last year we bought you rockstar this
year we brought you a real rockstar
so what we're going to do is i'm going
to ask for in a series of questions over
25 30 minutes and then we'll take your
questions in the in the crowd and and
let the students have a chance to ask
warren about his experiences what do you
think the lessons are of the last couple
cycles that you've seen from an investor
standpoint we've got a lot of young kids
out there you've lived through multiple
cycles in the 50 60 years plus you've
been investing in seven years seven
years manifesting that what are the
lessons and what you know these are
young people what should they take away
the lessons are the people will continue
to make the same mistakes they've made i
mean it
humans
and whether it doesn't correlate to iq
particularly i mean they when they get
when they get greedy
and we had this
huge bubble in the most important asset
the american public has housing i mean
so you had a huge bubble in something
you could borrow heavily against so you
could run a margin account effect on a
house instead of sox and
and the conditions got very lax and so
when that bubble popped
but people came into that gradually when
they get fearful
it happens all at once i mean when
everybody wants when people get scared
they all want to leave at one time and
we had them all want to leave at one
time and we'll have that'll happen again
it'll happen with a different set of
circumstances but
but uh the human animal
uh will keep behaving pretty much the
way
it has in the past so we will have
periodic
uh
recessions will have an occasional panic
which doesn't know
all recessions don't come from panics
but uh uh
but the good news is
if you look at the 20th century
in the 20th century we had two world
wars we had the great depression we had
the flu epidemic we had the with the
cold war we had the atom bomb you name
it
the dow jones average went from 66
to 11
497
you know with all these terrible things
happening supposedly at various times
america works and uh well i when i
bought my first stock when i was 11 that
was in the spring of 1942
and that was a couple months after pearl
harbor and we were getting clobbered in
the pacific at corregidor and bataan i
mean the death march of baton and
in in in the european theater the blitz
of england was on and
but and the doll was at about 100
but just look at where we are now i mean
the country really works uh the trick is
i mean
it seems to me the obligation of a
society as prosperous as ours is to
figure out how nobody gets left too far
behind
that was interesting because last year
bono's speech was a lot about how
america is a society of dreams and you
can accomplish more here it was actually
one of the best speeches about the
optimism america could have by a person
who's not american by birth so it was
and i know you carry that optimism so
after all this how do you how do you
what makes you most optimistic for the
next decade about america
i mean
just imagine you know 1789 just go back
just a few hundred years
there wasn't anything here you know
i mean in this country and and you know
that
sir christopher around i think you know
the design saint paul's cathedral is
buried there and there's a
there's a little plaque there and it
says you know if you seek my monument
look about you well i save you in in
america if you if you seek america's
monument look about you this this
country has all come about in a few
hundred years we had
less than four million people you know
when we became a country china had 300
million people at that time europe had
about 75 million they were just as smart
as we were they worked just as hard as
we did they had natural resources that
were similar to ours and yet we ended up
with a quarter of the world gdp you know
a few hundred years later that we've got
something that works and we don't want
to mess that up uh we want to figure out
what we do with this abundance better as
we go along but but you don't have to
worry about the system working but you
will have
you will have periodic recessions and
you will have an occasional
panic brought on by something that
who knows where it comes from you know
and
uh the thing to remember at that time i
wrote an op-ed piece in in the new york
times and
in the fall of 2008 and i said you know
that
that the the country will come back you
know it'll go through a big recession
everything but it'll come back and it's
coming back so don't ever worry about
america it'll tell you you're in the
right place
so
you've been famous for your investment
strategy on uh basically that follows
the opposite side that principles invest
when the chips are down and write it up
that served you well so what's your
favorite your favorite uh time that you
were able to accomplish that when you
caught somebody down and
and uh well i i i always think my
favorite time's gonna be tomorrow you
know
but i
it it's it's always been fun you know
and and uh there's a company here in
in washington called geico you know and
i i first got exposed to that in 1950 i
was
i was 20 years i was 19 years old it was
51 i'm sorry i was 20 years old and
i came down here
and i came down on a saturday
because i'd learned that my
professor who i worshipped at columbia
named ben graham was the chairman i got
down here and the door was locked when i
went to the building because it was
saturday and i pounded on the door and
some janitor let me in and a marvelous
fellow named laura davidson
uh spent four hours with me teaching me
all about insurance and he
he helped me so much in life you're
gonna get
you're gonna get help by some wonderful
people in life it's it's a great thing
to to remember later on when you need to
be my age that you know all the help
you've received from different people
because uh uh nobody does it alone obama
got in trouble when he said that in the
campaign that you know nobody does it by
themselves nobody does do it by
themselves we all sit
in the shade of trees that were planted
by others so it's obligatory i think to
plant a few trees ourselves if we've had
good luck uh
it's
it's been a great ride but it's not over
you've owned
