squawk box" here on cnbc. i'm live from the market site in nasdaq market site in times square. i'm joe kernen. i'm all alone. andrew's off today but becky, we're sort of together. >> that's why they're playing it. >> we're always together. we don't need to be in the same place to be together, joe. >> mentally, spiritually, politically sometimes. you've got some sense. we're going to get to them in just a minute. 11 straight. you see that late day surge on friday was weird. it was almost just sort of needle andrew. i told him i knew you were going to be right. you've been saying a pull back for three 1/2 months but no. it didn't. >> you see the headlines today even in the journal. markets flash warning sign. >> and i'm really glad to have

warren here to talk about it. they are pointing out that bonds and stocks are in sink again which question as reflation trade and i kept asking that last week. 235? what is going on with the tenure. we're going to blow out the deficit and military spending and infrastructure and tax cuts and all the greeowth, all the stuff. maybe warren knows why. but u.s. equity futures at this hour. >> he's shaking his head. we're going to ask him. >> i wanted to surprise him with that. i got a lot of -- >> well, to eo late. the futures are indicated a little bit low. but nothing that significant yet. overnight in asia. it was kind of quiet. overall, we can see japan was down less than a percent and in europe, sort of the same thing. we're almost in a wait and see

mode. now i'm going to formally introduce you, becky. time now for our special guest this morning. becky quick. no, wait a minute. becky quick is in omaha with our special guest and i love -- god, i love some of the stuff i'm reading about warren today. money managers are a joke unless you're like him and then you can really do well. >> that is one of many things our special guest has to say today. and warren buffett is with us in omaha at the nebraska furniture mart. you bring viewers along with us. and we want to thank you again. >> it's always been fun. >> we have a lot of questions as joe was eluding to this morning. but why don't we talk about the letter just released on saturday morning. a lot of peephole a chance to look through it. how much is this?

53? >> 52 years. >> it's been more than 50. >> well, yeah. been maybe 53, yeah. >> all right. so in this letter you start things off with a message that is a familiar message for you. the american dine amism. but is there a reason you chose to put it so high in the letter this year? >> i usually put it pretty high in the letter because it's the dominant theme that's run through my life since i bought my first stock in the spring of 1942 when i was 11 years old. and it overwhelms everything else over time. we have hick up hiccup.s in the and a panic in 2008 and we had had a war during that period. we were losing the war in the spring of 1942. but this country always comes

back and wins. it's astounding when you think about what's happened in 240 years. that's less than three of my lifetimes. there wasn't anything here 240 years ago and civilization had gone on for centuries and centuries with people making very little progress in their lives and then america showed the way and we have not lost the secret sauce. >> in terms of what the message is you want to get across to people, when we're looking at markets at such high levels, it has a lot of doubters and people saying it's too late for me to get in. we're past dow 20,000, now i have to wait for the pull back. >> i would have to say they don't know and i don't know. if there's a game that's very good to be in the rest of your life, the idea to stay out because you think you know when to the enter it is a big

mistake. if you were buying a farm and decided that farms are going to be worth more money 10 or 20 or 30 years from now and would be a productive asset, you'd buy it unless it was at an absurd price. the best thing about stocks is to buy them consistently over time. you want to spread the risk as far as the specific companies you're in by owning a diversified group and diversify over time. by buying the year after, the year after, the year after. you're making a terrible mistake if you stay out of a game you think is going to be better over time. >> you have had had times you thought stocks were incredibly cheap in 2008 and 2009. you thought there were times they were greatly over valued where you said forget it, don't do it. are we near an inflection point? >> i'ver been talking this way

ever since the falloff 2008. but i don't think you can time it. and we are not in a bubble territory. or anything of the sort. if interest rates were 7 or 8%, then these prices would look exceptionally high. but you have to measure -- you measure everything against interest rates basically. and they act like gravity on valuation. so when they were 15% in 1992, it's a sense of buying a farm on a 4% yield basis. but measure it against interest rates, stocks actually are on the cheap side compared to historic valuations. but the risk always is that interest rates go up a lot and that brings stocks down. if the tenure stays at 230 and would stay there for 10 years, you would regret not having

bought stocks now. >> this sounds like a perfect jumping in point for when you were watching what's happening with interest rates. . >> it is still global and i don't know when the rest of the world's headed one way, the money's going to come in here for our bonds and as long as that happens, i guess we stay low. i was thinking about something else and i don't want to take this too far afield but with warren, i was wondering what it is about us, the united states and i wondered that is so different from historically the way countries have prevailed, warren and i wonder if it eventually we can assume we'll always be this dynamic or is the constitution and the way things were set up, those guys were that smart or we brought in so many people from around the world and came to this great spot here and -- i mean, have we

selected genetically for people that are entrepreneurial and work hard? have you got your finger on what it is? if you don't, i don't know who does. you're not old, but you've had a lot of time to consider these things. >> if you go back to 1790, joe, there were 4 million people roughly in the united states of whom sae700,000 were slaved. we had had at that time a half of 1% of theworld's population and it was a friendly country in terms of the soil and minerals and the temperatures and all of that. but there were other friendly spots around the world and so why did these 4 million people do something that 900 million people hadn't been table to do before? where progress had been very slow and i would say it's a combination, nobody's perfect

but i think the market system is absolutely essential to it. it's not a planned economy. never perfect but far more than many places. i would say that equality of opportunity was a factor. i would say that immigration did select for people to some extent selected for people that were ambitious and wanted a new life. if i had to pick one thing, ideavide'd have to say the market system contributed to it. >> life is weird. i think it's weird adam smith wrote that book in 1776. >> exactly. >> that's not a coincidence. when you're able to own an idea and you got a court system that will back up your ownership of patent law and you can commercialize it, i think that was it. intellectual property and property rights and things like that. because after 10,000 years of

spinning our wheels, what was the average gdp per person and starting when you were able to own an idea and commercialize it, suddenly it exploded in multiple times. >> it unlocked human potential, joe. we aren't smarter now than they were 240 years ago and we certainly don't work harder but once you started opening up human potential, it's the sky's the limit and it's just starting. >> there are times, warren, where you hear pundits or other people saying, look, things are at risk at this point. our american way of life, our system is under threat and i've heard this from all sides at all different times. is there ever a point where you thought that was the case? >> no. you say you heard it all times at all sides. i've been hearing it all my

life. in the spring of 1942 i was 11 years old and the dow was at about 100. and we were losing the war in the pacific at that point. it was shortly after perm harbor. and there was no doubt in this country we were going to win over time. and people said, let's wait till things are clear, let's wait till we start winning the war. there's always a reason to wait. i've listened to that all my life. when i got out of school the dow -- there had never been a year where the dow had not been below 200 in the year and the low was below 200. but so what? but that was a big subject at that time. we ran into price controls, oil shocks, you name it. just all kinds of things. and those are diversions. so all my life i've been hearing maybe there's a better time to invest or things are more

unpredictable now. they're always unpredictable. i can't predict what's going to happen tomorrow. we've had october 19th, 1987. so i can predict what will happen 10 or 20 years in a general way but have no idea what would happen tomorrow and the important thing is if you got these assets out here to own, which ones? you can buy a farm, apartment house or part of an american business. and if you buy a 10-year bond, you're paying over 40 times earnings for something whose earnings can't grow and you compare that to buying equities, good businesses, i don't think there's any comparison. but that doesn't mean it can't go down 20% tomorrow. you do know what it's gor tee doing over 10 or 20 years. i remember when it hit 200 and that was supposedly high. the dow, i mean the dow in your

lifetime you're going to see a dow that certainly approached 100,000 and that doesn't require any miracles, just the american system continuing to function as it has. >> you had had made headlines when you said a month or two ago that you had spent $12 billions in stocks since the election. >> not sure exactly when i said it but we've certainly bought -- in two groups. i'm adding them together now. we spent -- 14 -- since a little before the election, maybe because we were -- maybe 20 billion even. >> $20 billion. you're just counting the billions in your head as you're sitting here? >> yeah. i quit when i got to 20. >> and why now? is there a reason for this or you look at individual stocks you wanted to own and you bought them? >> it has nothing to do with the

federal reserve, nothing to do with the election. it would have something to do with interest rates if they did something extraordinary. they haven't changed that much. there just were a couple of things i wanted to do and we had the money and i like investing. and i would much rather have that 20 billion in these companies. i don't look at it as being in sto stocks. i would much roather have that than money entreasury bills. >> what are the businesses? should i assume it's apple and the airlines? >> i think that's a good guess. >> but $20 billion, is that more than what we have been told based on the 13 f-filings? >> more than 31st because we've fell out of money.

>> more apple, more airlines? >> uh, since we're not buying it now, there's a price difference i would buy it now. but we bought a lot more apple after year on end. >> apple was already -- was it the fifth biggest -- >> 39 million or something like that. >> i'm are just looking through the it report to grab that page. it was already your fifth biggest holding as of december 34th -- 31st at $7 billion. how much more did you buy? 7 billion. >> we can change our mind tomorrow and all of that. but we have not bought apple since the earnings report came out. because it shot up some then. but we would have -- one of the fellows in the office has about 10 million shares and i have about -- >> one of the fellows, tod or

ted? >> yes. i never identify which one does which. >> so one of them bought and you as a result bought additional? >> one had had 10 million shares and then i bought another 123 million shares. >> why? >> because i liked it. >> you know you've always said you're not a technology investor and now when you start looking through the holdings -- >> suddenly i'm a technology investor. >> reporte >> hold that up higher. >> i mean 86-year-old guys who haven't got it yet. >> you say you're not a technology investorer but you're buying shares of apple which is berkshires or larger than that based on how many you've put in since then. ibm is your third biggest holding too. >> i would say apple -- obviously it's very, very tech involved but it's a consumer

product. it has consumer as spects to it. and one of the great books on investing, which i've touted before is one that phil fisher wrote back around 1960 called common stocks and uncommon problems. it had an effect on me. found him in this little office in san francisco. i recommend any investor eread that book. and he talks about something called the scuttle but method which made a big impression on me at the time, which is essentially finding out as much as you can about how people feel about the products, just asking questions basically. and apple strikes me as having quite a sticky product. and an enormously useful product

to people that use it, not that i do. tim cook is always getting me on that. but again it gets down to the future power of apple. he's been very intelligent about capital appointment and i don't know what goes on inside the research labs but i do know what goes on inside of the customer's minds. >> have you spoken to tim cook about this? >> no, not about this. >> he would have seen the one before and known somebody berkshire owned some shares and then he would have seen the 13 ha13-f filing and i see him twice a year, at sun valley and perhapts one other time. >> you said it's how many shares you own? 133. >> 133 million. >> i'm sorry. how many did you own as of december 31st that worked out to

30 billion? >> i think we had had 59 million at year end. >> so you've more than doubled it since that time? >> that's correct. and we -- it's amazing how much you can buy of some of these things. we have bought the added -- 70 million plus. we bought that all by the time they reported their earnings. it was done probably in 20 business days. >> and they were better than people had expected in the stock, jumped as a result. >> i don't think they were that much better than people expected. >> stock was up after the earnings report. >> and that's why we quit buying. but the stock -- they tell you every quarter what they expect in sales and in gross margins and they've been pretty accurate on that. so i don't think the fourth quarter, the december quarter on a fiscal year, i don't think

that was that big or should have been that big of a surprise. but they've got an extraordinary business. always people trying to knock you off and the market system, one of the things it does is if you've got something good, you've got a lot of people gunning for you and very smart people gunning for them. >> we can talk more about this in a moment if you don't mind if we sneak in a commercial break. if you thought we weren't going to get to big news, you've been missing a lot. telling us he's bought more than double it amount of apple than they disclosed at that point. you never know what's going to come out of his mouth. we'll be back with more from warren buffett in a moment. dear,

