Warren Buffett On NetJets & The Economy | May 6, 2013 | Summary and Q&A

Summary

In this video, Warren Buffett talks about private jets, the stock market, and various investment strategies. He discusses the recent increase in private jet usage and suggests it is a reflection of the improving economy. Buffett shares his thoughts on the stock market, emphasizing the importance of a long-term perspective and the unpredictability of short-term market movements. He also discusses his investments in companies like Wells Fargo and Moody's, and his views on the future of the media industry. Buffett expresses his support for J.C. Penney and offers insights on the risks of leverage in the banking industry. He concludes by addressing questions about Berkshire Hathaway's investments and the role of regulation in preventing future financial crises.

Questions & Answers

Q: What is the reason behind the increase in private jet usage?

According to Warren Buffett, the increase in private jet usage is likely a result of the improving economy and people feeling more optimistic about their financial situation.

Q: Why did private jet usage decline during the 2008 financial crisis?

During the 2008 financial crisis, even wealthy individuals cut back on their private jet usage due to the overall economic downturn. Despite still being financially well-off, many people felt a significant change in their behavior and reduced luxury expenses like private jet travel.

Q: Have private jet usage levels returned to pre-crisis levels?

Warren Buffett states that private jet usage has significantly recovered since the 2008 financial crisis but does not provide specific information on whether it has returned to pre-crisis levels.

Q: What is the advantage of owning a private jet rather than using chartered services?

Owning a private jet provides convenience and flexibility, allowing individuals to fly whenever and wherever they want without relying on the availability of charter services. Additionally, owning a jet allows for a customized interior and the ability to personalize the aircraft to one's preferences.

Q: As an investor, what do you think about the current state of the stock market?

Warren Buffett advises against trying to predict short-term market movements or buying and selling stocks based on current news. He believes that over the long term, American businesses will do well and that owning a cross-section of these businesses can be a profitable investment strategy.

Q: Do you think the stock market will continue to reach new highs?

Warren Buffett expresses confidence that the stock market will continue to reach new highs in the future. He believes that the value of American businesses will grow over time, resulting in higher stock prices.

Q: What are your thoughts on investing in media companies like Disney, News Corp, and Time Warner?

Warren Buffett acknowledges the potential of the media industry but admits that he does not have sufficient knowledge to make specific investments in companies within that sector. He emphasizes the unpredictability of individual companies' performance and prefers to stick with investments in companies he understands well, such as Coca-Cola and Heinz.

Q: Should individual investors be concerned about the recent market highs and the possibility of missing out on future gains?

Warren Buffett advises individual investors to focus on the long-term growth potential of stocks rather than worrying about short-term market movements. He suggests paying attention to opportunities when stocks become cheaper and being patient for the overall growth that occurs over time.

Q: How do you determine the percentage of stocks and bonds in a portfolio?

Warren Buffett recommends having a significant portion of a portfolio in equities and productive assets. He believes that stocks retain earnings and increase in value over time, making them a better investment choice compared to fixed dollar investments like bonds.

Q: What is your perspective on JC Penney's current situation and prospects?

While Warren Buffett is not directly involved with JC Penney, he expresses his hope for the company's success. He acknowledges that they faced challenges in alienating part of their customer base and believes that retailing is a tough industry. However, he believes that the current management team can make a positive impact and turn the company around.

Q: Should insurance companies be subject to stricter regulation to avoid potential financial crises?

Warren Buffett acknowledges that insurance companies are regulated but believes that stricter regulations may be necessary to prevent excessive leverage and risky practices. He points out that insurance companies are not backed by the government to the same extent as banks and therefore, there is less need for systemic regulation.

Q: Can insurance companies pose risks similar to those of banks?

Warren Buffett explains that insurance companies, in general, have less potential to create systemic risks because they do not have access to the same level of leverage as banks. However, he acknowledges that individual insurance companies can still have risky business practices and fail if managed recklessly.

Q: Should investment banks and other financial institutions have limits on leverage?

Warren Buffett believes that it is appropriate to regulate the leverage of banks and financial institutions to prevent excessive risks in the system. He highlights the dangers of becoming addicted to leverage, similar to how bankers become addicted to the use of leverage.

Q: What are some risks associated with excessive leverage in the financial sector?

Warren Buffett explains that excessive leverage allows institutions to take on more risk and create potential problems for the overall system. When leverage is used in conjunction with government guarantees or implicit backing, it becomes even more dangerous as it can lead to reckless behavior and the expectation of a bailout.

Q: How do you respond to the criticism that Berkshire Hathaway's investments contribute to the systemic risks in the market?

Warren Buffett argues that Berkshire Hathaway does not contribute to systemic risks in the market because it does not issue government-guaranteed paper or have excessive leverage. He highlights the size and stability of Berkshire Hathaway's resources, making it unlikely to pose significant risks to the system.

Q: What advice do you have for individual investors in the stock market?

Warren Buffett advises individual investors to have a long-term perspective, focus on owning a cross-section of American businesses, and avoid trying to time the market or make short-term trading decisions. He emphasizes the importance of patience and confidence in the long-term growth of the stock market.

Takeaways

Warren Buffett believes that private jet usage has increased due to the improving economy. He advises investors to focus on the long-term growth potential of stocks rather than short-term market movements. Buffett supports J.C. Penney and hopes they can turn their business around. He advocates for regulations to limit excessive leverage in the financial sector and acknowledges the risks associated with unregulated leverage. Buffett encourages individual investors to have a long-term perspective and to consider owning a cross-section of American businesses for long-term success in the stock market.