when did you actually buy geico
when did you get when did you invest in
geico the first time well geico i bought
i i met
normer davidson
when i was i was finishing up at
columbia and then i started selling
securities when i got out i went out to
my aunt alice my aunt alice would have
bought anything from me and so i she
bought 100 shares of government voice
insurance his first stock i ever sold
and uh
then a lot of years passed and mr
davidson was
very kind to me in a variety of ways but
i went and i went in different
directions and then in 1976 the company
got in big trouble because they
miscalculated their reserves and they
were going broke
and so i came back here
and i bought a third of the company in
the market in a very short period of
time
and then in 1995
by now our third would become a half
because they'd repurchase their shares
and i went out to see mr davidson who
was out in
bethesda he was 96 or 97 and he had a
bunch of stock in geico
with no cost basis because he'd held it
forever and i said davey
if i make an offer for this company for
cash you're going to pay a big tax and
of course if you die with the stock you
don't have that tax you get a stepped-up
basis so i'm not going to make this
offer
unless it's all right with you and then
and he said to me he said warren he said
i've hoped for this all my life and so
we bought the rest of the company he was
a great man i'm going to start a little
bit where
the president left off which is this is
your hometown this is a part of your
hometown so what are your best memories
about being around georgetown and uh
well i delivered papers at georgetown
hospital uh 66 years ago
and uh
uh i like i developed this affinity
because
in the hospital people tipped
my regular my regular customers the one
that knew me never never tipped but the
but i would go to the hospital and one
of the things they would do
they would give me cash tips but they
also would tell me if they were a woman
that had given birth to a
baby that was we'll say 8 pounds 11
ounces they would whisper that number to
me and the numbers racket was very big
in in washington that time and they felt
they were giving me this terribly
valuable information the exact time in
which the baby was born or something and
i was supposed to bet on that number in
the
in the in the numbers racket that day so
i i have a lot of memories of uh
of uh of georgetown and uh
uh
i was here during world war ii which was
really a fascinating time to be in in
washington and uh
my dad being in congress you know it was
it was really a
a window on
an extraordinary time in in america and
of course
at that time
we were probably more united than at any
time
in my lifetime about a common goal i
mean that
that was the time when people like bobby
feller and all the athletes of the day
the war broke out went down and enlisted
and
and people really
did voluntarily in a very high
percentage uh play by the rules in terms
of gasoline rationing and sugar
rationing and meat rationing and all
that and
uh we all bought savings bonds at uh at
school and to help out the troops so it
was it was quite a period
so somewhere along there you started
investing
and
then change the nature and i've read
stories that you started investing at 13
or whether they're true or not but
somewhere around that and then so 11.
what created the fascination with
investing
it took me five years i had to save a
hundred and twenty dollars every five
years to get
120 to buy a stock uh three shares of
city service preferred when i was
uh 11. i i just my dad originally was in
the investment business he really wasn't
very interested in it but i would go
down on saturday morning and uh and he
had these books there in the office and
i read all those and i went to omaha
public library and i read every book on
investments in the omaha public library
by the time i was by the time we moved
to washington and then when we got here
i had the library of congress
[Music]
did you go through all those i i i read
everything and i i i just found it
fascinating and
and incidentally i find it fascinating
today i mean it's it's it's it's a
it's an activity
you know if you're
you're a baseball player or something
your legs may go or something well my
legs are long gone but it doesn't make
any difference in what i do so it's uh
i have
i literally have as much i always have
had fun working but
i have as much fun now as i've ever had
in my life and i work with people i love
doing what i love and it just doesn't
get any better than that well the quote
is that you tap tap dance to work
so what what makes you do it don't ask
me to demonstrate but
it's incidentally it was nice to get
that round of applause at the start but
i've learned that crowds now applaud at
the start because i'm 83 and they're not
sure i'll be around at the end of the
talk
i've shared enough dinners with you know
that you have more energy than anybody i
i know so
let's let's switch to a little bit on
the philanthropy side so president of
georgia talked about the the giving
pledge
how how did you come up with the idea
with uh with bill and and how are you
doing on it yeah well we're doing great
and it was i don't know three or four
years ago
bill and melinda and i were out in
california and talking and i'm not
exactly sure how it came up we decided
to call or write david rockefeller and
ask if he would host a dinner in new
york uh for about
16 or 18 people
just to talk about philanthropy and
oprah winfrey came and and mayor
bloomberg was there and it was a private
dinner and
i started having these people talk
around the table as to how they
developed their philosophy of
philanthropy
it must have taken us two and a half
hours or so to get around i mean people
were really interested in it so
uh bill and i were at that dinner we
decided that maybe there would be a
possibility of
of taking this passion which these
people show
had shown and
and and going to other
people that had a great deal of money
and
see if we could develop something
uh where people would pledge at least
half their net worth and
we now
have about 115 people i've been
i've been dialing for dollars i call
