Warren Buffett On Energy, Climate Change & Education | May 4, 2015

Transcript

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Summary

Warren Buffett, Chairman and CEO of Berkshire Hathaway, discusses various topics including Clayton Holmes' lending practices, Berkshire Hathaway's big four investments, Watson and IBM, and the current state of the market.

Questions & Answers

Q: What did Warren Buffett think of the 50th anniversary of Berkshire Hathaway?

Buffett thinks the weekend couldn't have gone better, with record crowds, record sales, and everyone having a lot of fun.

Q: Did Buffett get a final number of how many people attended the anniversary event?

There's no way to get an exact number, but it was a record with more than 40,000 attendees.

Q: What was the most newsworthy topic from the shareholder questions?

The most newsworthy topic was Clayton Holmes and an article about predatory lending practices and exorbitant fees.

Q: Does Clayton Holmes issue predatory loans?

Buffett believes Clayton does something unusual in lending money by keeping the loan and incurring the loss if it goes bad. He explains that during the 2007-2008 housing bubble, one of the causes was lenders immediately selling the loans without any consequences if it went bad. He states that Clayton follows a responsible policy by keeping loans and having strong motivation to make good loans.

Q: Did Clayton Holmes offer a bait and switch on mortgage rates?

While Buffett doesn't know about specific cases, he emphasizes that their loan application and lender boards make it clear that buyers have a wide choice of lenders and recommends comparing offers. He also mentions that they handle modifications for those in trouble with their loan.

Q: Are the allegations against Clayton Holmes as portrayed in the article accurate?

Buffett refers to the large number of loans and mortgages involved and states that not every case can be controlled, but they have clear loan forms and lender boards. While some people may not fully understand the loan process, he believes the clarity of the loan application and lender information reduces misunderstandings.

Q: Is it true that 3% of Clayton Holmes loans go bad annually?

Buffett explains that the 3% foreclosure rate is not the same as the annual rate of loans going bad. He mentions that any foreclosure rate increases with time, but their foreclosure rates for people with poor FICO scores and less secure jobs are considerably lower than other mortgages during the housing bubble.

Q: Do homes financed by Clayton Holmes get repossessed and resold like cars?

Yes, homes can be repossessed, and when that happens, they generally lose significant money, with around 40% of the mortgage balance being the average loss.

Q: How does Warren Buffett feel about IBM's long-term prospects?

Buffett believes IBM will earn more money in ten years and have a smaller number of shares. He feels that buying IBM stock has been beneficial and that they are well positioned to solve the problems of their large customers like Wells Fargo and American Express.

Q: Why did Buffett change his approach to investing in technology companies with IBM?

While Buffett doesn't have as much technical knowledge about IBM compared to other companies, he learns about their plans and competitive products through conversations with other CEOs. He has confidence in IBM's future, especially in the hybrid cloud space, and likes their capital structure.

Q: What does Buffett think about company stock buybacks?

Buffett believes that stock buybacks can be either extremely smart or extremely dumb, depending on the price paid compared to the stock's worth. He emphasizes that buying back stock should be done when it is selling for less than its intrinsic value and when it benefits the continuing shareholders.

Q: How does Buffett view the market currently?

Buffett states that the market is on the high side of valuation compared to normal interest rates. However, if low interest rates continue for the next ten years, stocks will become extremely cheap. He acknowledges that stocks are cheaper than bonds currently, but the future value of stocks will depend on interest rate normalization.

Takeaways

Warren Buffett reflects on the success of the 50th anniversary of Berkshire Hathaway's annual meeting and the positive outcome with record crowds and sales. He addresses the accusations against Clayton Holmes regarding predatory lending practices and emphasizes their responsible lending policy of keeping loans. Buffett discusses IBM's long-term prospects and the value of stock buybacks when done intelligently. He concludes by stating that the market is currently on the high side of valuation but acknowledges the influence of interest rates on stock value.