Warren Buffett: I Was Wrong On IBM | August 30, 2017

Transcript

met smith wielinski in midtown manhattan and we are here with a tourist today warren buffett the chairman and ceo of berkshire hathaway is here to pay off on a lunch that was auctioned away for glide and warren thank you very much for being here today thanks for having me i i know that this lunch is very important to you this time around uh the auc... Read More

Summary

In this video, Warren Buffett, the chairman and CEO of Berkshire Hathaway, discusses various topics such as his involvement with Glide charity, the impact of Hurricane Harvey on insurance companies, the GDP growth rate, interest rates, and his thoughts on North Korea. He also talks about his stock holdings, including Apple, IBM, Bank of America, and Wells Fargo. Lastly, he addresses the pressure on grocery sellers due to Amazon's acquisition of Whole Foods and talks about his political views.

Questions & Answers

Q: Why is the Glide charity important to Warren Buffett?

The Glide charity is important to Warren Buffett because it is run by a special man, Cecil Williams, who helps people that society has given up on. Warren Buffett has personally witnessed the impact of Glide and the kind of people they help, which has motivated him to support the charity.

Q: What is Warren Buffett's assessment of the damage caused by Hurricane Harvey?

Warren Buffett says that the amount of water dropped from the skies during Hurricane Harvey is staggering and the insured loss will be large. He also mentions that Berkshire Hathaway's insurance company, Geico, writes about 10 percent of the auto insurance in Texas and estimates that they may have 50,000 losses from the storm. He emphasizes the importance of providing support to affected individuals by ensuring they have full tanks of gasoline and working towards rebuilding their lives.

Q: What do the estimates of insured and uninsured losses from Hurricane Harvey suggest?

The estimates of insured losses from Hurricane Harvey may be around 10 to 20 billion dollars, according to JP Morgan, while the CEO of Farmers suggested that uninsured losses could be around 150 billion dollars. Warren Buffett agrees that these estimates do not sound unrealistic and expects a high proportion of uninsured losses due to the nature of flood insurance.

Q: Is the National Flood Insurance Program facing a significant amount of debt?

Yes, the National Flood Insurance Program is facing a significant amount of debt, currently around 25 to 26 billion dollars owed to the U.S. Treasury. The problem with flood insurance is that only people living in flood-prone areas are likely to purchase it, leading to adverse selection. This limits the ability for private insurance companies to handle the risk, resulting in the government stepping in to provide coverage.

Q: Does Warren Buffett plan to resume insuring against catastrophes like hurricanes in the future?

Warren Buffett explains that Berkshire Hathaway used to write a lot of catastrophe insurance, but due to a long period without hurricanes hitting land in the United States, the rates kept going down and it became less profitable. As a result, they got out of the super cat (catastrophe) business and currently have limited exposure in reinsurance.

Q: What is Warren Buffett's opinion on the long-term impact of Hurricane Harvey on GDP?

Warren Buffett agrees that the impact on GDP may not be massive, but acknowledges that it will have a real effect on wealth destruction. He cites the large amount of uninsured losses as a significant factor in this.

Q: What is the current growth rate of the U.S. GDP?

Warren Buffett estimates the current growth rate of the U.S. GDP to be around 2 percent per year, which has been consistent since the fall of 2009. He mentions that the reported quarterly numbers can be influenced by various factors, and although there are fluctuations, a growth rate of 2 percent is not bad.

Q: How does Warren Buffett explain the low yield on the 10-year Treasury note?

Warren Buffett finds it unbelievable that the rates have stayed down for so long. He compares it to the 1991 scenario when people thought it was a sure trade to short the Japanese 10-year bond due to its low yields. However, rates continued to stay low, contrary to expectations.

Q: What are Warren Buffett's concerns about North Korea?

Warren Buffett has been concerned about nuclear weapons and their devastating impact on civilization since the first atomic bomb was used in 1945. He believes that the more countries and individuals possess these weapons, the greater the risk of something catastrophic happening. He sees North Korea as a dangerous example, as they are actively developing an intercontinental ballistic missile that could potentially hit the United States.

Q: Why has Warren Buffett chosen to remain silent about his political views recently?

Warren Buffett explains that although he supported Hillary Clinton in the 2016 presidential election and was disappointed when she lost, he recognizes that the country has a president and believes in working towards progress and maximizing the country's potential. He also mentions that he has lived under 15 presidents and has invested in stocks under 14 of them, emphasizing his focus on supporting the growth and success of the country rather than attacking any particular president.

Q: What is Warren Buffett's current stance on his stock holdings, particularly Apple, IBM, Bank of America, and Wells Fargo?

Warren Buffett has been positive about Apple and has increased his holdings in the company. However, he sold some of his shares in IBM after realizing that his original analysis was wrong. He remains positive about Bank of America and Wells Fargo, saying that he is very happy with his holdings in Bank of America and that Wells Fargo is a terrific bank despite recent controversies.

Q: Did Warren Buffett have any plans to acquire Mondelez or engage in a hostile takeover?

Warren Buffett clarifies that there were no plans to acquire Mondelez and that the idea of a hostile takeover was a misunderstanding. He reiterates that Berkshire Hathaway does not make hostile takeovers and promptly called off the situation once he realized the misunderstanding.

Q: How does Warren Buffett view the pressure on grocery sellers due to Amazon's acquisition of Whole Foods?

Warren Buffett acknowledges the ongoing struggle between brands and retailers, where retailers try to get the upper hand in negotiations. He believes that the struggle is currently tilting towards retailers, especially with the growth of powerful retailers like Walmart, Costco, and Amazon. However, he believes that having a group of big brands does not necessarily translate to more bargaining power with retailers.

Takeaways

Warren Buffett emphasizes the importance of charity work and highlights the significant impact of organizations like Glide in helping disadvantaged individuals. He also discusses the potential economic impact of Hurricane Harvey and expresses his concerns about the nuclear threat posed by North Korea. Regarding his stock holdings, he remains positive about Apple, Bank of America, and Wells Fargo but admits his mistake in his analysis of IBM. Lastly, he explains his decision to remain neutral and focus on the overall progress of the country rather than attacking any particular president.