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which adds fuel to my bottom line. what's in your wallet? ♪ welcome back to squawk box" everybody. we are live in omaha, nebraska with berkshire hathway's chairman and ceo,er warren buffett. and you are late already. warren buffett has already told us some secrets that nobody else knew until just now. they have been buying a lot of shares of apple. in fact as of the end of the

year, according to the annual report, it was the fifth largest holding at $7 billion and barn just told us that he had continued buying that stock even through the beginning of this year and at this point he now owns $17 billion worth of apple shares. that gives him had about 2 1/2% of the shares outstanding of apple and is now the second largest holding after wells fargo for berkshire hathway. >> very close -- >> very close to coca cola. >> yeah. >> but looks like it edges it out where the price is right now. we were talking about how you came to this decision and i assumed you had had people who would go out and do some of these things. but you just mentioned to me you've done some of the research yourself right in this building. >> i learned that from a fellow named phil fisher who wrote a book.

he calls it a scuttle. but he's a remarkable guy. and i first used it back in 1963 when american express had had this great salad oil scandal that people were worried about it bankrupting the company. so i went out to restaurants and saw what people were doing with the american express card and went to banks to see what they were doing and clearly american express had lost some money from this scandal but it had hadn't effected their consumer franchise. so when i take my great grand chltdn are to dairy queen, they bring along friends sometimes and they've all got an iphone. i ask what they did with it and if they could live without it and i see that people have this incredible stickiness with the product. if they bring in an iphone, they buy a new iphone. it just has that quality.

it gets built into their lives. that doesn't mean something can't come along that will disrupt it, but the continuity of the product is huge and the degree to which their lives center around it is huge and it's pretty nice franchise with a consumer product. >> you can relate to that and being hooked into the apple eko sphere, right? >> so many different ways. it's weird because you're walking around with the encyclopedia britan cuon your back but it's the size of this little thing and anytime, anywhere you need look up anything -- you could be on jeopardy and if people didn't see you were looking at your iphone, you'd kbet every question right and i can listen to every song that's ever been recorded and you know i used to liver in l.a. and i was afraid to leave the freeways because i had had no idea. so i'd just sit in that traf frk

11 hours to go five miles. all the sudden with this, you press it in and i got all the surface streets. it's so bazar, so life changing. but you don't buy stocks warren, for 10, 20, 50% normally. you like to buy stocks that over time double and triple. so you're fully saying the $700 billion company is going to be 1.3 trillion and then 2 trillion, right? >> you're saying it. >> okay. you're not worried about the law of large numbers? it's the most valuable company in the world right now, 720 billion. so you have no problem thinks it's going to be the first company to go over a trillion dollars in market cap. sooner or later it's got to happen, obviously. >> i won't make any prediction, joe. what i do know is when i take a

dozen kids on sunday out to dairy queen, they're all holding their apple. they barely can talk to me unless i'm ordering ice cream and then i ask how they live their lives and the stickiness really is something. they do build their lives around it, just like you were describing and the interesting thing is when they come into -- when they come into get a new one, they're going to get overwhelmingly get the same product. i mean they got their photos on it and i know you can make some shifts and all that but they love it. >> right. you see what i mean about the -- it will be a trillion dollar company. it's only got to go up 40% from where it is now. i don't think you buy it if you thought it was going to peek at 800 billion. >> they could have -- they bought in shares pretty

aggressively. you could have a lot fewer shares outstanding at some time and still do very well on a per share basis. they're talking about 4% of the company last year and by guess is they got about 5 and 1/4 billion shares out right now. and my guess is years from now they'll have substantially fewer. >> which company goes to a trillion first? apple or berkshire hathway? >> i vote on apple because they got a stronger position. and i got an 800 number for him. >> while -- go ahead, joe. >> i was just thinking that one of your guys, you wouldn't say which one. i mean, did you really have to do that, warren? i've built up quite position. how much did he have? >> 10 million shares. >> i like it. i mean, i love it.

i've got 10 million shares and you go, yeah, i got 133. that's cold, warren. you know what i mean? it's his idea and he had 10 and was feeling good about himself and you bought another 123 million on top of him, seriously? >> he gets to go first, joe. >> he was feeling good. yep, i'm a fwhig vester. >> look, if warren buffett takes your ideas and follow you, i think that would make you feel pretty good walking around with that. let's talk about another thing you've been buying a lot of and that is the airlines. we just found out, at least at the end of the year how much you owned and they were pretty significant stakes for the four majors, american, delta, united continental and southwest. at the end of the year, we were reporting that you had had stakes of about seven to 8.5%

for some of the airlines. >> it's about the same. they may have been tweaked just a shade. there again one of the fellows in the office has essentially one of those positions. he -- he owned a couple of the others just because he wanted to get the money invested and then he was going to shift over. but one of them has -- he has the american airlines position and i have the other three. those positions, as you mentioned, we're fairly close to 10%. we don't want to go eerv 10% virtually on any stock. it complicates life for us. we do it occasionally but it's a big decision to make. >> why does it complicate it for people not familiar with the rules of what you can and can't do? >> you become subject to what they call the short ring rule. if you buy or sell a stock, you actually have to give any prauf

that to company. if you sell and buy or sell and then buy and they take the lowest fufrps price and take the highest selling price, and it can complicate things plus you have to publish what you do within two days after you do it, which is not the case when you're below 10% when you report quarterly. so we don't go over 10% very often and with the airlines all four are repurchasing their shares. at wells fargo, we went over 10% simply because the company repurchased its shares. >> well, you couldn't. you're that inallow to buy over 10%. >> not unless you want to becancome a bank holding company. anyway, on the airlines, if we own 9%, we might find we're 9.5 or something. so we will stay under 10 in all probability. and that's where we are now. like i say one fellow owns the

american and i own the other three. >> in the past you've said things like i have an 800 number i can call if i get the urge to buy an airline stock. my name is warren and i'm an airline alcoholic and he should have shot oroville wright, he would have saved his projany money. >> if you look at the last 30 years, i think there have beenule most 100 airline bankruptcies. that is a lot. so it's true that they had had a bad first century. they're kind of like the chicago cubs. and they got that century out of the way, i hope. but it's been a disaster for capital. i mean it's got glamor to it. soia can always get guys to put up money for an airline. and you can look at 1 had 00 of them that failed and all of them now that are operating with the exception of southwest -- i

mean, they've been through bankruptcy and i bought into one called u.s. air in the late 1980s, the ceo came out here and i gave him $358 million and it disappeared almost before i finished dinner. they had favored routes but southwest was coming at them over time. and i tried to sell that stock at 50 cents on the dollar. fortunately i wasn't able to do it and they had this blip. we're one for one on airlines but not because we're smart and then went bankrupt twice. it's part of american air pch. >> if yourb rr so sure this was a horrible business, what's changed? >> it's a very tough business because the marginal cost of the seat is practically nothing. you have these huge fixed costs and yet if you take one more person on, there's virtually no

cost to it. so you're very tempted to sell that last seat too cheap and if you sthel last seat too cheap, it becomes the first seat in a way. so it has this dynamic to it and unless the airlines operate in the well over 80% capacity, what kills you is when they really have too many airlines around. they just get down to marginal costs and they cause you to go broke over time in the airline business. the hope is that they will keep orde orders reasonable relationship. to potential demand and lately they've been in the 80s for a while but it's a business you can always mess up. >> charley monger was your partner, vice chairman at berkshire hathway was speaking a couple of weeks ago and he

talked about how you're in the airlines and said it went on and bought a ticket to europe for 4 or $500 and i thought what are we doing in this business? >> charley's generally goes along with me. he may say i never heard you come up with a worst idea but i know he's going along with me. so we get along very well. he's okay with both these decisions. as he would say and correctly, it's not like the old days. but i've been hearing it a long time and it's true. >> joe pch. >> i was just thinking about the irony of this. so, he loves apple and doesn't own an iphone, doesn't know anything about it. and hasn't been on a commercial flight since the wright brothers, i think. you know absolutely nothing about -- when is the last time you were on a commercial flight, buffett sn tell me.

>> well, we'll save that for after the show. >> fair to say it's been over 30 years. >> my family brings up the same thing to me. so i've heard this before. >> they just released "casablanca." >> actually it was "birth of a nation." >> i just thought about that that you don't need to use these things to have an investment opinion but it's amazing. it's very interesting today, warren. i'm enjoying this. i haven't left and i'm going to stay here. i'm all alone. >> you got to realize i started in tex tiles in department stores so some of these things look good to me on a comparative base. >> it does occur to me though if you're building up such a significant stake in all the major players, is that anything like monopolistic behavior? is there anything you would say to make sure they're not

competing on prices the same? >> i've never met the ceo's of any of the four. i may have met one at a texas business haulm of fame thing. i have no communication with them and index own as significant percentage of each one. and we'll see how it turns out. the orders that they have now would not look excessive. they usually take options and delay deliveries and so on. but it can be brutal and i mean, you've got lower cost airlines, you've got start ups that can come at them and historically the pricing has been a very tough game. i do like the fact that they use lautsz of money to repurchase shares. most have these huge tax carry

forwards. but they -- the yd that you're buying something with a huge tax loss going forward is not the best thing in the world. but bought in a lot of stock, i like that and we'll see how they do. we've bought them at lower prices and we're not buying them now. >> but you're a passive investor. >> totally. >> folks, we will have much more from our special guest, warren buffett. when we come back after a very quick break.

