Warren Buffett was in a two-hour interview with Betty Liu of Bloomberg this morning. Here is the summary of Warren’s thoughts on multiple issues from JPMorgan (JPM, Financial) and Wells Fargo (WFC, Financial) earnings reports released this morning, to Obamacare and newspaper investing.
On JPMorgan earnings: No surprise there. They should have been pretty much worked up by now. It sounds like a whole lot of money but not much to JPMorgan. He does not think that it has hurt JPMorgan's reputation with him. Swings like this will happen; we operate in a risk business. Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) also lost about $3 billion in one day when Katrina came. The Amex scandal was much worse than JPM, but that gave us the opportunity to make lot of money.
Is JPMorgan doing the right thing: Yes, Jamie is doing all the right things needed at this point. He is clawing back the compensation, and that is the right thing to do. Dimon is one of the smartest bankers around. Banking is a risk business and once in a while you will have rogue trader. The trick is to keep exposure lower than the resources enterprises have, and Dimon has the resources and is very good at understanding risk. When asked if Dimon has spoken to him for his advice, Buffett said, “Dimon does not need my advice.” He also said Dimon is one of the smartest banker around and he ensures that he reads his annual letter. Jamie Dimon is a very candid person and speaks truth.
On Wells Fargo: It had $5.5 billion in losses in 2008; now those loan losses have come down to $2.2 billion. Wells has a sensational mortgage franchise. Wells haa done the best job of all the big players in the mortgage market and have gained share. They are doing lot of mortgage business but are not exposed much, as they are just originating and servicing and not keeping the mortgages. Fannie and Freddie are keeping these mortgages. Buffett is fine with its push in investment banking operations: Yes, their investment banking operation is more bread and butter and conservative vs. other banks
On Bank of America: Bank of America has a terrific deposit base. They made some mistakes with acquisitions. Bryan has been cleaning up, getting back to basic banking and correcting lot of wrong done. He has done a great job.
U.S. financial system: Our banks are a much smaller percentage of GDP than many other countries like Canada, the UK, Ireland or Germany. He is very comfortable with the current size of U.S. banks. Our banking system has made a great comeback vs. what has been happening in the EU and is much stronger. We should give credit to Bernanke and Hank Paulson who have done a good job.
On the U.S. housing market: We have been seeing improvement in housing, and we have seen noticeable improvement in last couple of months, with a much better balance developing between supply and demand.
On the U.S. economy: The economic scenario has changed a bit lately. Things have slowed down. Housing has picked up in the last few months.
On Europe: Europe was running its problem in slow motion for some years, and that slow motion has stopped now. They have to scramble to fix things. EU union and single currency was not a good idea. To have a common currency and not common fiscal policy is a recipe for disaster.
On Obamacare: 17% to 18% of GDP going to healthcare is a big problem vs. 10% spend in other countries. That is an 8% disadvantage. Obamacare is a step in the right direction.
On media and newspaper investments: Why he is investing in newspapers – smaller newspapers, local, big ones have lost primacy due to online media but local smaller communities news you are going to only find in the local newspapers. It's all about local. Ads will be in local newspapers but not necessarily at the same rate as in the past. Ads themselves are news, and in a smaller communities merchant needs a megaphpone to promote his product, and local newspaper is a good source to do that.
On Facebook IPO – It either came out at a wrong price or it did not come out properly. It's a terrible reason to buy thinking that it will go up the next day. It is the business which should drive stock buying. You don’t make an investment thinking that it will go up next day.
On technology stocks and their valuations: If he had known enough that Google (GOOG) and Apple (AAPL) were undervalued he would have bought them, but they are hard to analyze. They are good businesses and much more established vs. dot-coms, but the world changes fast and cannot analyze what will happen in these companies. He is not a genius and stays around the spots he is good at. He would rather buy Coke (KO, Financial).
On Berkshire (BRK.A)(BRK.B)'s holdings and Ted and Todd:
JPM: He owns 1 million shares.
General Motors (GM, Financial): He did not buy it; filings report what everyone in Berkshire is doing. They are both managing $4 billion or so. A couple of million to $1 billion is not done by him. Any multi-billion positions they make are his. They are terrific guys. He is okay with them buying into any stock without telling him.
Walmart (WMT, Financial): That is him. He has added to his holdings. It is a terrific and strong company. It was selling at $58, and at that time he looked at potential earnings and saw an opportunity. WMT has a couple million employees and in running big businesses someone somewhere will do something wrong. The trick is to find it and bring it out and fix it.
ConocoPhillips (COP, Financial): He reduced that. One of the two managers has bought into the refinery part of it.
