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Warren Buffett: Just Looking At The Price Is Not Investing | CNBC

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our special guest this morning is the
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chairman and CEO of Berkshire Hathaway
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Warren Buffett and Warren we've talked
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about a lot of things this morning we've
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got briefly your thoughts on the markets
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but there's been a lot that's happened
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to the markets since the last time we
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sat down with you volatility is back in
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a big way and that has the average
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retail investor kind of questioning what
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to do at this point it's it's scared a
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lot of people what do you think's
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happening right now just in terms of the
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return of volatility is it something to
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be worried about what's causing it
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well if you own stocks like you don't a
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farm or apartment house you don't get a
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quote on those every day or every week
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think you look you look at the business
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and the value of American business
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depends on how much it delivers in cash
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to its owners over between now and
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Judgment Day and and I don't think it
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changes in 10% and in a two month period
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if you if you're looking at business now
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you've got anything can happen in
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markets I mean anything can happen to
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mark is them that's why they don't ever
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borrow money against securities that the
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markets don't have to open tomorrow I
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mean you can have extraordinary events
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so I think to some extent you can get
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some of the instruments that people
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don't understand very well that have a
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lot of firepower at them yeah and the
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idea of people taking a position and
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they're gambling they're not investing
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nobody's investing when they buy you
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know some supercharged index on you know
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the VIX does or something like that they
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don't need it and there are it's an
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unnecessary instrument out you know they
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will create instruments that the public
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will buy and you can just count on that
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Wall Street's been doing that for since
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they meant under the Buttonwood tree in
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1792 or whatever was on the exchange so
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but if you're investing if I'm gonna buy
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a half interest in the MacDonald stand
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and you're gonna run it for McDonald's
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franchise you're gonna run it I look to
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the business to determine whether I made
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a good investment and I'm concerned
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about you know whether we have new
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competition how we do over the year but
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it's the business I look at when you're
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just looking at the price of something
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you're not you're not investing I mean
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if if you buy something Bitcoin for
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example or some cryptocurrency
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you're not looking to the asset itself
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to produce anything if you buy an
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apartment house you're looking at all
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the apartment houses your biopharm you
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look at the farm to us if you buy a
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whole business you're looking how the
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business does if you buy a part of a
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business why shouldn't you look at how
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the business is going to do that people
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get charmed by by lots of action and the
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fact that things are liquid and all of
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that and it does have repercussions back
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into the market when you get something
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like you know AETN arrangement on the
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you know supercharged on the VIX I mean
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where you can lose 90 percent of your
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money in one day I mean that really
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doesn't belong with the word investment
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I mean it's just it's a gambling form of
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Act although you've said yourself you
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you talked about this in the annual
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letter over the weekend and just even at
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the top of the show where when you look
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around for a business that you want to
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buy you can't find any and attractive
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levels however when you're looking at
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equities you do see that as a good place
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the Berkshire has been a net purchaser
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of equities this year in 2018 and that's
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because you like the deals that you're
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getting in the market you can buy small
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pieces of businesses for less than you
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can buy whole pieces of business and a
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premium you'd have to pay younger buying
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the whole yeah so you get a bargain as
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an industrial competitiveness and people
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if they just think of stocks as pieces
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of business they'd be so much better off
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and thinking on those little things that
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move around in price and and and I think
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with Berkshire we have an unusual number
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of people the shareholders we just look
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at Berkshire as a business a savings
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account that put some money in 20 or 30
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or 40 years ago we retain it reinvest
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for them but we're where their savings
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account and and that's the way I look at
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my own stock that's where Charlie looks
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at the stock part of the reason that
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you've been so bullish on equities for
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many years at this point is the interest
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rate of inflation environment you've
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looked at interest rates and said
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interest rates are gravity on stock
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prices and when interest rates are so
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low stock prices inevitably are going to
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climb there's been this really weird
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thing that's been happening in the
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markets where all of a sudden good news
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that we got from a good jobs report made
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people start to worry that interest
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rates were going to climb and that the
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Fed was going to raise rates more than
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aunt
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dissipated people got really nervous
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around that you can still see it every
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time we get up on the 10 year back
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towards 3% it gives investors or at
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least traders I should say some concerns
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about what's happening how do you kind
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of a bond if you buy a 30 year
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government bond it has a whole bunch of
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coupons attached in the old days does
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now so electronic but it has a whole
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bunch of coupons and coupon says 3% or
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whatever it may say and you know that's
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what you're going to get between now and
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30 years from now and then they're going
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to give you the money back what is the
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stock a stock is a a the same sort of
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thing it has a bunch of coupons
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it's just they haven't printed the
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numbers on them yet and it's your job as
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an investor to print those numbers on if
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those numbers say 10% and most American
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businesses earn over 10% on tangible
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equity if they say 10% that bond is
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worth a hell of a lot more money than a
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bond that says 3% on it but if that
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government bond goes to 10% it changes
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the value of this equity bond that in
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effect you're buying you are buying when
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you buy it and it's in General Motors or
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berkshire hathaway or anything you are
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buying something that over time is going
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to return cash - it may be a long time
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in terms of Berkshire but it'll be
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bigger numbers and those are the coupons
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and it's up to you your job as an
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investor to decide what you think those
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coupons will be because that's what
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you're buying and you're buying a
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discounted value in it that and the
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higher the yardstick goes and the
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yardstick is government bonds the less
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attractive these other bonds look that
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and that's just fundamental economics so
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in 1982 or three when the long
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government got to 15% a company that was
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earning 15% on equity but with no words
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no more than Book value under those