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♪ welcome back to squawk box" everybody. we are in omaha, nebraska with berkshire hathway's ceo, warren buffett. this comes from michael khan, i breve on twitter. he says have there been any stocks you purchased that you changed your mind about and sold before they could show up on a

13-f? >> that's probably happened some time but i can't remember. >> off the top of your head? >> no. that would be quite unusual and it would be that wrone of the other two guys in the office might have done that. but i don't remember that happening. >> the reason i ask that question just now is dow chemical preferred shares, they called those the preferred shares on december 30th and from what i read, it should have translated into about 6% of the shares outstanding of the company. >> 72 million shares, yeah. >> i did not notice dow chemical. >> we timed our sales so that once it got above the conversion price, we timed our sales or tried to time them because 72 million shares would be a lot to get and we did not want to own the common stock. we don't own any common stocks of any chemical companies and as the stock went higher, we sold

it more aggressively. it was becoming more prob abl all the time that they would call it. and i think our last shares were sold the day before, the day after, the same day. we timed it to be out of 72 million shares when we received those shares. >> so you didn't sell 72 million shares on december 30th? >> no. and towards the end, we might have been selling a couple million shares per day. we were hoping to get out of it, out of the common by the time they saw it and it worked out to the day. we're kind of lucky on that.

it probably wasn't worth -- we paid $3 billion for something worth a billion eight.

people offer us deals, we'll be there fors closing. we showed up october 4th. during that whole period we had these commitments and that kept me from doing other things we might have done, the fact we had this $3 billion going out the door. >> what did you ultimately end up making. >> we ended up making about a billion dollars and plus 8 1/2% coupon that year. >> you made a billion even before the preferred dividend that was paid? >> we had a billion dollar of capital gain very roughly, and then we had $255 million a year dividends during the time we owned it. >> wow, okay. i have a few other questions from viewers i'd like to get to. joe, by the way, jump in if you want to. meantime why don't we ask a question from curtis carson. he said how many suits do you have in your closet at home. i bet my wife fewer than five, most over 10 years old. >> he would be right except for

the fact i met a woman in china many years ago, madam lee and i arrived at the hotel at 11:00 in the morning. immediately two guys jumped in the room a couple minutes later, i didn't know what was going on. they started sticking tape measures around me and everything, then they showed me a book with a whole bunch of samples and said pick out a suit. madam lee wan to give you one. i never met her. then i met her. she had started with a sewing machine 15 years earlier, longer than that, she employed 15,000 people. she started sending me suits. i was thinking of opening up a men's clothing store, everyone would have to be my size. i literally have -- certainly have close to 20 and they were all made by madam lee. i'm very grateful to her. she's come to the annual meeting once or twice and brought her

family. she made charlie, walter scott. >> because you can't afford your own suits. >> not if we don't have to buy them. >> joe had a question as well. >> the old expression, warren, if you have money a lot of times you can make money. back during financial crisis when people would love to have berkshire sort of as, i don't know, an endorsement, at least if you invest in it you don't think they are going out of business. you don't even have to like a chemical company, do you? if they are going to give you 10% at that point all you think about they are going to be too make good on dividend payments? you don't have to like the prospects for growth. anyone in a 2% world, get 10% they know they are going to get, it's like a no-brainer for you, isn't it? >> it's a fixed income decision. it's a credit decision more than

an equity decision. >> right. >> the equity part enters in, but you're making, first of all, a credit decision, which is what i made back in 2008 on dow chemical. any dividends they didn't pay us compounded at a rate. >> other people can get that kind of deal. >> they -- >> go ahead. >> they could have had my usair deal at $0.50 on the dollar not long after i paid it. >> that's true. you double your money in seven years. all you need is a credit decision at 10%. you know what i mean? >> well, i haven't gotten 10%, we got 8.5. >> what about goldman and ge. i thought you got almost 10 on those, didn't you?

>> 10 on goldman and ge. we got some warrants there. but i will tell you in september, late september 2008, i don't think there were any other buyers around for it. >> there weren't. that's true. if the world ended, we'd all be -- you might as well have done it. the world doesn't end and you're fine. the world doesn't and we're all screwed, right? >> yeah. what's the difference -- if the world is going to end, what's the difference dying broke and $1 million in debt. >> i heard it can only end once. that's something to keep in mind if you're investing in the stock market. if it ends more than once i'm not thinking about it right. >> yeah. >> "the walking dead." okay. right. joe, we're going to continue this conversation in just a moment. folks, when we come back, don't forget we have much more to talk about with warren buffett. today's top stories. we haven't talked unilever,

stick around. ask your questions. what did you have in mind? i don't knowuhhh-95 per trade? and i was wondering if your brokerage offers some sort of guarantee? guarantee? where we can get our fees d commissions back so c offer mehappy. what schwab is offering? what's with all the questions? ask your broker if they're offering $6.95 online equity trades and a satisfaction guarantee. if you don't like their answer, ask again at schwab. is hapning before our eyes. shift in han history sixty to seventy million people are movi to cities every year. at pgim we help investors see the implications likehe pri timeof urban exp, pinpoiing opportunities capture alpha in real estate, infrtrture and emerging markets. partner with pgim businesses of prudential.agement

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but i am only 1%. only 1% of college students are american indian. donate now, and help our numbers grow. ♪ >> announcer: welcome back to a special edition of "squawk box" live with warren buffett, the oracle of omaha making headlines on market rally. >> it's making a terrible mistake when you say out of a gain you think will be good over time because you think there will be a better time. >> and berkshire's biggest investments. >> we probably spent $20 billion. >> $20 billion. you're just counting the billions in your head as you're sitting here doing this. >> yeah. i quit when i got to 20. >> you ask, buffett responds. it's the only place to get your questions answered by icon of american investing. it's monday february 27th and

the second hour of "squawk box" begins right now. ♪ ♪ >> good morning and welcome back to "squawk box" here on cnbc live from nasdaq market site in times square. i'm joe kernen. andrew is off and becky in omaha, nebraska, speaking with billionaire investor and berkshire hathaway khairul. he's a lot more than those two things, becky. he's funny, witty. he's a little bit wild at times, i think. you can probably confirm that. the ceo this year, i was watching creighton and i was hoping they were going to win. they have a pretty good team. these brackets, i told beck y, i may not do them. >> joe, it's so hard.

>> i don't know who is good. kansas, i don't know. >> creighton started very fast as you know. we are going to announce again, probably next week or so send it out to our managers, a contest among employees. >> love that. >> if they manage -- if they can get to sweet 16, only one of them, whoever does, he or she, gets a million dollars for the rest of their life. we also have a prize of $100,000 for whoever gets the furthest. last year we had two fellows that tied. one knew a lot about basketball, the other didn't know anything about basketball. they each got $50,000 out of it. we're going to do the same thing for berkshire. we had 80,000, i bet we go over 100,000 this year. >> that's so fun. getting all 16 of the 16. please. i've tried. i've tried. it's like, if you get 10 or 12

you're doing pretty well. >> yeah. but it's not impossible. somebody is going to win $100,000 and divide it up. some individual companies joined in with a tournament of their own. it caught fire. go to the website we have. you can see after each game how many are left and how many have gone in the next game coming up for team a or team b. we have a good time. >> gonzaga now lost. i like jesuit schools like you. xavier, we lost -- edmond sumner, so good, torn acl. that killed me. i was going to start watching cincinnati and then they lost yesterday. it's hard. it's hard, warren. >> i'll tell you what we'll do. joe, send me a ballot and i'll have one of the people put it in under their name.

>> last year he offered to let you in it and you didn't send it in, remember? >> you know why? warren is very smart. the side of the trade he takes, i want to be him. i'll give people money. like selling calls. he's on the right side of these trades. no one is going to do it. he's safe. it's like those people who in sure the hole in ones. i want to be the insurer, not the person swinging. anyway -- >> that's usually a good idea. >> exactly. i like to be the house. >> the house. >> let's check on the market. i thought the dow might turn up, you're going to juice apple, no doubt about it. i thought dow might turn up. apple, who wouldn't buy apple after hearing that type of financial outlay that the greatest investor. >> joe, i want to emphasize -- >> go ahead. >> i want to emphasize, we have not -- we have not bought into this price.

we quit buying when the earnings came out. if i were buying now i wouldn't be talking about it for one thing. we're certainly not selling either. >> exactly. >> but we're not -- i don't want anybody to think we're buying at this price. >> your ibm stock, that call looking much better. we can talk about that more, beck y, a whole segment on ibm. that, you know, $172 billion, not $720 billion. who knows where that could run if you get it going there. anyway, back to you. >> you know, what joe, ask about ibm right now. we have so much stuff, i'm afraid. i don't want to miss anything. if you have a specific question on ibm, jump right in. that is a much higher price. >> what do you attribute that to? what has started -- has it been the cloud part of the business has gotten to be a larger part

of of the ruts at this point? some of the initiatives starting to bear fruit? what do you think happened? >> joe, the whole market moved so much to start with. they increased the dividend. i think there's been increase in stocks recently, but i've got no information for you on ibm except those two factors. a lot of stocks, they really moved in the last few months. >> they certainly have. that would be a good segue to lead into president trump. you can attribute it to a lot of different things. i have people every day come in that said the market would go down 5,000 points if he got elected. you ought to see them dance now explaining this, warren. it's the equinox. it's the witches.

they come up with all kinds of stuff to attribute why the market is up. they won't say some of the policies are pro growth. some of the policies are pro growth. >> last year in the annual meeting it was clear i was for hillary but i got asked the question about the market based on who got elected. that does not -- and i said america is going to do fine in terms of economically under either candidate as president. people who mix their politics up with their investment activities, i don't think that makes sense. i've watched it all my life. obviously probably half the time in my adult life i've had a president other than the one i voted for but that has never taken me out of stocks. american economy, we're up to number 45 or so and we've done

awfully well. if you mix policy with investment decisions you're making a mistake. >> charlie munger. >> sorry. >> go ahead. >> one last thing. you talk about how great democracy in this country is. i have seen people in the journal op-ed or wherever, just people say democracy is ending. they look at this election and say, wow, this is the way it happened. another orderly transition of power. the way it was done brought tears to their eyes in terms of this is a prime example of how well things work and democracy is alive and well. >> joe, in 1951, i proposed to my wife. my father-in-law was the most conservative guy in nebraska except for maybe my dad. my father-in-law said i want to have a talk with you, so i went to his house to have a talk.

i said, warren, i want to ab solve you from waters. you're going to fail. my daughter may starve to death and you're going to fail but i'm not going to blame you. it's because the dems are in. they are all communists. i listened to this thing for three hours. i almost with drew my proposal at the end. i've watched people make economic decisions based on political and it is not the way to do it. >> warren, if bernie sanders got elected, i might make a few investment decisions, i'm sorry, but that's just me. >> i understand. all my friends feel that way on one side or the other. i grew up in a household where when roosevelt got elected the third term, my dad said there never will be another.

you couldn't desert the house without saying things nasty about of course velt. i bought the stock and it worked out well. >> charlie munger made statements at the meeting, he said he's mellowed on donald trump. he said some things that were not so nice to say about him before. he said, look, not everything he's doing i disagree w he's in favor of some of the things about social security and other moves he's made. have you mellowed as well. >> i would say i agree with charlie on that in terms of entitlements and social security. certainly you can't help but feel if you're in business everybody -- there are a lot of regulations that i think probably have gone too far. i will judge president trump after four years based, number one, on how safe the country has been kept. that is the number one job of the chief executive of the united states. that's not an easy job. i'm not thinking of random

killing, i'm thinking of weapons of mass destruction. that's my number one worry. that's the number one test i have. secondly i'll judge him to a degree, although they have less control over this, they need a little luck on weapons of mass destruction, how the economy does overall and third if the economy does well, which i expect it to do, how wide the participation in a better economy extends. and those are the three primary tests i would have applied to hillary clinton or donald trump. >> meaning if he passes on all three of those you would consider voting for him in four years. >> depending who he's running against. i would say unlikely but those are the three tests. those would have been my test for hillary clinton. being president of the united states is not the most important job in the world. it's not all powerful and you need luck. but we've had weapons of mass

destruction. kennedy got us through the cuban missile crisis and someone else might not have. when you look at north korea trying to get icbm to hit the coast, that's very, very important you have a president that's a priority, too. i actually think with hillary clinton and donald trump both they have an understanding of that. and if -- that's number one. i think the odds are good, as i said we'll have prosperity in any four-year period. there are times when the economy has a hiccup. the odds are good any president has a reasonable economy and i would like to see more people share in that economy. >> let's go through this one by one. in terms of trying to keep us safe, part of that must be appointments like secretary of state. what do you think about rex tillerson in that position. >> well, i don't know any of the appointments well, but i

certainly think rex tillerson makes a lot of sense. you've got an absolutely outstanding person. incidentally, i would say this, too. you get a lot of this in politics. rex tillerson is going to be working for the united states in that job. people that get all upset because he was with exxonmobil or because he's got a fair amount of money, i have seen a lot of people enter high levels of public service, i think the great majority of them take it very seriously that their employer is the united states. i don't worry at all about the fact that somebody comes from the oil industry or they have a lot of money or anything of the sort. i do think most people rise to the occasion to quite a degree. not always but quite a degree. so, i don't know tillerson, i sat next to him one time at dinner. he'd be the kind of person i would choose. >> there's also people like wilbur ross, steven mnuchin,

gary cohen in these positions, too. >> they are wall street guys, smart guys. i would say, those people, none of whom i know well. i know of them and i know people that know them. i would say they will take very seriously the fact they are in public service. you may run into an exception now an thend. conspira -- now and then. spiro agnew but people take it seriously. >> in terms of judging the economy, a lot will be done based on the stock market run as joe brought up to this point. the next thing to see what happens is tax reform. before that happens, going to be looking at obama care for a repeal of that. all these things will weigh on the economy. what's your overall take of the direction we are headed right now? >> i think on a probability basis, not specific to any given administration, i think the odds are very high that any

administration ends up better four years -- with the economy four years later than the president. i would say this -- >> what about the specifics of what has been proposed in terms of potential border adjustment taxes, in terms of immigration policies, in terms of regulation rollbacks, all these things. >> i would still say i think the economy will be better four years from now even though i disgrow with specific policies. i disagree with policies of most administrations, some policies. border adjustment tax, it's an import tax and import tax is a sales tax. looking -- if we're nebraska furniture mart, the store, in several buildings, does over $400 million a year, 75% of what you see is important. if we pay an import tax on it, our customers are going to pay for it. it's a sales tax. it's a sales tax in this case on items that are not yachts, things the ordinary person buys. so it would be a big sales tax.