these billionaires up and uh
sometimes
they tell me how they can't do it and i
decided i tell them i'm going to write a
book on how to live on 500 million
dollars because apparently there's this
great
need
hey they just can't seem to figure out
how to do it then they need help uh
but it it's it's been very rewarding and
and i i received a letter from one woman
she and her husband had up over 10
billion dollars and she sent me a tie
she had shoe ties and she sent me this
handwritten note and said that
that
they hadn't really faced it it's a
little like facing your own mortality to
some extent making that plan and that's
tough for people sometimes and uh
so she and her husband had changed
things and
and over half of that 10 billion was
going to go to philanthropy that they
they do tend to postpone the decision so
i tell these i tell these people i call
you know the last will is what counts
but i tell them you know are you if i'm
talking to some 70 year old i said do
you really think your decision-making
ability is going to be better when
you're 95 with some blonde on your lap
or
now
so let's get on board fellas you know
and i assume that that convinces him
maybe a 70 year old decision is better
at that point
bill is not a tribute but bill has
gotten people around the world because
he travels more than i do but uh
uh what we're hoping
is people do pick up
on norms i mean when i was young i read
about carnegie and rockefeller and
different people build it too and
and you do pick up behavior from those
who come before and
and
we've collected letters from every one
of these people they're up on a website
at the givingpledge.org and
and i think they're worth reading
they're pretty remarkable and of course
what we really want to do is get the
younger people like mark zuckerberg's
joined us for example and and he
obviously is going to appeal to a much
wider group than
than i would
uh so
we are
we hope it becomes you know this gospel
of wealth that andrew carnegie
uh came up with a hundred
years or so ago
that's influenced all kinds of people
well we've got better stories than that
you know on these on these letters so i
i just hope it moves now i don't think i
want to emphasize one thing
nobody in our group
has given away a dollar that anyway
affects how they live i mean i have the
much greater admiration frankly for the
person who drops five dollars or one
dollar in a collection plate on sunday
where it makes a difference in whether
they go take their kids to a movie or
whether they go eat out or something of
sort they are actually giving up
something that has utility to them
i am giving up nothing that has utility
to me i have everything in the world i
want that that that can be bought by
money and and
uh so i have a whole bunch of stock
charges because they have no utility to
me and they can possibly have enormous
utility to other people in vaccines or t
education or all kinds of things so the
people that give up something that
that
actually can have utility to their
family
and give that to some other person so it
has utility them i those are the people
i really think deserve the kudos but
it's still nice to go where the money is
i mean you know it's with the willy
sutton approach and and
uh so if we can get if we can work on
polio or something like that and it
takes big contributions then we want to
go after it so i mean the unique part of
what you've done is with
bill and melinda and their foundation
and
and on the one hand how you're doing it
and secondly that you've gone and said
night whatever the number will be but
most almost all you're watching all my
berks you're right and so and so talk
about the gates relationship and why you
chose them as opposed to creating your
own foundation or well originally my
wife and i planned when we were in our
20s that when we had everything we
needed we would we would use the rest
for society and
i thought she would outlive me uh she
was younger and women live longer and
then she she died in 2004
so i had to come up with a different
plan
and
you know if you've read adam smith in
the specialization of labor you know
that you know that if you're if you're
good at one thing you're not necessarily
good at another you ought to get the
person you ought to use your talents
where they're most useful
and get other people to give their
talent so you know when my wife
had babies i mean i went to an
obstetrician i didn't deliver myself
when i get a toothache i go to a dentist
so i want to go to people who were very
good at giving away money
and who were younger energetic smart and
had the same
objectives in philanthropy that i did
and and the basic principle of the yates
foundation is that every human life has
equal value and if you start with that
as your basic assumption then a lot of
things flow from that and bill and
melinda
as well as my children because i have
foundations for each one of my three
children that are of significant size
they and you can read the letters i
wrote them up on the berkshire hathaway
website
i do not direct them to do anything but
i do tell them to swing for the fences i
tell them if they succeeded everything
they do in philanthropy they're doing
the wrong things because the important
things are the tough ones and you're
going to fail on some of those but i
have got much younger people
very energetic people common objectives
and they work for nothing so that's
that's not a bad deal right
that stretches the money a long way
yeah absolutely and and the way i read
it is that you require them to actually
move the money out the other day
they got it they got to spend it
and when i die
uh
all of the money has to be spent within
10 years after the estate is closed
because i do not think that i can pick
out some little
great great grandchild you have to be
born you know just because he has the
right name a buffeter she has the right
name
and they will be the best custodians i
mean
there'll be plenty of philanthropists
50 years after i died i take care of the
problems in 50 years but i want the
money to get
spent promptly and then and i don't
believe in trying to
control things from the grave i mean i