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circumstances because you could buy a 30
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year strip of bonds and guarantee
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yourself for 15% a year and a business
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that earned 12% it was a subpar business
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then but a business in turns 12% when
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the government bond is 3% there's one
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hell of a business now and that's why
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they saw were very fancy prices so 3% is
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a long way from 15% of Georgia
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I watched it go from 3 to 15 Oh - right
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is there an inflection point on that way
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because people think oh my gosh we've
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gone from 2.4 percent to 2.9 percent
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difference historically speaking that's
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still the way we should be measuring
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these things not on the absolute
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movement or the percentage gain movement
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over time 2.4 to 2.9 is nothing if
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you're comparing it with businesses a
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turn 12% on equity and reinvest and the
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SNP you can just look at the vigorous
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for decades has earned on tangible
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equities earned a lot more than that and
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it translates into more higher prices
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and it should
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is there a tipping point along the way
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or is it a gradual decline in internal
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body knows yeah but it's it is gravity I
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mean if if you told me interest rates
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were going to be 15% next year on bonds
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you know there's a lot of equities I
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worked one home now and I wouldn't I
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would I would buy a lot of governments
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at 15 and I kind of wish I had in 1982
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but I didn't yeah if I told you that the
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long bond was going to trade at four and
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a half to five percent next year it
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makes a difference but it's been idiotic
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don't long bonds during the light you
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know I talked about this in the report
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in German smart it's just been idiotic
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and big public pension funds and all
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that they sat there and they owned bonds
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now they may have bought them on a four
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or five percent basis but if they go to
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a three percent basis there's something
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way above par the the way people think
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about it is they do some very silly
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things
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I mean you lay this out in the annual
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report but a lot of investors are told
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retail investors are told that they
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should have a certain percent of their
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portfolio in bonds maybe they're told
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60/40 maybe they're told 70/30 stocks to
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bonds that's something that you should
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do and that's the safe way of doing it
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what am I missing
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some people should not own stocks at all
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because they just get too upset with
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price fluctuations if you're gonna do
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dumb things because your stock a stock
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goes down you shouldn't own a stock at
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all what are dumb things selling a stock
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goes it goes down I mean it it you know
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if if you buy your house at $20,000 and
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somebody comes along next day says I'll
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pay you 50 you don't sell it because the
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quotes 50 you look at the house or
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whatever
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but some people are not actually
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emotionally or psychologically fit to
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own stocks but I think they're more of
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them would be if you get educated on
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what you're really buying which is part
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of a business and the longer you hold
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stocks the less risky they've become
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whereas the longer the maturity of a
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bond the more risky it becomes do you
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feel like that's a message that is
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getting through to people it's one that
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you repeat again and again and I always
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feel like I was watching a lot of the
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Olympics and I felt like what they do in
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the Olympics is so easy these guys
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sailing through the air and doing
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massive spins on the ice and turns and
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then I read your annual letter and I
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think oh it's really easy to invest and
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then I walk away and realize it's not
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that easy it's not easy psychologically
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for many people but I've been I've been
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teaching since I was 21 I know our first
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class on investment and I had a class
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last week but with 11 schools 220
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students and and some of them get it and
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some of them don't people would rather
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gamble I mean the idea that you can
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double your money in six months that
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that's just going to it's why people go
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to the races why they go to Vegas you
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know whatever it may be they they they
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even know the odds are against them and
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they still do it I mean it's a strong
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instinct to want to get rich fast and I
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don't know how to do it Joe has a
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question that he'd like to ask to Joe
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Buffett you haven't tweeted since April
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of 2016 then is that true I didn't
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really tweet that I've got I've got a
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friend that's tweeted about seven times
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you know Warren you were coming on
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squawk box this morning for three hours
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it would kill you to say I'm gonna be on
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squawk box for three hours and tweet
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that out that as a favor to Becky and me
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I mean make me an offer I have never
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actually tweeted myself and I don't
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really know how to do it and I don't
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know how to look up somebody else's
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tweets but I'd still you look at will
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you look into it baby life you know what
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I'm gonna tell you something more III
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Becky over the weekend I was trying to
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figure out I mean I get so irritated did
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I don't need
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you know not not from people send it but
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now from looking at what other people
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are tweeting and retweeting I get Agadir
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de and I'm trying to figure out a way to
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still get the info that somehow
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sometimes I get but just without me
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being actually part of it as a party
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could be if you got away I can do it but
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then I'd still be following these
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annoying people I don't know to me if we
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go to the final game if we go to the
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finals of the n-c-double-a and we're
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together in these great seats up better
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deliver for you yep because great is in
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it I will have you tweet for me during
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the game careful what you offer or how
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would you like the keys to the castle
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with that you don't be the designated
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Twitter god there's a lot I've never
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read a tweet you know what I'm taking
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Creighton and Xavier right to the now
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I'm really gonna be rooting uh really
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you know I love it hi unblocked someone
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today that appealed to me through email
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and I've never done I had to figure out
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how to do it but it's on a probationary
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basis at the board of discretion of the
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at the stress discretion of the board
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but I've never done that before so yeah
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if someone got back in but so you get to
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do things like that if you come on warm
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I'd rather read to engage don't realize
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how dangerous that offer is you just
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made because Joe and I have joked around
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about getting ahold of somebody's
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Twitter account or their their
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information when they leave it logged
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onto a screen that we sit down at the
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things that you can tweet out things
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that you can so dangerous rating is what
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people are pretended to be me on
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Facebook and Twitter I mean have you
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guys gone after the people we did it for
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awhile just there's just so many of them
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it's all kind of hopeless every time you
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stamp one out yeah exactly
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hey there thanks for checking out CNBC
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