i think the president said initially too confusing or complicated. my guess is the republicans -- you don't get a shot like this where you control both houses and presidency. they will want to do things. mcconnell will want to do things and ryan will want to do things. my guess is that they will find doing something really comprehensive will be too difficult. they will want to get something done. you remember russell long by any chance? >> i know the building. >> russell long was huey long's son. he was head of the finance committee, a senator, he owned berkshire hathaway stock. i knew him a little bit. he coined the line, don't tax you, don't tax me, tax the person behind the tree. if you want to be neutral -- if

you want to be revenue neutral, it's going to be very, very tough. you'll have everybody saying tax the fellow behind the tree. i think they will end up going for something not as dramatic as they might even like to do because they simply don't want to spend the time and political capital to get it done. people realize you control the whole place, you better get your stuff done at that time. they look at the first term of the obama administration and use up capital and use up time thinking about the midterm elections. so i just have a feeling when the treasury secretary says have this by august or something, you're not going to get a 1986 type overhaul or 1954 overhaul or 1969 overhaul in that kind of time period. >> meaning you think something gets passed with lower rates but not border adjustment tax or something you haven't tried. >> i don't think it's likely to get terribly complex.

as soon as you try and make it revenue neutral and change one big segment, you'll have every lobbyist in the world in there who says that isn't reform. my idea is reform but not your idea. who knows? you've got some master legislators in mcconnell and ryan that will be handling things to get as much as possible of what they would like through. i think if you're trying for speed and you're trying for complexity, i think complexity will give way to speed. i don't know any more about this than your viewers. >> you mentioned that the border adjustment tax would be something that's a tax on consumers. >> sales tax. >> i could see that happening. you also have american manufacturers who say we're not competing on a level playing field. we're the only one of 35 oecd nations that don't have some sort of border adjustment, vat, something along those lines. as a result it's hurting us.

we're not able to create jobs as quickly. that has been an issue important to the president. is there a way around that? >> a long time ago on import certificates it's too long to describe. there are various approaches. i actually have one i like, but it would take a long time to explain. i understand there's an article today by marty about how the dollar would adjust upward so you would be buying these things cheaper. >> that's the idea that in theory over time the dollar would adjust but it's never been tried. >> i would not bet on that. for one thing, that kills exports. so free trade is wonderful for the world and for the united states, but its benefits are diffused among 320 million people. you buy bananas cheaper because we don't try to produce them in the united states. but the penalties from free trade are terrible to specific industries. as an investor, i can own --

make a dumb decision on owning a shoe company. if i own a good insurance company, i can diversify away problems. if you're a 55-year-old steel worker, you can't diversify away your talents. if steel or textile or shoes become subject to toll it all moves offshore. you want to have free trade but you also want to take care of people who follow their own, have spent their life learning one profession. you can talk about retraining and stuff like that but it just isn't practical. take berkshire hathaway we started with 2,000 ploy eyes in new bedford, mass, turning out textiles and that decision was doomed. we had workers there that debate have alternatives at age 50. a fair number of them spoke portuguese. they didn't have a chance. a rich country that is prospering because of pre-trade and the world is prospering

should keep the free trade service possible but they also should take care of the people that become the road kill. >> apparently that's been a problem. >> it's a real problem. >> the election was a huge referendum on that. both democrats and republicans are moving away from the idea of free trade depending -- free trade we've seen as free trade to this point. some will say this isn't free trade. what happens now? >> you've got to take care of those people. if i were somebody that spent 25 years in shoes or textiles or you name it and somebody came around to me and said, this is great for the world and great for those guys on the 400 but it's too bad because you lose your job and we can buy shoes cheaper, a little cheaper abroad, i would say a rich society should figure out a way to take care of those people. >> we're going to continue this conversation in just a moment. we do have much more to get to. folks, we are live in omaha,

nebraska, today with warren buffett, chairman and ceo of berkshire hathaway. we're going to be talking about unilever and other important news. stick around. if you have additional questions to send in do that using lash tagliani askwarren. send out on twitter or facebook and "squawk box" will be right back.

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let's check out the futures right now. apple is up a little on those comments that were pretty interesting if you were watching. there are futures down 13. the news that warren buffett had more than doubled the berkshire stake in apple. i thought that might help apple, which would obviously help the dow. we're still indicated down 6 points, 6 on the nasdaq, .94 on s&p 500. on the corporate front s.n.a.p.

expected to price its ipo wednesday evening and trade on new york stock exchange on thursday. we're going to take another quick break and more from warren buffett in a bit. plus an awkward moment last night at the oscars of the let's just say presenters for best picture may have been in "la la land." i said that earlier and i actually was worried because i was joking, because people have a way of wanting to believe that, you know, you can be totally clueless. everybody in the world has heard right now what happened. couldn't happen to a nicer bunch of people. "squawk on the street," ceo of qualcomm will be at conference in barcelona, that happens at 10:40 a.m. eastern. take a look at u.s. equity futures.

we have a question about your brokerage fees. fees? what did you have in mind? i don't know. $6.95 per trade? uhhh- and i was wondering if your brokerage offers some sort of guarantee? guarantee? where we can get our fees and commissions back if we're not happy. so can you offer me what schwab is offering? what's with all the questions? ask your broker if they're offering $6.95 online equity trades and a satisfaction guarantee. if you don't like their answer, ask again at schwab.

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welcome back to "squawk box" live on cnbc live from market square. front and center as the new trading week begins, the dow has an 11-day winning streak. not only a winning streak but also 11 record closes in a road. the longest winning streak since 1992. it's the first time we've had 11 new records since that ominous year of 1987, but it happened in january of '87. i don't know. there was eight or nine pretty good months that year until that horrific october. two economic reports on the calendar, january durable goods 8:30 eastern and january pending home sales 90 minutes later. michael kors and coach second round of bidding for

handbagmaker kate spade. there's other bidder as well outside the u.s. if you missed it last night's oscar awards ended awkwardly. warren beatty and faye dunaway came out on the stage to announce the winner of the best picture. the two announced "la la land" had won. then midway through the acceptance speech of the people from "la la land" producer stopped to announce there had been a mistake. host jimmy kimmel and beatty came out to reveal "moonlight" was the actual winner. apparently beatty was given the envelope of the best actress "la la land." here is beatty explaining what happened. >> i opened the envelope, and it said emma stone, "la la land." that's why i took such a long look at faye and at you. i wasn't trying to be funny. this is "moonlight," the best

picture. >> it was the best picture. oscar finally sorted out "moonlight" took three awards total. so many different comments that come to mind here. becky, if i would have been up, i would have been watching to see what happened on "the walking dead." i would not have been watching the oscars. >> you would have missed a moment. >> the question is, as boring and uneventful as the whole ceremony is, sblg on purpose? they needed something to get one to want to watch whatever you want -- >> i can't imagine that was on purpose because you feel so badly everyone from "la la land" standing up there. that's horrifying. >> if it's not on purpose, what does it say about the competency of those people. maybe not all of hollywood. you can't get best picture right. everyone waits five hours for this. you can't get best picture right, are you kidding?

you can't make sure that the envelope you give these clowns that read scripts for a living, obviously, it's not a huge -- you do have to memorize scripts, obviously. you can't get the right envelope with the name of the best picture on there without screwing that up. it's a great metaphor. you put together all the other sanctimonious, smug, politicizing and everything else, it couldn't happen -- anyway. let's get back to becky quick. >> you paused before you went on your rant because you were thinking about whether or not you should do this, weren't you? >> why? >> you took a breath. >> no. this is one of those moments where last night i could stick needles in my eyes or watch this self-adulation, congratulatory thing that happened every year. i would put botox in the center of my eye before i'd be caught dead watching it. that's just me.

it wasn't on nbc anyway, was it? >> no, it wasn't, so you're okay. it's safe. >> if it's on nbc, i will love the oscars. >> then you will love the oscars. >> i'd love it but it wasn't. >> i was reading the history on it. it was put together as something when the screen actors guild was considered -- when the actors were considered unionizing, this was something tossed out by one of the studio heads who said, give them their little party and maybe that will make them happy and keep them from organizing. it really was an afterthought on the transition to talking movies. anyway, our guest host is warren buffett. he's been talking with us for an hour and a half at this point about things that has been going on. i can't believe it's been an hour and a half and we haven't gotton a massive piece of news, the unilever deal. >> right. >> it was a little over a week ago we heard about this deal kraft, times, ge are putting

together. deal came out friday, news broke on it, stocks for a lot of the other suitors dropped. stocks of both kraft, heinz, and unilever soared. by monday all of that has been kind of doused. what happened? >> what happened. i can tell you what happened. most what i tell you i can tell you for sure. a couple of things i have to draw in frieferences on. alex bearing chairman of kraft tim times. he and i agreed on making a friendly offer for unilever if they were open to it. alex went over to london and met

with their ceo and had a conversation and brought up an idea of possibly making an offer later in the conversation. yes, he didn't get a no. he got perfectly polite conversation. the ceo greg abel of berkshire, nothing but good reports, felt fine about him. so alex came back and said that. we went to see him two weeks later. he a letter, which was an outline of the deal. he thought if he got a neutral

response he would get, negative he would not. he went over and felt he got a neutral response and therefore gave the letter. i might mention -- it reminds me of that old story about the difference between diplomat and lady. if a diplomat says yes, maybe, no means no, no, no diplomat. if a lady, yes means no, no, no lady, probably got a maybe and didn't know if it was from a diplomat. that's what freblgtly people get. if you want me to make an offer i'll make one. there's usually more of a mating dance than that. you get this i'll take it to the board and all that. you're dealing with different kind of people. some people more cultures, more polite. so alex took it as a maybe and