Kraft (KFT, Financial): We will see what two parts sell for. We will need more information to decide which part we want to invest in.
On JPMorgan earnings: No surprise there. They should have been pretty much worked up by now. It sounds like a whole lot of money but not much to JPMorgan. He does not think that it has hurt JPMorgan's reputation with him. Swings like this will happen; we operate in a risk business. Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) also lost about $3 billion in one day when Katrina came. The Amex scandal was much worse than JPM, but that gave us the opportunity to make lot of money.
Is JPMorgan doing the right thing: Yes, Jamie is doing all the right things needed at this point. He is clawing back the compensation, and that is the right thing to do. Dimon is one of the smartest bankers around. Banking is a risk business and once in a while you will have rogue trader. The trick is to keep exposure lower than the resources enterprises have, and Dimon has the resources and is very good at understanding risk. When asked if Dimon has spoken to him for his advice, Buffett said, “Dimon does not need my advice.” He also said Dimon is one of the smartest banker around and he ensures that he reads his annual letter. Jamie Dimon is a very candid person and speaks truth.
On Wells Fargo: It had $5.5 billion in losses in 2008; now those loan losses have come down to $2.2 billion. Wells has a sensational mortgage franchise. Wells haa done the best job of all the big players in the mortgage market and have gained share. They are doing lot of mortgage business but are not exposed much, as they are just originating and servicing and not keeping the mortgages. Fannie and Freddie are keeping these mortgages. Buffett is fine with its push in investment banking operations: Yes, their investment banking operation is more bread and butter and conservative vs. other banks
On Bank of America: Bank of America has a terrific deposit base. They made some mistakes with acquisitions. Bryan has been cleaning up, getting back to basic banking and correcting lot of wrong done. He has done a great job.
U.S. financial system: Our banks are a much smaller percentage of GDP than many other countries like Canada, the UK, Ireland or Germany. He is very comfortable with the current size of U.S. banks. Our banking system has made a great comeback vs. what has been happening in the EU and is much stronger. We should give credit to Bernanke and Hank Paulson who have done a good job.
On the U.S. housing market: We have been seeing improvement in housing, and we have seen noticeable improvement in last couple of months, with a much better balance developing between supply and demand.
On the U.S. economy: The economic scenario has changed a bit lately. Things have slowed down. Housing has picked up in the last few months.
On Europe: Europe was running its problem in slow motion for some years, and that slow motion has stopped now. They have to scramble to fix things. EU union and single currency was not a good idea. To have a common currency and not common fiscal policy is a recipe for disaster.
On Obamacare: 17% to 18% of GDP going to healthcare is a big problem vs. 10% spend in other countries. That is an 8% disadvantage. Obamacare is a step in the right direction.
On media and newspaper investments: Why he is investing in newspapers – smaller newspapers, local, big ones have lost primacy due to online media but local smaller communities news you are going to only find in the local newspapers. It's all about local. Ads will be in local newspapers but not necessarily at the same rate as in the past. Ads themselves are news, and in a smaller communities merchant needs a megaphpone to promote his product, and local newspaper is a good source to do that.
On Facebook IPO – It either came out at a wrong price or it did not come out properly. It's a terrible reason to buy thinking that it will go up the next day. It is the business which should drive stock buying. You don’t make an investment thinking that it will go up next day.
On technology stocks and their valuations: If he had known enough that Google (GOOG) and Apple (AAPL) were undervalued he would have bought them, but they are hard to analyze. They are good businesses and much more established vs. dot-coms, but the world changes fast and cannot analyze what will happen in these companies. He is not a genius and stays around the spots he is good at. He would rather buy Coke (KO, Financial).
On Berkshire (BRK.A)(BRK.B)'s holdings and Ted and Todd:
JPM: He owns 1 million shares.
General Motors (GM, Financial): He did not buy it; filings report what everyone in Berkshire is doing. They are both managing $4 billion or so. A couple of million to $1 billion is not done by him. Any multi-billion positions they make are his. They are terrific guys. He is okay with them buying into any stock without telling him.
Walmart (WMT, Financial): That is him. He has added to his holdings. It is a terrific and strong company. It was selling at $58, and at that time he looked at potential earnings and saw an opportunity. WMT has a couple million employees and in running big businesses someone somewhere will do something wrong. The trick is to find it and bring it out and fix it.
ConocoPhillips (COP, Financial): He reduced that. One of the two managers has bought into the refinery part of it.
Kraft (KFT, Financial): We will see what two parts sell for. We will need more information to decide which part we want to invest in.