like to think i can
think outside the box but thinking
outside of that particular bargain
that may take a lot of three to figure
out
but um recently i read a article about
east lake and tom cousins so this week
that as many people know that pga
finishes up his tournament at east lake
which is a golf course in atlanta and
and the story i read about the
development is that you've now helped
tom cousins in in the
development work he does with
communities talk a little about that
because that's a little different than
this type of thing yeah but it's the
same theory of loving the
back people who are putting their own
time and energy and who are successful
in into a project that's worthwhile tom
cousins is a remarkable man who lives in
atlanta
uh just extraordinary and uh
he took this
terrible terrible neighborhood called
east lake in atlanta and
against a lot of community opposition
everything was it was it was crime
ridden and nobody did it well in school
and everything else and he decided you
had to apply
to apply a holistic approach to it and
then and you couldn't just attack this
thing or that thing and so he
he worked
for probably 10 years to develop this
entirely new community out of this total
disaster
and then
tom and i talked about it and i said tom
you know everybody's going to say
that that's only it can only be done
because you're tom cousins and you live
in atlanta and you've done this so
uh he and
i on a phone and julian robertson but
primarily tom
uh decided to see if we could replicate
this in other communities
and it seemed to me that and and tom
that new orleans was a great one to do
it i mean they've been wrapped by the
katrina and everything so so uh
we've taken it to the we've taken it to
to new orleans where we've got hundreds
of people and these
it's it's mixed income type
uh a community i mean we do we do not
want to have it with everybody
being subsidized we
we want to create a new kind of
community that where people
of different races different economic
conditions work together play together
and it's been successful in new orleans
we went to indianapolis it's been
successful there and we've got about 11
more towns we're working on now and so
uh
tom cousins has really
really come up with something he had an
op-ed in the wall street journal about a
week ago describing this but he's a
fantastic human being and when you get a
chance to to join forces with somebody
that
as as
high quality as that and energetic and
smart and putting his own funds in it
you know you just got to jump at the
chance let's uh we'll switch the economy
now what's going on and
move from philanthropy to the economy um
that you create your wealth off of that
you can do these wonderful great things
with so what do you see in the economy
and what you're seeing your companies
are operating companies and from an
investors well our company
businesses come back
very well from five years ago when the
panic hit and it was a panic like
nobody's ever seen i mean whatever you
think about it it was worse uh uh i i'm
dead serious about that we were right on
the edge of the cliff uh and fortunately
i give enormous credit
to uh
uh
both ben bernanke uh and hank paulson
and and tim geithner
and and frankly even though i didn't
vote for him never voted for him
president bush
uh
you know i don't know how many of you
have studied economics but in adam smith
they talk about comparative advantage
and and and
you know
keynes talked about animal spirits and
all those people but
president bush
really came out with a great
economic
insight of all times and he did it in
ten words in september of 2008 he went
out there from the white house and he
said
if money doesn't loosen up this sucker
could go down and i mean that
that goes right up there tear down those
plaques of adam smith
and
and he backed up he backed up those
fellows and and so
it we've come back from it but
businesses come back you know
a lot of companies are having record
profits including many of ours and
the american
populace as a whole has not come back i
mean the inequality is getting wider the
forbes 400 which just came out showed
aggregate wealth for the forbes 400 of 2
trillion
you go back 20 years and that was 300
billion so it's up six or seven for one
it's different people to some extent but
this is the top 300 billion to 2
trillion and if you read the paper today
you'd have seen that the median income
you know is the same place it was in
terms of real purchasing power uh
from 1989 it hasn't changed so it's the
inequality is getting wider
uh
the rich are doing extremely well
extraordinarily well uh and uh
business is doing well business profit
margins
are
terrific compared to the record
historically business returns on
tangible equity are terrific
uh but
most you know a great many people in our
country if you take the bottom 20
of households that's 20 24 million
households or something like that
housing you know close to six about 60
million people you know it's the top
level is twenty two thousand dollars and
i'm i don't wanna try to live on twenty
two thousand dollars with a couple of
kids so i we've got
we've got an economy that is delivering
50 000 of gdp per capita
and we've got an awful lot of people
that aren't living well so we we have
learned how to turn on lots of goods and
services but we haven't learned
as well how to have everybody share in
the in the bounty that we have
so how do you think is that that we just
got to grow out of it to provide we're
growing we're growing i mean if you take
even two percent a year if you think
about it
people
feel very unhappy with two percent a
year but the population grows one
percent a year so that means one percent
per capita real growth that means in 20
years a generation there's a 20 gain
in in in gdp per capita that's not bad
in the generation and but the question
is how it gets distributed but this
country will grow this system works you
know in my lifetime i was born in 1930 i
was conceived in 1929 because my dad was
a stock salesman and and
after the crash he didn't have anything
to do there
so
i i look back with great fondness on the
1929 crash but
since night