gave this letter outlining to unilever and said it would go to the board. it became very apparent unilever did not want this offer based on press reports. somehow it leaked wednesday prior to the friday one. so on saturday i got an call the offer was unwelcome. unwelcome back. there is no offer. it was only intended to be presented if there was a possibility. >> it was never intended as a hostile offer. >> no, zero. on the other hand it may have been interpret thad way. i can't argue about that. but if people say we don't like the price, that's usually a maybe. >> is that what was said in this

case? >> that was said the first time. it wasn't said the second time. when i was called about it by a representative of unilever on saturday, i just said if this is regarded as hostile or unfriendly, you don't have to worry about it. there's no offer. if it's simply because you're negotiating which people often do, take it to the board and say, well, it's not enough money. i'm noot negotiator myself. but the 3g people are more that way. but once the three of us learned it was regarded as unfriendly, we had no intention of making one. i think the unilever people understand that now. >> is it a case of unilever ceo being exceedingly polite? >> it can be differences in culture even in the way people express themselves. alex's second language is

english. i've seen misunderstandings before. that's the way i like to do it the way i do it. when i went to precision cast and mark donovan, i said i will make an offer if you want me to. if you don't want me to, forts it. i said the sale thing to bnsf. that's not the way -- usually there's more of a dance back and forth. part of that is sort of what -- the law is different in the united states than uk. in any event, within an hour we got across to them that we were not making a friendly offer so we would go away. >> that clears up a lot. we had many questions that came in from viewers saying is this the first time you've done a hostile offer, should we expect more to come? >> no. we don't do hostile offers. i don't have any -- i don't think they are morally wrong or anything. i think there are many companies that could use shaking offer and sometimes it takes a hostile

offer to do it. there are companies that deserve hostility, believe me. berkshire doesn't do it and unilever wasn't one anyway but we don't do it. >> what happened in terms of unilever, what attracted you to the company? >> they are a good company. they will do fine things. i wish them the best. >> with unilever off the table, does that clear the way for potential back-up deal potential? >> there isn't any back-up deal. will there be another one? yes. floss back-up deal. again, it would have been to be friendly. the prices in that field make it very, very tough to make an intelligence deal. >> unilever more undervalued

than companies like mondelez. >> yes, that's why they went down and it went up. unilever looked more attractive. it was larger. we always like size. >> is that to say you have, as a group, you and 3g have looked at these other companies and are constantly assessing them. >> you always look at all of them, that doesn't mean you're going to do anything at all. you can't help but be aware of what other companies do, what they are selling. that's the wonderful thing about investment. there's thousands of choices out there and they change in price daily, so the relative attractiveness can change but there's nothing in the works. >> i had someone tell me recently simply the activities of kraft heinz and 3g and berkshire's involvement, simply by being there and watching 3g's

operations has put pressure on all other food companies in the arena to make sure they are shoring up their operations, too, so they don't become an easy target. >> i think that's true. i think when people see what the 3g management accomplished, it may make shareholders of other companies somewhat unhappy. you've heard it expressed in a couple places. one thing i would emphasize about 3g, they are wonders of creativity, i would emphasize that. on 20 boards, i have never seen anybody any better about marketing and development, all that. that is what we talk about at board meetings and it's hours and hours. i've been on other consumer goods company boards and they are nothing like the intensity they bring. they don't just bring it to productivity, they bring it to new products. they bring it -- i learn about what's going on in the market and world a lot when i'm at the

meetings of kraft heinz. it's their game. >> it's interesting you bring that up, the detractors of 3g, those on the other side of the issues said things like 3g is just a rollup company, that's what they are good at, not your experience. >> there are companies in the world that started with nothing. and i was at the last meeting just a month ago. we spent hours and hours, happening in different channels and online retailers, they really understand their business. i mean, it's so much more of an informed discussion than i've heard most board meetings in my life. it's night and day. i have to say they developed a new desert i had three different helpings of. they are working on the right thing as far as i'm concerned. every aspect of management they excel in. >> what's the desert that caught your fancy. >> i don't know how much i'm

supposed to talk about new developments, it's cheesecake. i can't beyond that. i did have three helpings and took four or five home. >> they won your vote. >> 170 calories each. 510. that's the best 510 calories i've had in a long time. >> when did you start counting calories. >> i don't count them. i find them interesting in terms of evaluating the product. >> it's not something -- >> i don't count them. >> i thought maybe we had a new diet here. >> no. >> in terms of cash equivalents, annual letter you wrote laid out $86 billion. that is money that is piling up at this point. >> i hate it. >> do you have an itchy trigger finger at this point? >> no, you can't afford to have an itchy trigger finger. in a sense i always do in terms of what i might do. it doesn't change your standards. i'm always looking. if we only had $20 billion we

regarded as our minimum i would be looking because we could sell some things if i found something attractive enough to do. >> if you have $86 billion, if it doesn't change your standards, it certainly broadens your horizons. >> we can do something big and we'd love to do something big. >> are you working on anything now? >> i'm always looking but i would say nothing close. >> nothing close. >> i don't think so. >> okay. i want to go to a few questions from viewers. there was one sent in, if you guys want to follow along. you only find out who is swimming nicked when the tide goes out. do you feel there are many naked swimmers right now? >> it's not like during the internet boom. i've written a couple of times when i thought things were

getting out of hand on the high side, and that's not now. if interest rates changed dramatically upward, it would come down, in my view. but i don't see the games being played on a big scale that you had in the late '60s or had around internet time. i don't see lots of just fallacies being promoted, games built on accounting tricks and that sort of thing. >> is it fair to say -- you pointed to interest rates. is it fair to say much has been built on the idea interest rates are not going to necessarily rise rapidly or dramatically any time soon. >> low interest rates push stocks up. the ten-year bond selling at -- it's not going to grow. if you can buy some business

that has high returns on equity, even mild growth prospects, much lower earnings you're going to do better than buying bonds at 230 or 30 year bonds at 3 but that's been true i've been talking about for a long time. i said people were idiots in 2008 to put their money in cash. it's the one thing that wasn't going to go any place. interest rates are enormously important over time. if bonds yield a whole lot more a year from now than they do now, stocks may well be lower. >> you know, interest rates, though, the fed has been talking tougher game. federal reserve meets again this month or later in march they have been meeting and could raise rates as quickly as then. do you think this is a position -- we're getting into a position where the fed could raise rates. >> i don't really know. i do know when you've got europe

and japan with the rates they have, particularly europe, you've got to be thinking about the spread. you don't have to have 8% united states and 1% in europe or something of the sort. so europe is a big factor. and you know, you widen out -- the dollar gets stronger, that hurts export. there's a lot of consequences. you never can do one thing in economics. you always have to say then what. if i were the fed i'd say then what if i got too big a spread against europe. >> we're going to continue this conversation in just a moment. when we come back we have more of your questions to warren buffett. we're going to run through many of them that have been coming in. meantime check out the futures this morning. after 11 days in a row of gains for the dow you can see modest declines this morning. dow futures down by 17 points below fair value, s&p futures indicated to open down by a point and a half and nasdaq indicated down by 8 1/2 points.

talking about ten-year note, treasury market right now, you'll see ten-year at least right now is yielding. wait for the board, 3.28%. talk more about all these issues with warren buffett when we come right back on "squawk box." trading tools, give you access to in-depth alysis, and a team of experienced traders ready to help if you need it. it's like having th power of a trading floor, wherever you are. it's your trade. e*trade

welcome back to "squawk box," everybody. woor live in omaha, nebraska,

with warren buffett. you guys have been sending in questions and we want to run through a bunch of these as fast as we can. someone wrote in, gary gambino, t-26. self-driving car technology continues to advance rapidly. how do you see it affecting geico earnings? >> well, self-driving cars will be adopted if they are safer. if they are safer that brings down insurance costs and premiums significantly. if all the cars -- if a safe autonomous car had been developed, 260 million vehicles on the road, time to break in average years, if the day comes when a significant number of cars on the road are autonomous, it will hurt geico's business very significantly. >> it sounds like you potentially see this happening sooner than maybe you anticipate add few years ago. that's the case with me. >> it's the last 1%.

it's going to happen one way or another. but who knows, you had the situation in st. louis years ago. if you were driving down the road and somebody took control of your car, only one or two experiences like that can slow it down a lot but it will come. if i had tried to take over and under ten years now whether 10% of the cars on the road would be self-driving i would take the under but i could very easily be wrong. you have very, very smart people, a lot of them, working on it, the big auto companies. it's something billions and billions and billions are spent on and brains. it could easily come sooner than i think. it will be negative for auto insurers. >> let's go to a question t-129 from paul howard. he says, what would you do to tackle the country's debt? would you like the 50 or 100

year bond idea? >> i think when rates have been where they have been the last five or six years or eastbound longer, selling very long bonds makes sense for the same sense it's time to buy them. i wouldn't buy 50 year bond in a million years. if it's that dumb, it wouldn't make sense. i would say the treasury -- a lot of considerations they have but i would be shoving out long bonds. at berkshire you mentioned $80 some billion in very short stuff. everything we buy in terms of bonds is short. >> short-term. this is t-70, the question is what does he think of fannie and freddie lawsuits and housing reform. >> freddie and fannie were broke in september 2008, and they were

a big cause of what happened in that month. they were the first of the really big dominos. bear stearns had been some months earlier but those were huge dominos, huge dominoes, holding of their papers around the world and they were broke. the people that encourage policies that caused them to go broke deserve some responsibility for what happened subsequently. for various reasons the government didn't want to take over 100%. for one reason they would have to take it on their balance sheet so they came up with this conserve toatorsh conservatorship. they have change the game with this sweep, take all the money out so there can be no recovery for fannie and freddie securities. that's getting tested in court. you can argue to go all the way back, there wasn't any equity at all for those securities.

the government made the equity by coming through with huge amounts of money, but the courts will decide it. >> we'll leave it right there. joe, i'll send it back to you. >> thanks. still to come, more of your questions for warren buffett plus his take on the markets, the state of america, trade, jobs, and much more. "squawk box" will be right back. manage my portfolio. d since i added futures, i have access to the oil markets and gold markets. okay. i'm plugged into equities- trade confirmed- and i have global access 24/7. meaning i can do what i need to do, then i canocus on what i want to do. visit learnfuturestoday.com to seehat adding futurecan do for you. the first stock index ♪ (musicwas createdhout) over 100 years ago as a benchmark for average. yet many people still build portfolios with strategies that just track the benchmarks. but investing isn't about achieving average.

