. Rose and the mount for Bills Foundation yeah, it would be it would be still about the same. Its 5 of a declining balance so if a stock goes up more than 5 a year the amount keeps increasing. Rose what is it knowing this man as long as you have, shared as many conversations as you have, what are you curious about with respect to him . Well, i dont see how he has as much energy as he constantly has. laughs i think he draws energy from being out like talking to you. Hes amazing about that. I worry about my getting tired while hes just out there just running around all the time. What am i curious about . Well, i wonder what he thinks in his innermost thoughts sometimes about some of his maybe not perfect investments. But im not curious about a lot because i know an awful lot. She knows every chapter of the book. laughter she knows it all. laughter rose i know a lot of it. I know you do. Rose doing the book, as a matter of fact, refreshed everything that i knew. Rose there was this item, too. Berkshire hathaway has overcome general electric. Its now the sixth Largest Company in terms of market value i havent looked that doesnt surprise me in this area. Rose does that mean anything to you . Well, it means rose i bet it does i bet it does what means something is having it outperform the general market over time. I mean that my job is to do better for my investors than they would do if they were doing it themselves. And since we retain all the earnings, weve gotten very large, but well get a lot larger. Is. Rose when you first met him, i think Berkshire Hathaway was 22 a share, Something Like that . Thats right. Rose its now 133 . I dont know where it is but thats the same stock, 22 to 133. Its remarkable. Rose let me come back to the Nations Health and the global economy. Europe . Europe is still drifting downward to some degree. We have businesses that operate worldwide and actually asias coming off the best rate of growth. But theyre coming theyre coming down somewhat. Rose no longer in double digits . Europe has been sliding for some time and the u. S. Actually is i would say strongest relative to where it was six months ago or nine months ago. The housing is coming back big time. Rose and the emerging nations . Even brazil, theyre all higher. Yeah. But five years from now, ten years from now, the world every will be doing better, in my view. Rose because . Just because capitalism and market systems work. Its been working since 1776 here and it wasnt because we had stimulus programs in 1794. Its because, you know, a system our system unleashes peoples potential and weve got 312 Million People that want to do better tomorrow than today and over time that works. Human potential is still untapped to a big degree and our system does unleash it over time and we do it in fit and starts but this country goes forward and it will continue to go forward. The luckiest person in history on a probability basis, in my view, is the baby being born in the United States today. Rose more so than china . More so than places for where the basis s lower and theyll have a greater opportunity to yeah. Rose whats created the most number of billionaires in the last three years . I dont know about the last three years but finance created a lot of them and i would say that relative to their contribution to society, a disproportionate number rose well, thats a point thats made. Some people argue that the Financial Sector is too large a percentage of our economy. When you get a huge capitalistic system, just the crumbs that fall off the table can make people very rich. Particularly if theyre very good at getting other people to hand them their money and if they get favored tax treatment and a bunch of things. I said a long time ago that if you want to get rich per point of i. Q. And per everything of energy, just hold your nose and go to wall street. That doesnt mean theyre charitable people or anything like that, it just means the payoff is so much greater relative to what you bring to the party than it is in most aspects of society. Take journalism. Rose buy newspapers, Community Newspapers . Yeah. Rose that because you had an opportunity to buy from that particular company, a number of them . Or you believe in Something Like rupert murdoch, its in your blood. Its in my blood but i wont pay a price that reflects the fact thats in my blood. laughter rose have you ever paid i mean, i believe you could argue that rupert, for example, would buy something because he had to have it and pay more. Thats right. Rose believing that he could make some kind of efficiencies and hed still have it. Have you ever done that . No, i wouldnt do in the Berkshire Hathaway. Rose thats what you owe to your stockholders . Yeah, its their money. We dont taken a editorial i dont dictate an editorial position i voted for obama. We have 12 newspapers that endorsed ten of them endorsed romney and im the c. E. O. But two papers endorsed obama which who i voted for and ten endorsed romney. Rose speaking of obama, the president , do you think hell be different in the second term . Somewhat. He wont rose what makes you think that and how . I think second terms are different than the first terms. Rose first terms can be full of land mines, too. They can be. But in the first tomorrow some extent you and your party have to be thinking about your reelection. And a second term certainly frees up that aspect of it and then the question is how effective you can be in Getting Congress to work with you. Rose you have access to him. He calls you and ive never called him. laughter ive never called the president. Rose but you talk to him on the phone and go meet him. Do you think he has a new attitude about business thats come about because of the first four years . I think that in the first term he felt that business misunderstood hoopl and i think that business felt that he misunderstood they were misunderstood. I think they rose do you think he believes and understands that business is the place where jobs are created . Oh, theres no question about it. He knows hes dependent on capitalism working and that business is part of that. I think to some extent when people do feel misunderstood by the other party it can develop its own dynamic. Rose thats what happened here. But i think both sides should just say forget it. Wipe the slate clean and its sometimes a good idea in human relationships, and a particularly good idea when the countrys wellbeing is at stake. So i would recommend both sides just say maybe i was misunderstood by you but forget it we Work Together going forward. Rose do you think he wants to do that . I think he wants to succeed big time. And i think he will and i think the economy will be a help. But neither side can roll over in term t things they feel strongly about but i feel that the rhetoric should be very civil all the time and i think that you look for ways to work with each other. Does this send a big signal to the country if he would appoint as secretary of the treasury someone like jamie dimon . Or jamie dimon . Well, i think that might be a big signal. Rose appointing jamie dimon as secretary of the treasury . I think hed be terrific because i think he if we did run into problems in markets i think he would be the best person you could have. Rose he knows that much about markets and i think World Leaders would have confidence. Rose so when you see a problem that jamies had with london and all that, what do you mark that up to . If you run a 2 trillion institution if i run berkshire for decades, some things are going to wrong go wrong. If you run an army, if you run a church, if you run a government, any Large Institution people go off the reservation sometimes and sometimes theyll get away with it and when you work in a Financial Institution you can add a lot of zeros. So, you know, obviously there was a failure of control but there had been failures of control at berkshire. I am going to make mistakes. I hope i minimize and catch them fast but there could be big mistakes. Rose should bowlessimpson be the operating model from the menu they operate on and do you believe thats the direction to go . I think the menu should be something that raises 18. 5 of g. D. P. And revenues and embodies with no loopholes, basically, the idea of a progressive tax system and i think expenditures should be reduced to the 21 of the g. D. P. Level and that will be sustainable, those ratios. Rose you want to eliminate the deficit or the debt . It eliminates it does not eliminate the annual deficit. It keeps the debt as a percentage of g. D. P. Constant. Rose and thats what we can live with in essence. We can live with it. The net debt is around 73 or Something Like that. That was 120 coming out of world war ii. And it will stay in the 70s, might even come down into the 60s, the 18. 5 and 21 wont increase the ratio of debttog. D. P. And it may very well bring it down slightly. Rose what has this meant to you . This friendship with Warren Buffett . Its been a wonderful friendship. Can you imagine the chance to Warren Buffett about almost anything . To ask his opinion about every story youve ever had on your mind . Its its priceless. And its been price tlos go at this book and to see it all put down again, to add my introductions and to see how good fortune was at staying with this man as as as i say, we were standing by while Warren Buffett was becoming Warren Buffett and it was a remarkable thing that we were allowed to do and i loved it. Rose im smart enough to give her the last word. laughter rose you are smart. Rose this book is called tap dancing to work Warren Buffett on practically everything. From 1966 to 2012. Collected and expanded by carol j. Loomis. Thank you. Thank you, charlie. Thank you, charlie. Rose thank you for joining us. See you next time. Captioning sponsored by Rose Communications captioned by Media Access Group at wgbh access. Wgbh. Org this is n. B. R. Susie good evening everyone. Im susie gharib. New estimates show going over the fiscal cliff could cost the economy, the equivalent of four times what shoppers spent over black friday weekend. Tom im tom hudson. Its cyber monday, and shoppers