since 1930
since i was born in 1930 real gdp per
capita has increased six for one just
think of that six for one i mean you
went centuries when nothing happened
for people and this this
this country works i mean i consider the
luckiest person on a probabilistic basis
that ever lived is the baby that's born
today in the united states i mean
it is a fabulous country and the market
system works all kinds of things but we
we do have to in my view we have to make
sure that everybody
participates to a reasonable degree we
don't want equality results but we also
want a base level that's that's that's
satisfactory for our people well let's
uh let's turn it over to some student
questions so they're going to put a
microphone out here and uh
hi i'm uh carson tavalli uh senior nes
fest
i was wondering if you have any stock
tips for any of the students you know
we're all trying to
uh make make a little living
i didn't think they taught that at
georgetown
they
now they
the best the best investment i ever met
well
i i bought a book in 1949 by a fellow
named ben graham called the intelligent
investor i don't remember what i paid
but aside from what i paid for my two
marriage licenses that was the best
investment i ever made
and uh
it's very important to have the right
framework you need
you need
you need to have an approach to
investing
that's sound and
graham's approach is is simple
uh but some people
uh
adopt to it and and and which i did
immediately and and most people don't um
but if you have the right philosophy
you will find opportunities
uh as you go through the next 20 30 40
50 years and and frankly you're most
likely to find them
uh when in periods like five years ago
when we were having the panic i mean
that
uh
stocks
sell at silly prices from time to time
most stocks at one time or another sell
at very silly prices
and
it doesn't take a high iq to figure out
that they're cheap but it does take a
temperament that's willing to step up
and actually act
i tell people if they're going in the
investment business
if you've got 160 iq
sell 30 points to somebody else because
you won't need it i mean that
it
yeah i mean i figured out very early you
don't have to be that smart of this
business which is fortunate but you do
have to have the right temperament and
you have to be able to ignore
what other people are saying and and
simply look at the facts
and decide
is this stock which is selling it x
worth 2x and occasionally you'll find
things like that and if when you don't
find them you don't do anything so
that's my
generalized stock tip no names
i'll make it simpler just buy bank of
america you'll be set
now yeah it worked all right for him
yeah that's right that's right
next question um good afternoon my name
is nicholas walker i'm a sophomore in
the sfs as well
um so mr buffett in the past you
invested in china south korea and israel
and recently you partnered with 3g
capital and joshua lemon
from brazil over for the heinz deal
does this mean are you tempted to
venture into the brazil market next
i didn't get the question question you
did the heinz deal
the question is are you going to invest
in brazil next oh uh i don't know where
i'm going to invest next that's what
that's what makes my job interesting i
mean
i'm i'm i'm not kidding i mean if you
went out and played golf
and every drive went in the hole you'd
give up the game wouldn't be interesting
i mean
what what's interesting is when you get
in the rough and you have to come out
and a few things like that so i
i love the fact that i don't know what
i'm going to do next you mentioned the
israel investment
in 2006 in the fall
i got a letter from a fellow
and i never heard of him
and i never heard of the company he was
talking about but he said my name is
aton wardheimer
and i want to tell you a little about my
company his car the letter was a page
and a half long and he said
if he sold the company the family sold
the company the only company they wanted
to sell it to was berkshire hathaway and
if i was interested they'd be glad to
come over from israel and explain it to
me and it was a it just jumped off the
page that this was an interesting idea
so i emailed them and they came over
very shortly and
and we bought the business we we handed
them
four billion dollars for 80 of the
company where i've never seen it or
anything etan kept saying you got to
come over to israel and see the plants
and everything you won't believe how
wonderful they are and i said hey tom
i don't go to council bluffs iowa you
know i mean
i am doing fine in omaha and uh he said
no you know you got to see it i said no
no i don't i i said we can make a deal
without seeing it he said well if you
buy if you buy the company will you come
and see it i said if we buy the company
i'll come so we bought the company and i
went over there and it's true i've never
seen plants like this it was the
greatest operation i've ever seen and
etan said to me said you know
that's why i want you to come over to
see these things i said listen if i'd
come and see them i'd pay more money so
so it uh
we
we have a wonderful partnership with the
people in israel but i don't know
tomorrow
uh our partnership with the people in
brazil with george apollo lemon and his
associates they are sensational people
uh i got to know george apollo when i
was on the port of gillette with him and
the opportunity to buy into a wonderful
business like heinz
and to be partners and they do
they'll do all the heavy lifting they
run the place uh with georgie pollon
associates i mean it's just
it's a it's a great opportunity for us
and i don't know what the opportunity
will be tomorrow with george apollo is
last december
uh
i was going out to boulder colorado
where he had a group that met and he
said i think i've got an idea might
interest you when i get out there so i
went out there and and uh and as we came
back on the plane he explained what he
was thinking about in terms of heinz and
i said
count me in and
uh and i'll tell you one other thing
which is quite impressive about him
after i said that and went a little a
little further on the thing he sent me a
one-page