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edition of "squawk box" with warren buffett, the oracle making headlines on the market rally. >> you want to spread the risk as far as the specific companies you're in by owning diversify groups and diversify over time. >> announcer: berkshire's investments. >> we bought a lot more apple year end. >> announcer: plus you ask and buffett responds. it's the only place to get your questions answered by the icon of american investing. >> i like investing. i don't look at it being stocks, i look at it businesses. small pieces of businesses. >> announcer: it's monday february 27th and the final hour of "squawk box" begins right now. ♪ ♪

>> good morning. welcome back to "squawk box" here on cnbc live from the nasdaq market site in times square. i'm joe kernen. futures right now -- futures, i don't even have the energy don't ask, don't tell the futures, i don't think. i do. they are down 22 points. you're with me, becky. you're with me in spirit. down 22. >> always together in spirit, joe. >> you know what, becky, i just figured out our average net worth, me, you, and warren is like $30 billion. i'm feeling really good about myself all of a sudden. >> we are big contributors to that total. >> think net, joe. >> let's not break it out. let's not break it out. let's just enjoy our success.

anyway i have some stuff later to talk about. >> i don't want to toss to you if you're not ready to jump in. >> keep it business oriented, then i want to revisit the stuff we talk to warren about. he knows insurance in and out, through and through. it's such a great business for a guy like warren. we already talked about some of the way he can do things, will be on -- will dealer, by definition. insurance is such a great thing. if it's done right, insurance -- >> if it's done right. >> joe, just do this now. jump in, let's do this now. >> warren, you've got one year where we ran out of letters for the named hurricanes, you know, so it's like oh, boy.

you're like this. the premiums are going -- then the next 10 years you've got nothing. basically not a single category -- so the way it can be done is pretty amazing. but i hesitate to delve into this, you have said in the past you haven't seen catastrophic events increasing in terms of the insurance business, right? year after year. is that fair to say? it's been sort of static or predictab predictable? >> it's not predictable. but the frequency of florida hurricanes has been quite low for the last 10 years or so compared to history. that's not been true in asia. new zealand had a quake that would have been equivalent in terms of their population probably three times or so what we've seen in the united states.

but most of the cat coverage relates to the united states. matthew came close last year to being a big one. it's been remarkably benign in terms of florida, texas, southeast for quite a while. that doesn't tell you anything about next year. >> i know. >> prices went to where we don't want to write it. we did not feel like the house anymore as you put it, when rates got to where they are now. >> the reason, i'm also thinking about, i mean, have you been paying off more in flooding or do you know whether the increase of tornado damage has stayed relatively flat? has it gone up? how about wildfires? the idea, notion is all these things are happening with this great frequency now. i'm just wondering is that true in terms of insurance. i can understand how damages would go up because there's more people and they are populating the coast. there's just more people around

for tornadoes to hit, so i could see that. do you know, is the incidence absolutely increasing as a show that we're screwing things up? >> last year tornadoes were unusually frequent. if you wrote comprehensive auto or home owners in texas, you probably lost a lot of money on that line. we have 25 auto dealerships, or thereabouts, in texas. we had losses that were, i think, seven or eight times the premium we paid, for example, on cars damaged at our auto dealerships through tornadoes. so texas got hit hard. a lot of places got hit hard. when you've seen in the last few years is more tornadoes than you might expect and fewer hurricanes. but who knows what's going to happen next year. you've seen -- actually had a

big quake over in new zealand. >> we haven't quite started attributing quakes to increased c co2. that's coming, i'm sure. i'm trying to get a feel for whether i saw, you know, one of the most vocal advocates of global warming, so we don't need to measure things anymore because we can see catastrophes happening. we don't have to look at data, we know it's real because it's happening. i don't know. i remember things happening when i was young, too. i don't know whether the frequency is higher or not. >> sure. no, i have not seen anything yet to cause the way we're evaluating quakes, floods. >> tornadoes, more snow, less

snow, more -- you know, it's unbelievable. om. i'm not going to ask you anything else beyond that. there's nothing more important, obviously, than things like clean water and clean air and keeping chemicals -- epa has a lot of work to do with waste sites and all these things. i just don't know whether it's a slam dunk that we've changed the entire climate at this point. that's my only point. >> the only thing i have changed my view on, i'll charge a higher rate for hole in one insurance, we've done that. that's been the ensemble major change in our underwriting policies though. >> when you're sarcastic it doesn't work well, warren. >> okay. i'll back off. i'll back off. >> you're so safe. you're so safe. the only thing safer is if it's a wedge, like a sandwich. >> we've written a lot of hole

in one insurance over the years. >> that's perfect for you. that's like your perfect thing. >> it is. >> that's why for you to win that final four march thing, make it a billion dollars. you've got it. no one is going to do it. what -- you'll get more headlines. make it a billion dollars. >> i'd rather get more premium. forget the headlines, i want more premium. >> warren, i want to give you a moment to follow up on what you're talking about, fannie mae and freddie mac. >> one point i'd like to marks it's enormously important for the economy we have readily available 30-year government guaranteed mortgage. i think this country will function better. home owners will borrow less with a government guaranteed mortgage. i think the problem comes when you try to mix-up.

you had the congress telling them what to do and wall street telling them what to do, i think that's a bad model. i do think it's important we have a government guaranteed model. i think it's good for citizenry and the economy. >> you don't think we need fannie and freddie to do it? >> no, i don't think you need fannie and freddie at all to do it. i think you need a program that is government sponsored. you may want to have private insurers take 2% of everything they do as a check on pricing and all that sort of thing. basically it's got to be the government. >> warren, i want to get back to the annual letter and something that jumped out at me this year was a phrase you put in, you don't hold stocks forever. you wanted to make clear, there was a small section you put in that said, look, people said we

own stocks forever. that is not the case. why did you put that in this year? >> there's a section in the report which has been there 30 years we won't sell a business because we get offered a fancy price for it. but if it ever has one of two things happening, it promises to lose cash forever, or we have major labor problems of some sort, we would consider selling. i've gotten calls on businesses saying i'll pay way more than it's worth. i say i'm not interested. people have interpreted that. in fact, one of our directors interpreted that meaning it applied to stocks as well. the trust is we keep stocks. our favorite holding period is forever. it would be nice to own stocks. i've owned berkshire forever, 52 years. i followed it myself and my family has followed it, but we don't commit to owning stocks forever. we do commit, when a fellow sells me his business we're going to keep it, we're not

going to sill it. we're not a private equity firm. if it's dispointing we'll sell it, if it's one of those two categories. that one section what i call ground rules, ambiguous, one of the directors mentioned it to me, so i thought i better make it clear. >> should that lead us to think you might be selling any of your ultralong-term holdings, wells wells fargo, coca-cola, american express. stocks you have held forever. >> we have no intention of selling those. what if the greatest deal came along -- no ban on selling those. i have no plan to sell them. i wanted to clear up one pont, the way i said earlier wasn't clear. >> t-20, i'm going out of order, t-20 from chris writes, what are your thoughts on border adjustment tax? we've talked about that already. he does want to know was this a factor of your recent sell of walmart. maybe you can talk about why you

did that? >> walmart is a fabulous company. what sam walmart did and successors, that's one of the great stories of american business. i think retailing is too tough for me just generally. we bought a department store in 1966 and i got my hat handed to me. i've been in various things in retailing. it wasn't we, i bought over in the uk and got my hat handed to me. retailing is very tough and i think the online thing is hard to figure out. now, we're sitting in a retailer we own that does very well. this particular business is relatively immune from online business, although we do a lot of online business here. this does very well and i think it will to do well. i think amazon in tparticular i someone -- an entity with everyone in their sights.

they have delighted customers. it's extraordinary what they have accomplished. a lot of people like the delivery. that is a tough, tough, tough competitive force. now walmart is pushing forward online themselves. they have got all kinds of strengths. but i just decided i'd look for a little easier game. >> a major investor i spoke with recently asked me this question. i'm not sure if it was supposed to be on the record or not, so i won't use the name. this investor said he or she had heard you recently making some comments about amazon where you were very complimentary of amazon, its founder jeff besos, probab -- bezos, probably the best manager you've seen. >> i think he is. i've said that. it's remarkable, a guy gets in the car with his wife, starts driving and thinks how can i take over the world?

maybe i'll sell books online. he's one terrific business person. >> that investor asked me, why don't you own shares of amazon. >> that's a good question but i don't have a good answer. obviously i should have bought it long ago because i admired it long ago but i didn't understand the power of the model as i went along. the price seemed to more than reflect the power of the model at that time. so it's what i missed big time. >> is it too late or you don't know. >> i don't know. retailing is tough for me to figure out. if you go back when i was a kid, in every town the guy that owned the billing department store was king, marshallfield, dayton in detroit, frederick nelson in seattle. you name it, the department store was king. what can happen to it? down there where streetcar lines crossed and women took streetcar there and could see 500 spools,

500 wedding dresses. they offered this incredible array of goods and someone came along with shopping center. instead of this vertical display by one person they spread it out with many. now comes the internet. that's the ultimate variety of things that you can get to very easily. so people love variety, they love low prices and a whole bunch of things. so it just keeping evolving. the great department stores many of them disappeared and the rest of under pressure. >> it's a business that has changed rapidly. it reminds me of another business you're invested in, newspapers. newspaper, the publisher used to be the king of the town as well. what's happened to newspapers? >> newspapers, there are only two papers in the united states that have an assured future because they have a successful internet model to go with their print model and that's the journal and "new york times." i'm not saying it will be easy

for them but they have developed and online presence people will pay for. now, the third that may do it, again, going back to bezos is "the washington post." he's improved dramatically their situation online. it's conceivable their math works. there's 1300 daily papers in the united states we've got 31 of them, there was 17 or 1800 not that many years ago. it was an incredible business when you were first in everything. you could tell people how their stocks closed. i learned how my stocks closed by looking at the paper. i learned who won football games, what the box scores. i learned all kinds of things from papers first, now you've got an internet. aside from the ones i mentioned, 13 or 1400 papers haven't learned -- haven't figured out a way to make the digital model

compliment print model in such a way to faernt the future. circulation gone down significantly, advertising -- used to be dozens and dozens of help wanted ads basically disappeared. and no one has found the answer to that yet. >> president trump has looked at the media as a potential enemy. steve bannon has said they are the enemy. you've had a lorng relationship with these newspapers that you read every morning. you've been invested in newspapers like "washington post" and many other newspapers. what do you think about that? >> i think that every president i've known and every poll situation virtually i've known one way or another doesn't like the media. they are just smarter about it, maybe he's smarter taking them on. in any event, the media is looking for things to write about. they should. that's their job. who wants somebody looking at everything you do with a

critical eye. the higher the office, the more they are going to look at it with a critical eye. so he expresses his feelings. but i would say he's not unique in having those feelings among politicians. >> not at all. you are not somebody who has embraced twitter, although you do have a twitter feed. how many times have you tweeted? >> i think there's seven tweets up there, but i don't have any of them. a friend talked me into the twitter feed. she put up a couple things. the answer is i never really tweeted anything myself. >> do you find your self following anything on twitter? i know you don't have an i. phone but you have an ipad. >> i have an ipad. somebody gave it to me, though. i would say this. there's two things i was told in life many, many years ago that turned out to be terrific advice. one is to praise by name and criticizes by category. somebody told me that 40 years ago. tom murphy 40 years ago said, warn, you can always tell somebody to go to hell tomorrow.

you have the option. both pieces of advice are pretty good. i would say both e-mail and twitter can really cause you to stray from that very easily. if you whack out something -- very easy to tell somebody to go to hell if you get mad at them. the very act of having that available instead of writing a letter, things of this sort, has made a lot more things come out that people shouldn't have said. i think they do better following my philosophy. but i think it's harder to do that if you can tweet something out in five seconds or go to e-mail and do the same thing. >> how often do you think that guy is -- but tell them. >> i have thought that over the years. hasn't always been guys either. >> did you just think that about me? >> i think for one thing you really do feel differently the next day. you haven't lost the option. people have done things where you feel like exploding over it.

