Warren Buffett and Charlie Munger Q&A Part 3
Question: Will the health care act affect Berkshire Hathaway (BRK.A)(BRK.B)?
Warren: We’re not sure. We don’t know of any units that don’t have health care. Health care was a huge cost for us. Do few things on a centralized basis but we have not assessed figures of the quarter. We saw a few units’ costs rising 10% to 12%. We’re not trying to centralized headquarters.
Question: What are your capital spending plans? And do you owe your success to timing?
Warren: I was born in the U.S. so I had a huge advantage, and I was born male so I had a big advantage. I’m not sure in the business world if I was born in 1930 the time could have been better. I was conceived in November 1929 when my parents had nobody to call on and no TV, so here I am, luck the crash of 29 came along. It caused a lot of people to be turned off on stocks like the last crash. Business was a terrible environment. Every baby born in the U.S., on a probably basis, will do better in all kinds of ways than I do. In the investment field, it is not as good as it was in 1950. But a person with a passion for investing coming of age likely will do better and live better.
Charlie: Competition was weak in the early days. Competition is not as weak now. There is surely an advantage from exiting between not mean more to do ahead.
Question: If you can imaging yourself at 30, how have you changed, and what advice would you give yourself, and how would you give the advice in a way that you would actually take it?
Charlie: It’s so old fashioned and boringly trite. Keep plugging along. All old virtues still work. And work where you’re turned on.
Warren: We met in the grocery business. I’m not in the grocery business now.
Charlie: You were not promoted either. Even though you had the family name.
Question: How concerned are you about
Warren: I hate dumb competition. And a lot of hedge funds have entered into the hedge fund business aggressively in the last few years. It gives them an opportunity to operate in Bermuda and avoid taxes. It’s respectable and sold to investors. Anything Wall Street can sell it will sell. It’s very sellable now. Money is flowing in and bringing down prices. In the end we know what we’re willing to do and do what we think will get us underwriting profit. If a hedge fund guy is willing to sell gas and buy first, he has a problem. In the 1980s we had expense ratios up and volume down. Standby costs were real, but not backbreaking. We look forward to better days and they came. Never anticipated it would happen. We’ve been luck to get people – Jain and Nicely. We hit the jackpot of people and like not having pressure to do…
Question: I noticed your boardroom reflects the fact that women are not hired for top jobs in corporate America.
Warren: I wrote an article for Fortune and you can see my views on that. There’s no question that throughout my lifetime women have not had the same shot as we have. My sisters were as smart, grades were good, and more personable than me. My parents loved them. All my teachers were female and because they only had a few occupations available to them. Improvements have been made, but there is a long way to go. When people are placed in that position they start believing it themselves, so they don’t envision more. Katherine Graham was an intelligent woman and told woman couldn’t run a business as well as a man. She knew it wasn’t true, but couldn’t get rid of it and secretly told herself that. The stock went up 40% under her and she wrote a Pulitzer Prize-winning biography. I hope it keeps moving and moving faster. I hope females hearing this will not see themselves in funhouse mirrors.
Question: Is Berkshire too big to fail? How about DF and how does it impact insurance and Wells Fargo (WF) and Goldman Sachs (GS).
Warren: It won’t affect it to my knowledge. Capital ratios for long banks at high levels and affects return on equity. Cap ratios increase and return on equity will increase. Banking in the U.S. is stronger than in the past 20 years. Compared to the EU or 20 years ago, it’s dramatically stronger. Don’t worry about banking being the cause of the next bubble. Usually we don’t get to a bubble the same way we got to the last one. I feel good about our investments at MNT and WFC. We won’t earn as much return on equity because the rules change.
Charlie: I’m less optimistic in the long term. I see something more extreme. I don’t see why massive derivatives books should be mixed with deposits of people. The more banks act like investment banks, the less I like it.
Warren: Five years ago I wrote about investors getting sold predictions. I offered to beat bet a group of hedge funds that they could not beat a no-load index fund over five years. Each put $350,000 into a zero-coupon treasury at $1 million. Interests rates have gone down, so from an investment of $950,000 sold zero-coupon and bought Berkshire Hathaway, now worth 1.2 million. Hedge funds have returned 0.13% and the S&P returned 8.96%, at the half-way part. If it does well we’ll have more than $1 million to give to charity. You can see it on Longbets.com, where there is a bet a large hadron collider will destroy the earth in 10 years. And one that says one human in 2000 will be alive in 2150 – Charlie?