governance description of how it would
work between the two of us and he sent
me a very brief description of
what he thought would be a fair deal for
both of us i didn't have to change a
word i mean those are the kind of people
you like to associate with
you mentioned that people will make the
same mistakes in terms of the boom bus
cycle
and but there have been several recent
financial developments such as the
creation of derivatives which has since
exploded recently and you once called
derivatives uh weapons of mass
destruction
now that derivatives are a 700 trillion
dollar industry do you see this as
setting the stage for the next financial
crisis
it it's very hard to tell that you know
we've been active dodd-frank
and
if you
if you look at the what happened in
september and october
of 2008
there were some extraordinary things
done
the federal reserve
poured 85 billion dollars into aig and
if they hadn't our world would be very
different
hank paulson
guaranteed money market funds at a time
when 30 million americans with money
market funds were panicking and when
300 billion in three days had gone out
of the non-government money market funds
125 have gone back into the government
300 billion that was
that was almost equal to the deposits of
wells fargo or wachovia at the time
which were then two separate
institutions
both of those authorities
have essentially been they i don't think
they can do that under don frank i think
they i don't think that bernanke could
do what he did and i don't think that
paulson can do it
what he did
uh when there's a panic
the only thing that will stop it
basically
is when somebody who has the
ability
and the will
says
i'm going to do whatever it takes and
basically that's what bernanke and
paulson and finally congress in a kind
of a reluctant way but said to the
american public and you could believe it
if bernanke said i'm going to do
whatever it takes nobody knows what
section 13 3 or of the federal reserve
act is and it wasn't probably meant to
do what he did with it but he did it and
the same way with the they call it the
exchange stabilization fund of the of
the treasury nobody it was enacted back
in 1934 nobody dreamt it would be used
to take care of money market funds but
you had these strong characters
who had the ability to print money in
the case of bernanke and they said we're
going to do whatever it takes and the
president was behind him
that is the way in the real panic and
and i
i worry actually that
you know congress doesn't like to give
anybody that much authority and it
bothers them that the fed has all this
authority or that paulson acted as he
did in tarp and
i tip my hat to them and i i'm not sure
there will be another panic you know
where it comes from who knows but when
that time comes
the question will be
are the people who have panicked who
have frozen who have caused the economic
engine to stop
you know will they
believe and come right back and be doing
something and i'm not sure
whether the what's been enacted is a
plus or a minus in that regard
regardless the com the country will come
through but we
it's very hard
to write regulations
that will keep people from acting
foolishly particularly when acting
foolishly has been proven very
profitable over the preceding few years
it's just it's just the way it works
humans
you know they they all think they're
cinderella with the ball you know and
they think you know as the night goes
along the music gets better and the
drinks flow and everything and they
think they go oh they all think they're
gonna leave it two minutes to twelve and
of course there's no clocks on the wall
and they're still dancing so it'll
happen again
but buy when it happens
next question
i'll be buying
hi my name is john ruff
i'm from georgia so i'm familiar with
the work over at east lake that's great
appreciative but um you talked a little
bit about income inequality but if you
look at class mobility rates and if you
look at um
average household income for middle
class families
measured with inflation
a lot of these rates have been trending
down since the 1970s and
some may argue that it's harder today
for the middle class than it's been in
30 years
and i was wondering if you had any more
thoughts on how a rising tide can lift
all boats and not just the yachts yeah
well that's what's happening it's like
john kennedy talked about rising tide
lifting yachts and the yachts have been
lifted like i say for the top 400 from
300 billion to 2 trillion just in the
last 20 years there is a very i think
structural problem
as a market system gets more and more
specialized
if you go back to an agrarian society
like we had a couple hundred years ago
with most people working on a farm
most people felt
fit most job requirements i mean it was
that as the world has become more and
more specialized
uh i think we keep moving away from that
so
a market system
will not
pay well for
a
significant percentage of society they
they aren't needed to keep gdp itself
going up and and people at the top and i
think government has to address that
that uh
i think it's i i sometimes toss out to
students
this proposition
imagine that it's
[Music]
24 hours
before you're born
and you're sitting there johnny or joni
we don't know yet and you're in the womb
and the genie comes
and the genie says
john or joni
you strike me as a remarkable potential
human being
and i'm going to give you an enormous
responsibility
i'm going to let you decide the world
how the world is going to work into
which you're going to emerge
you can decide on the economic system
the social system the political system
you design it and whatever you design
that's going to be the system in which
you live your children live
grandchildren live
and you being wise beyond your minus 24
hours of age say
and all about you genies what's the
catch
and the genie says there's one catch
just before you emerge having designed
the system put it in cement
you're going to go over that barrel over
there
that has seven billion slips in it one
for every
human being in the world and you're
going to pull out a slip
it may say male it may say female it may
say white it may say black it may say