>> how many times have you had to use your own advice. >> fair number of times. yeah. for one thing, it's reinforcing in that you see it works. a lot of people have said things in e-mails or whatever they wish they hadn't said. they didn't need to say it. they can't lose the option. they can tell them to go to hell tomorrow. >> is that more important in business or life. >> in both places. said life can only be understood backwards but must be lived forwards basically. you do learn about a lot of dumb things, including -- including writing letters in the past and now including tweeting and e-mails. your first impulse is not necessarily your best course of action. >> is that why you don't e-mail and don't tweet. >> appropriate -- probably i'm

inept but that is a good rule to follow. i would say if you have a delay system on every e-mail or tweet and couldn't go out for two hours i don't think they would go out. >> the trouble is we all still have our mouths that get us in trouble. >> yeah, definitely. i'm a walking example of that. it really is a mistake to give an instant reaction to everything that comes along. you're going to have things irritating for one reason or another, but people will tweet and they will send e-mails. the one e-mail i sent in my life ended up in federal court. >> tell people about that. >> what happened, a friend of mine from nebraska, a top position in microsoft in the 1990s, my one e-mail, e-mailed

and said doesn't microsoft meet all your tests for a wonderful business? this e-mail i sent him or he had me had some meaning about microsoft's position in the economy. one day in the "wall street journal" i saw my e-mail. i didn't worry about what i said about that but something about football. >> joe is someone who shares your concern about twitter. you want to express your -- >> i block. in the past when i want to use that word i say someone is a royal a-hole. >> it slipped.

he said tell people to go to hell and the other phrase jumped in my head. >> here is the deal, i can say ass. isn't that a donkey, so i can say ass. i can say hole all the time. becky, if you're going to go here, i'm going to use that word all the time. >> i slipped. >> if it's not fair game. >> it's not fair game. do not take that as fair game. that was a mistake. >> do you want to illustrate it, an example. >> i thought he said the other. i thought i was repeating his words. i was not. >> charlie and i have a code word we use when we see some guy we think is a jerk. we'll see, boy, you think like a cpa. the guy gets all pumped up. our code word is crooked, psychotic and you can fill in the last. >> can i fill in?

>> no, don't. >> royal a-hole. >> don't. >> it was actually bought by -- >> thank you for harping on this. >> i looked over. >> is that the only thing you want to jump in on? i thought you had something else. >> no. i want to start using it. if it's okay i want to use it. >> lost the pg rating. >> no, i've used that before. i say shih tzu all the time. i say shih tzu all the time because it's a dog. >> my embarrassing snafu, ask something else. ask something else. >> okay. have we exhausted the talk about the ten-year -- >> this topic, yes. >> you never answered me whether it's weird to see the bond market so well behaved when so many people are suddenly worried about reflation or deficit

spending. we're not going to do anything with entitlements, increase military spending, spend a trillion dollars on infrastructure, cut taxes across the board. why do you think the bond vigilantes, that's the way she likes to say it, i like it, too, why do you think it's so quiet, warren? >> it absolutely baffles me who buys a 30-year bond. i just don't understand it. they sell a lot of them. clearly there's somebody out there buying them. the idea of committing your money at roughly 3% for 30 years -- now, i think austria sold a 50-year bond below 2%, i just don't understand the -- in europe there's certain inducements for the banks in terms of capital requirements to load up on governments but it doesn't make any sense to me.

>> you just said a 50-or 100 ai year u.s. treasury but you would not be a buyer. >> absolutely i would not be a buyer. >> you wouldn't recommend anybody else? >> no, that's why sell it, it's a bad buy. >> warren, we're going to continue this conversation in just a moment. we're going to slip in a quick break here. when we come back we'll have more. stay tuned. you are watching "squawk box" on cnbc. energy is amazin

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welcome back to "squawk box." we are live with warren buffett in omaha, nebraska. warren, we've talked about a lot of different issues but so much news we haven't gotten to, one of those being wells fargo. we haven't gotten a chance to sit down and talk to you since everything happened with wells fargo. we had some viewer e-mails that

cain as well. this comes from norm. guys, this is t-31. he says to ask you given your ownership of wells fargo, please explain your criticism of management, why it's been muted for wells fargo versus the salman brothers incident. >> the company was failing and might have been out of business following week with huge repercussions for wall street. that was a whole different thing. they asked me to come in. i was on the board. we actually owned more than 10%. we have to be a passive investor by law unless we want to become a bank holding company which we don't want to become. i might well have been passive anyway. i can tell you i had to be passive in any event. they made a huge mistake. the huge mistake was not

necessarily the dumb incentive system. everybody comes up -- incent i was -- incentives are fine. the thing is they didn't do i anything about it when they learned about it. same with salomon. i keep preaching to our guys. if you see a problem, attack it. it's going to get better. a huge mistake was made at wells not -- if you want incentives and people to do it but you don't want it to lead to crazy behavior. the big mistake is when they found out and didn't do anything about it. they are flying with $180 million or $185 million. i think they saw that in light of $5 billion fines put on for mortgage practices at some other banks, $3 million fines. they saw the problem as sized by

the size of the fine and it wasn't at all. any time you have people making up accounts and doing all the thing they were doing, it isn't the size of the fine that measures the customer impact, it's how your reputation will suff suffer. it's what you were doing and it was wrong. >> the fine came five years later after they had been doing it for five years. >> clearly they knew what was going on to some extent and they didn't do anything about it. i will say this, if the top guy doesn't do anything, the people below won't. john is a perfectly good guy. i wouldn't worry for a second. but somehow when he saw the evidence, he didn't do something about it. now, maybe he thought somebody else was going to do something about it. that part is similar to what salomon, postponed calling jerry corrigan. late april, may 15th another government bond offering came

along and the guy behaving badly behaved badly again and it was too late. to some extent when you get behind the eight ball and don't do it immediately you think it will go away. if i come in now, why don't i come in six weeks ago or six months ago. whatever it was, it's a terrible mistake when you see a problem not to attack it immediately. it can be unpleasant. get it right, get it fast, get it out, get it over. i keep telling our managers that. i'm sure something is being done now with 367,000 employees the berkshire and i hope i find something about it and do something about it. >> what do you think of tim sloan. >> i had lunch with him and i'm going to have lunch in a week or two. i think he's doing fine. they made a big mistake and they are correcting it. i don't think in terms of the earning power of the company in five years it's material. >> tim sloan was there at the time. did he have any involvement? >> what i would guess is

consumer banking, it goes up the chain and that there's a person that's got a very responsible job ahead of consumer banking that should do something about it. if that person doesn't, the ceo has to do it. the board isn't going to know anything about it. you don't learn about that sort of thing at board level. >> can we talk about bank of america? >> sure. that is another large holding. you don't count it in your holdings the different way it's structured. >> yeah. >> you talked about in the annual report about when you might or might not go ahead and exercise those warrants. you want to lay it out? >> yeah. we can use our $5 billion preferred as payment for the warrants which are 700 million shares of $7.14 so we can have a cashless exchange. we're getting $300 million owning preferred. if we use that preferred you exercise the warrants, it would only make sense if the common we

received was more than $300 million. the magic figure is $0.44. i have no idea whether they will pay that or not. i wanted to be clear in the annual report that would cause us to exercise the warrants earlier than normal timea day before expiration. >> you also used the annual letter this year to really lay into investment managers, hedge funds in particular, and people who think they can get ahead by relying on experts when it comes to investing. there was a viewer e-mail that came in, and the gentleman said if you were looking at these issues, you talk about the know nothing investors. >> america is going to do okay. >> know nothing investor. he took umbrage. >> not a professional. i'm a know knowing doctor, i'm

not in that business. the idea you're going to be in a game you're not trained for or spent your life, not saying a zero iq, you can have 200 iq and not be involved in investments. i don't know why light switches go on. i think i'm generally reasonably intelligent but i don't know. i'm a know nothing physicist. >> your point is for people who don't do this for a living, it's difficult to beat the index. >> they aren't going to. they might be lucky for a while. the beauty is you're going to do wonderful with american industry. you don't have to be an expert. the experts aren't going to do it in large measure either. you're going to do fine. it isn't like i'm saying know nothing investors are going to be left out on the street or anything. they are going to get a great result. i mentioned in the past when i die, i told my wife, 90% of her

and trustee have it in an index fund. it will do better unbalanced than what they will get if they go to professionals. >> because? >> professionals don't know how -- after fees they don't know how to get a better result. if you take half the people in the country and they don't do anything, they just own the average, they are going to get average results, right? if they don't have expenses they will get growth from that. the other by definition average, the other part average left for them, they are going to incur all kinds of fees and they are going to do way better -- way worse than the people in the -- who do nothing. and i made this bet in order to just illustrate. the difference is incredible. the amount of money people wasted getting investment advice is just ridiculous in this country. >> you mentioned there are ten managers in your lifetime you have met. i want joe in on this conversation and we'll come back to that.

joe. >> i was going to say a lot of those hedge fund guys are assholes. i'm going down with you, baby. >> i'm never going to hear the end of this. >> i'm going down with you. >> thank you, joe. >> sink or swim. >> next year -- i'll be doing this show by myself next year. >> uh-oh. >> two in twenty and they can't beat the index. that's something -- i'm glad someone shared that. some year after year are good but there's a lot of naked emperors charging two and twenty. they have a couple of good years and give it all back. they keep their two and twenty and lose it all for the people that are there, right? >> no, two and twenty is going to make a lot of people rich and it's going to make very few investors rich. it's actually kind of -- it

borders on obscene. i've known people with modest amounts of money, i bet a lot of money they would do better than average. there are hundreds, maybe even thousands. there are thousands of hedge fund managers, two and twenty is ridiculous. you don't get better charging a lot. that doesn't make you a better judge. good sales people overwhelmingly are the ones that attract the money rather than the very few extraordinary of managing money. phil fisher wrote "common stocks" charlie was going to do better than average. bill wayne, a friend of mine, was going to do better. there's a few, only a few and then only if they work with modest sums of money. >> is that why you don't want to tell anyone you can invest with right now? >> partly being 86, my crew --

the fellow you never heard of, if i picked one guy to manage money herb would have done it. bill wayne outstanding, i recommended to my partners in many things, no question he was going to do better than average but very, very, very few people. when we're looking for a couple of people to hire at berkshire, you were on that trip, cnbc was, when i had hundreds and hundreds and hundreds of applications from people. the truth is, i let anybody in the world that wanted to challenge me nine years ago come up with $500,000 for their half of the bet. all these guys that make billions of dollars a year they didn't want to put up $500,000 and bet on themselves. it's amazing what's happened in investment management. >> joe. >> i have one more philosophical question, warren. it goes against what you normally speak to. but just in terms of looking at the market and whether it's had

like a run where it's done too well and needs to regress to the mean or where it hasn't done well enough and it will come back. if you look at an eight-year analysis, let's say it's tripled in eight years, that's like 16 a year, i think. it doubled twice. tripled, that's one way of looking at it. if you go back to 1999, 17 years, it's only double. that's only 4% a year. which is it? has this market gotten ahead of itself because i it tripled in the last eight years or taken forever to go from 10,000 to 20,000, so we're not necessarily in this rarified air. do you have an opinion on that? >> yeah. well, i would bet my life -- well, it doesn't mean much when i'm 86 to bet my life on 30-year. i would bet my life stocks over 30 years outperformed 30-year

bond. i would come close, do better than 10-year, versus one-year or two-year, i have no idea. stock if you look at american equity, basic business of america, american equity earns a tremendous return on tangible assets. that's what the business is about. that's what the farm is producing. a bond is limited to what it can produce. when you say reversion to the mean, i'm not sure what the mean is. the mean is going to be based on returns of equity, amount of equity reinvested, reemployed, the prospects so much better fixed dollar investments. admittedly i like stocks better than a few years ago. i said that on the program. but stocks versus bonds right now, it's not close. now, bond deals with change a lot. if bonds go to 15%, i may be recommending bonds. >> warren, were you considering your self among those 10 people you thought could outperform