infirm it may it may say strong
it may say bright it may say it may say
uh below average
uh it may say united states it may say
bangladesh
now not knowing which
ticket you're going to pull out
what kind of a world you want to design
well you certainly want to design a
world that produces lots of goods and
services and keeps producing more and
more you want a lot of stuff around
it could be the world's fairest society
but if it's on a barren desert island
isn't going to do anybody so you really
want something that works in terms of
output but once you have something that
works in kind of in terms about but you
know you certainly want something that
eliminates fear from everybody's life
now that doesn't just mean a lot of cops
it means fear of old age fear of health
all of those problems and you certainly
want a system not knowing what tickets
you're going to get that takes care of
the people that don't survive so well in
that market system which mark which
maximizes the amount of output your
first goal
and i think we've done a wonderful job
at the first stage we have learned how
to turn out lots of stuff
we have not thought as much although
we've thought a fair amount i mean when
social security came in and all that i
mean this country has developed in terms
of thinking about how a rich family
should behave but
we have not i think we are in the stage
where we need to focus more on making
sure that the people who get the bad
tickets
do better
than they are and you know we said that
blacks were three-fifths or slaves or
three-fifths of a person back when we
started and said you know we said all
men are created equal in 1776 and in
1789 we said blacks are three fists of a
person you know we said we not only said
all men are created equal but the
gettysburg address you know lincoln
repeated it it was 1920 before we passed
the 19th amendment for for women so we
just we we treated women as a
essentially different class for all
those years so i think we've got i think
we've gone in significantly in the right
direction
in terms of behaving
better as a society and i think we've
gone terrifically in the right direction
in terms of turning out lots of stuff
but i think we have to address the
question of how do you treat the people
that are left behind in a system that
maximizes the output of goods and
services
and that can only come through
government
good evening my name is james fischbach
i'm the school of foreign service first
year it's no doubt that you're an
outspoken fan of ben bernanke but no
he's going to be stepping down in
january of next year whoever takes over
the position do you think that they
should contin continue the fed's
controversial buy-back program and if so
for how long well it
i think i think they should
take bernanke's approach which he says
he's going to keep doing it until he
sees more improvement
in the economy and i think he's been
mildly disappointed
uh in in
not hugely disappointed but mildly
disappointed in the rate of improvement
uh
in the economy uh in the last few years
and therefore
just the other day he said he's gonna
you know extend it further until he sees
it so he's he's not prejudging exactly
when it's going to happen he's telling
you the conditions under which he'll
he'll change and the economy is getting
better
we are
in an experiment which hasn't really
been tried before i mean we you know we
have a
fed has a three and a half trillion
dollar
balance sheet and and uh
uh
buying securities is usually easier than
selling securities sometimes people find
out so
we don't know how this game plays out
uh
and
just the announcement
whenever it was a few months ago with
the hint that that tapering was going to
occur you know that had some significant
market reactions probably a hundred
basis points or so in the tenure and
what will happen when it
when they actually if if they actually
try to deleverage the fed i mean what
has happened is the american public
deleverage and
and the government leveraged up through
the fed
when the fed if the fed deleverages that
in any big way that will be that will be
a new experiment and
as we were talking earlier the question
is
when they do that the economy has to be
growing faster and then
the peace people don't take into account
as they
they're clear that they're going to stay
there until the economy grows
and it has no pressure on them in fact
you know
the fed
is the greatest hedge fund in history i
mean you've got a trillion one financed
by currency in circulation which doesn't
cost anything and they got about a
trillion eight or nine for the banks at
25 basis points and i mean the fed is
going to make 80 billion or something
like that the fed is the fourth largest
contributor
to the united states government's
revenues
uh that there is now that wasn't the
case a few years back but it's 80 or 90
billion a year probably and so and it is
under no pressure
there's none whatsoever to have to
deleverage so it can pick its time and
and if you have somebody wise there and
i think bernanke's wise and i and i
certainly expect his successor to be uh
it can be handled
but it is
it is something that's never quite been
done on this scale it'll be interesting
to watch no it will be and we've seen
the lesson in the market moving ahead
and back just based on uh the last 30
days so i think we're going to take one
more question and then uh
for the next student my name is shelly
and i'm from china i'm currently a
graduate student in georgetown um
my friend denis jiao and i are we are
both a very big fan of you and your
friend charlie and we read his book
which is very interesting he had this
whole system of criterias on how to
evaluate a company
it's all very confusing but he said that
um warren and i are always staying away
from the industries we don't know so you
have candies railways and coca-cola but
um now the world is changing and we are
living in a new era the business models
are changing the b2c platforms everybody
is shopping online maybe in a few years
everyone is going to pay with their
iphones and bank of america no longer
issues credit cards so non-profit is a
new model and um
dinosaur like making a do yeah yeah
there's just so many things you don't
know about he'll take out his flip phone
and show you so he's not gonna be one
this is my new one
so the question is the business models
are changing the world are changing
they're the new technology they're
changing everything there's no way you
can just stay out of it and stay with
the traditional now um for the private
investors especially in the venture
capital industry what would you think is
the most important thing the key in
evaluating a company it's we're not i'm
not asking about doing mediocre not
asking about being average but about
excellent remarkable
just name one thing the
the most important thing
is to decide is to be able to
define
which ones you can come to an
intelligent decision on and which ones
are beyond your capacity to evaluate you
don't have to be right about thousands
and thousands and thousands of companies
you only have to be right about a
company couple i met bill gates on july
5th 1991 we were at seattle
and bill
said you've got to have a computer
and i said why
and he said well he said you can do your
income tax on it i said i don't have any
income berkshire doesn't pay a dividend
and he said well you can keep track of
your portfolio and i said i only have
one stock i said i mean
he says it's going to change everything
and i said well will it change whether
people chew gum
and he said well
probably not and i said well we'll
change
what kind of gum they chew and not i
said well then i'll stick to chewing gum
and you stick to computers you know
i don't have to understand
all kinds of but there's all kinds of
business i don't understand but there's
thousands of opportunities there i did
understand the bank of america you know
and and
uh
and i'll be able i i'm able to do that
i'm able to understand
some given percentage but ted williams
[Music]
wrote a book called the science of
hitting
and in the science of hitting he's got a
diagram shows him at the plate and he's
got the strike zone divided into 77
squares each the size of a baseball
and he says
if i only swing it pitches in my sweet
zone which he shows there and he has
what his batting average would be which
is 400. if he had to swing at low
outside pitches but still in the in the
strike zone his average would be 230. he
said the most important thing in hitting
is waiting for the right pitch
now he was at a disadvantage because if
the count was on two or one and two and
so on
even if that ball was down where he was
only going about 230 he had to swing at
it
in investing there's no called strikes
people can throw microsoft at me and you
know you name it any any stock general
motors
and
i don't have to swing and nobody's going
to call me out on call strikes i only
get a strike called if i swing at a
pitch and miss so i can wait there and
look at thousands of companies day after
day
and only when i see something i
understand and when i like the price of
which is selling then if i swing if i if
i hit it fine if i miss it
it's it's it's a strike but it's an
enormously advantageous game and it's a
terrible mistake to think you have to
have an opinion on everything you only
have to have an opinion
on a few things in fact i've told
students
if when they got out of school they got
a punch card with 20 punches on it and
that's all the investment decisions they
got to make in their entire life they
would get very rich because they would
think very hard about each one and you
don't need 20 right decisions to get
very rich you know
four or five will probably do it over
time so
uh i don't worry
too much about the things i don't
understand if you understand
some of these businesses that are coming
along and can spot things on if you if
you can spot on amazon for example i
mean it's a tremendous accomplishment
what jeff bezos has done and i tip my
hat to him he's a wonderful businessman
he's a good guy too
but
could i have anticipated that he would
be the success and 10 others wouldn't be
i'm not good enough to do that but i
don't fortunately i don't have to you
know i i don't have to form an opinion
on on amazon and i do i did form an
opinion on the bank of america and i
form an opinion on coca-cola i mean
coca-cola has been around since 1886.
there's 1.8 billion
1.8 billion eight ounce servings of
coca-cola products sold every day
now if you take one penny
and get one penny extra that's 18
million dollars a day
and 18 million times 365 is 7 billion 3
less 730 billion or
6 billion 570 million dollars so
annually 6 billion 570 million from one
penny do you think coca-cola is worth a
penny more than you know joe's cola i
think so so uh you know and i've got
about 127 years of history that would
indicate it so those are the kind of
decisions
i like to make and you may have an
entirely different field of expertise
than i would have and probably much more
up to date in terms of the kind of
businesses that we're seeing evolve and
you can get very rich if you just
understand a few of them and and
understand their future
but
fortunately i don't have to i mean if we
go into heinz
you know and i
i look at people pouring ketchup on you
know
hamburgers and potatoes i don't think
it's going to change you know and
and the nice thing about some products
travel
some products don't travel candy bars
don't travel well i mean if you look at
the
cadbury bars in england they don't sell
well here and if you look at the hershey
bars here they don't sell as well
someplace else
soft drinks travel
and ketchup travels i like products that
travel
warren i want to thank you for your
taking the time to work with the
students today and i think for all the
students out there just think about this
as a person who with a passion he still
has at 83 to make that right investment
decision but importantly what we talked
a lot earlier about is the ability to
try to do something with all that wealth
that will help a pretty near-term
set of goals in society and i think you
will find very few people in the world
have been able to do both things so well
as warren buffett has and there's a
lesson to learn for all of us matt so
thank you for spending time