indexes? did you know you would be -- >> i always know i would. it's kind of disgusting. i really did. i retired when i left grant miller with $1 75,000 and i thought that would be enough to provide me a good living the rest of my life. i had a couple of kids then. no, i thought i was right for this business. i thought charlie was right for this business. i knew people. i didn't think they were the smartest guys in the world, maybe charlie is but i thought they were well daptdadapted to business. you look at champions, sometimes they are not good in other areas. i'm wired for this business to some degree. i felt that. i learned from the greatest teacher you could have. >> what would you have done -- what other jobs did you consider besides going to work for ben

graham? >> well, out of columbia, i only applied for -- i went to graham and said i'd work for nothing and he turned me down. i did go down to merrill lynch. i went to merrill lynch and this woman put me in this little room to wait. about -- there were a couple of guys in there already and they got called up. three or four came in after me. these guys were all really fat. and they kept getting called in ahead of me. i finally decided merrill lynch had some minimum weight requirement so i left. if they called me in earlier i might be working for merrill lynch today. i got tired of all these fat guys. i thought i must be at a pro football tryout or something. i only weighed about 135 or 140 pounds. i decided there was some requirement at merrill they hadn't told me about. >> oh, how different you life might have been. >> different. >> you keep talking about the 10 guys, maybe, 10 people maybe

you've seen that could outperform. is there anybody actively managing money today who investors can still get in with in that group of people? >> i'm sure there are. they will only be effective in all likelihood with fairly modest sums of money. >> the reason i keep coming back to this, there is a question, who do i go to to beat the average. >> i hired two guys that are very good and they are very good but they are running 10 billion each. they would do better if they were running 1 billion in terms of percentages. it's just that we have a lot of money around. but added funds work wonders for the general partner getting two and twenty and they are totally against the interest of the limited partner beyond a point. >> there was a question that came in from a viewer and i don't know the number on it if you can find it. the gist of the question was, does the market still have plenty of geicos out there you

can find that are great investments that are going to continue to grow phenomenonally. >> it's tougher than it was obviously 50 years ago. my best year actually was 1954. see how far -- i peaked early. i was working with tiny amounts of money and a market not combed over the present way as presently. so there are way more people looking to compete with. i still think because of temperamental differences, i think there are a fair number of people with small amounts of money that can do well. the chances that the average person is going to pick them out or the person sitting across from you trying to sell you is that person is betting against the odds, significantly against the odds. >> you mentioned in a letter it's something your wealthiest friends just don't want to hear, though. >> it's a very interesting phenomenon. i've talked this way. people with small amounts of money say it sounds good to me. they go buy index funds and keep

buying them and they have done better than people that have gone to hedge funds. i say that, i get asked pension funds, sometimes local, i've been asked by very big retirement funds in other states, i say the same thing to them. they basically can't stand the idea their big money won't buy special performance. of course they get called on by people all the time. >> hedge fund guys. >> salesmen, they are going to fall for good sales people. what really gets me sometimes they hire consultants. i don't know enough to pick good managers but consultants. i've never figured out what a good manager is. a guy comes in and says i'm a good consultant. it's really sad but they are really outclassed in many cases by the sales people. that's true in a lot of fields. in investments you're talking big, big, big money. somebody has a billion dollars, they want a family office. they want to feel special.

the truth is you don't need to be special. >> warren, if you don't mind we're going to slip in one more quick break. when we come back, folks we're going to talk more with warren buffett about issues concerning the market and some securities he's bulking up on. you're going to want to hear this so stay tuned. "squawk box" will be right back.

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welcome back to "squawk box" everyone where we are live in omaha, nebraska, with berkshire hathaway's chairman and ceo warren buffett. he's been answering questions for the better part of the last three hours. warren, thank you again for your time today. >> thank you. >> before we go, like to hit a few points maybe for people who weren't up three hours ago. the one question everyone asks me when i come back from asking you these things, they want to know what do you think of the stock market now. we've watched the dow go past 20,000, watched the s&p go past 2,300 and there are investors who feel like, wow, i missed my chance. i've been sitting on the sidelines. now i have to wait for a pullback. what would you say to those investor s investors? >> well, i don't have the faintest idea of what the stock market is going to do next week or next month or next year. and i do know over time, we'll talk ten years or something of

the sort, that equities will do better than bonds, which is the main alternative or bank deposits or whatever it may be fixed dollar investments for people. and they're not going to be able to pick the time to come in. i don't know how to pick the time to come in. i bought a lot of stocks in the last couple months that may turn out the stock market goes down 20% or 30%. but that won't bother me if i like the businesses i bought. >> there are a lot of people who think you need to be balanced if you're going to be in stocks, you also need to have balanced in bonds. 60/40 or 8/20, whatever it may be, i have money in fidelity retirement, i have everything in s&p 500 index funds like you've written and told people to do, with the exception of comcast shares, which i own, but everything else is in s&p 500 index funds and i get a red signal back from fidelity saying this is dangerous, you should not be invested in stocks. are they right to warn me? >> no, i think that's totally wrong. obviously you shouldn't be invested in stocks with money you might need. >> these are retirement funds. >> oh, yeah. but if you're going to need --

you shouldn't borrow money against stocks. and you shouldn't -- if you're going to need some money for college or something in a year, you don't want to be in stocks because you don't have any idea what stocks are going to sell for in a year. it's inappropriate. stocks are safe for the long run and very unsafe for tomorrow. if you call unsafe being will you be bothered by a decline in market prices. but berkshire three times since i took over has gone down roughly 50%. did i feel poor then? no, not at all. but i didn't know borrowed money. i knew it was going to be worth more over time. american businesses are going to be worth more over time. that's what you're buying. you're buying a business. you're buying a piece of a whole bunch of businesses. are those businesses going to be worth ten, 20 or 30 years or more from now? of course they are. but if you think you can jump in and out or you know the time to come in, i think you're making a mistake. >> in my lifetime you said you wouldn't be surprised to see the dow go to 100,000. >> yeah. well, you're probably what, 30, 35 and you got another 50 years

essentially left. >> you're kind. yeah. >> no, i mean, it's going to go. they retain earnings every year. just retained earnings. fella edgar lawrence smith wrote a book about that in 1924, it was the rationale for the great bull market of the '20s. but he pointed out how retained earnings actually add to values. and if you owned a private business and you retain the earnings every year, berkshire's done that and it gets to be worth more money and that's what's happening in this world. >> you told us earlier in the program you've put probably $20 billion to work just since around the time of the election because you've elect two areas, one is apple and one is airlines. we have a question that came in from a viewer, james lee, says why do you believe that managements in boom and bust industries like the airlines will act prudently and rationally for a long time? >> you know, that's the question. but it's certainly easier to act rationally when you're doing 80% plus loan factors.

if they get too many, you know, you can be sure it will be a lousy business for a while. >> does that mean that's a number you watch kind of like the canary in the coal mine? >> well, you can see what the orders are and all that and deliveries expected to be. and airline usage will go up over time. not necessarily dramatically, but that will increase. i don't think demand is ever going to go away. if you get too much supply, you got a problem. >> speaking of supply and demand, crude oil is another one we've watched very closely. i know you mentioned in the letter that marmon industries, things like the rail car, the leasing business that was there, it's been down significantly. you said it was not just because of crude oil. what are the factors that go into that? >> well, crude oil is a factor. general heavy industry has not been super strong. it's very interesting. since the fall of 2009 we've had about a 2% a year growth, you know, year after year. and people get more optimistic

than that sometimes and strengths and weaknesses have moved a little through the economy, but the oil business, you know, it looked terrific a few years ago and more oil products in the united states are going to move with $100 crude than move with $50 crude. people got very excited about ordering tank cars a few years ago. and then they got less excited. actually there's been a little pick up lately. >> i can't believe we've gotten to this point in the program and we haven't asked you your take on the economy. where is the economy right now? >> the economy is everything i see has been the same since 2009. it keeps moving ahead at a couple percent a year. which is terrific incidentally. not as terrific as 3% or 4% would be, but if it just stays at 2%, you'll add in one generation $19,000 of gdp per capita to our present economy. we'll have so much more stuff then than we have now it will be fabulous one generation away. your kids are going to live better than you do. but people maybe three or four

maybe will get it, but two are moving forward. >> we spoke with treasury secretary mnuchin last week and he said he sees a way for us to get to 3% growth based on a few things. if it's tax reform, if it's cutting regulations, some other things that go along with that, do you see us getting back to 3% growth? >> i just don't know. i wouldn't bet on it. but 2% will be -- will do terrific -- i shouldn't say anything, but a lot of policies that might bring it to 3% if they do i'm all for it. >> what do you think would help us improve growth? >> well, productivity is the only thing that gives you growth. if we hadn't changed productivity since 1776, we'd be living like we were in 1776. if 80% of the people had to be on the farms to feed us, we wouldn't be producing much of anything else. so it's all productivity over time that counts. >> we got a lot of people who wrote in about artificial intelligence and robots and where you think they are moving along. are they hurting our productivity? >> i don't know really anything

about robots, but i'll put it this way. one guy could push one button and everything being produced now would be produced from him pushing that button, it'd be a better world but you'd have to make sure that guy didn't keep audiotape the output. but the idea of being more productive benefits everybody -- i shopt say benefits everybody. it benefits society. it can hurt individuals in their given industries. but we should long for more productivity. that will give few hours worked, more output per capita, better living for people. and that's what we've done actually in this country. we saw it dramatically in farming. unbelievable what has happened in farming. and we now have 2% of the population working on farms doing way better than when we had 80%. but if we didn't have tools and fertilizer and all those things, we'd be an agrarian economy and living like 1776. >> very quickly, the dollar has continued to climb. is that good or bad news? >> depends on if you're an exporter or importer. makes it very tough if you're

exporting. but with interest rates being what they are in europe, you know, compared to here, the dollar just has gotten stronger. and when people tell you what the dollar's going to do, they'll be very careful. just suggests they take up currency trading for a living and see how they do. >> warren, i want to thank you very much for all your time today. >> thanks for having me. >> again, this is our tenth annual ask warren show and we can't thank you enough for hosting us and having us. >> it's been fun. i learned a few new words. >> on that note, joe, we'll send it back over to you. >> yeah, right, exactly. okay. if that's your story and he's sticking to it. what do you mean you had an ak ro anymore for it. don't kid a kidder, warren. we know exactly -- >> okay. >> in your business like you don't need to have that one on the tip of your tongue half the time. you definitely do. anyway, becky, great job. that was fun. you'll be here tomorrow, right?

>> thanks, joe. see you back there tomorrow in studio. yep. >> okay. one more look at the futures. i looked at apple, up above 137 for a little while. back 136 and change. indices now are still lower today down 28 on the dow, 2 on the s&p, nasdaq down 11. make sure you join us tomorrow. i'll be back, i won't be here lonely. "squawk on the street" is coming up next. ♪ nice work, guys. good monday morning. welcome to "squawk on the street." i'm carl quintanilla with jim cramer, david faber at the new york stock exchange. final two days of month. a lot to set your table with this morning. buffett of course on cnbc today. the president addresses congress tomorrow snap's ipo. futures weak dow going for 12 straight records, europe relatively flat, ten-year 2.33, durables in line although core wa