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Here is the full transcript of billionaire investor Warren Buffett's interview with CNBC
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Monday, 27 Feb 2017 | 5:57 PM ET
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Following is the unofficial transcript of a CNBC interview with Berkshire Hathaway Chairman & CEO Warren Buffett on CNBC's "Squawk Box," Monday, Feb. 27. Video from the interview is available on CNBC.com. All references must be sourced to CNBC.
Becky Quick: And again, Warren Buffett is with us in Omaha to ... this morning at the Nebraska Furniture Mart. Warren, this is ten years now.
Warren Buffett: Ten years.
Quick: ...That we've been doing the Ask Warren Show, where you've let us come out, bring questions from viewers along with us, and we wanna thank you for that, and for taking the time to be with us once again this morning.
Buffett: It's always been fun.
Quick: It has always been fun. We have a lot of questions, as Joe was just alluding to, this morning. But why don't we start talking about the letter ... the letter that was just released on Saturday morning. A lot of people had a chance to look through it. How many is this, 53 for you now of letters?
Buffett: It's been 52 years, maybe 50. A lot of it.
Quick: It's been more than 50. I remember.
Buffett: Well yeah. It's been maybe 53.
Quick: All right. So in this letter you start things off with a message that is a familiar message for you, the American dynamism, the ... just how powerful this country is.
Buffett: It's unbelievable.
Quick: It's a very common message for you. But is there a reason that you chose to put it so high in the letter this year?
Buffett: Well, 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. I mean, we have hiccups in the economy and we even had a panic in 2008. And we had a war during that period that when they started we were losing the war, actually, in the spring of 1942. But this country always comes back and wins. And it's astounding when you think about it, what's happened in 240 years. That is less than three of my lifetimes. And let's look at this place, I mean, there wasn't anything here 240 years ago. And civilization is gone on, you know, for centuries, and centuries, and centuries with people making very little progress in their lives. And then America showed the way and it ... and we have not lost the secret sauce.
Quick: In terms of what the message is you want to get across to people, I mean, when we're looking at markets at such high levels, as Joe was just alluding to, it has a lot of doubters and a lot of people saying: "Wait, it's too late for me to get in. I've missed it. We're past Dow 20k, now I have to wait for the pullback." What would you say to someone like that?
Buffett: Well, I would say they don't know, and I don't know. And if there's a game it's very good to be in for the rest of your life, the idea to stay out of it because you think you know when to enter it-- is a terrible mistake. I don't know anybody that can time markets over the years. A lot of people thought they can. But, if you were buying a farm and you decided that farms were gonna be worth more money ten, or 20, or 30 years from now and that would be a productive asset, go out and buy it unless it was just ... some absurd price. And the best thing with stocks actually is to buy 'em consistently over time. You wanna spread the risk as far as the specific companies you're in by owning a diversified group, and you diversify over time by buying this month, next month, the year after, the year after, the year after. I ... but you ... making a terrible mistake if you stay out of a game that you think is going to be very good over time because you think you can pick a better time to enter it.
Quick: Although you have had times where you thought stocks were incredibly cheap, like in 2008, 2009, when you talked about that, even on our program. You thought that there were times that stocks were greatly overvalued where you've said, "Forget it, don't do it." Are we near an inflection point right now, as best as you can tell?
Buffett: Well ... I've been talking this way for quite a while, ever since the fall of 2008. I was a little early on that actually. But I don't think you could time it. And we are not in a bubble territory or anything of the sort. Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high. But you have to measure, you know, you measure everything against: interest rates, basically, and interest rates act like gravity on valuation. So when interest rates were 15 percent in 1982 they'd pull down the value of any asset. So, what's the sense of buying a farm on a 4 percent yield basis if you can get 15 percent in government's? But measured against interest rates, stocks actually are on the cheap side compared to historic valuations. But the risk always is, is that — that interest rates go up a lot, and that brings stocks down. But I would say this, if the ten-year stays at 230, and they would stay there for ten years, you would regret very much not having bought stocks now.
Quick: Joe, this sounds like the perfect jumping in point for what you had just been talking about, where you were watching the ... what's happening with interest rates?
Joe Kernen: I think it's, as much as we talk about, economic nationalism it is still global, and I don't know when the rest of the world's headed one way it's just, you know, the money's gonna come in here for our bonds. And as long as that happens I guess we stay low ... you know, I was thinking about something else, Becky, and I mean, I don't wanna take this too far afield. But with Warren, I was wondering what it is about us ... about the United States. And I wonder that is so different from historically the way, you know, countries have prevailed, Warren. And I wonder if eventually we can't just assume we'll always be this dynamic? Or was it ... is the Constitution and the way they set things up, those guys were that smart? Or is it the people that we have? Is it that we're ... we've brought in so many people from around the world that came from places where, you know, they didn't wanna be, and they came to this great spot here? And, I mean, have we selected genetically for people that are entrepreneurial and work hard ... I don't know. Have you got your finger on what it is? If any, if you don't, I don't know who does. You've had plenty of time to think about it. I mean, you're not old.
Buffett: Well...
Kernen: ...But you've had a lot of time to consider these things.
Buffett: Yeah. If you go back to 1790, Joe, there were four million people, roughly, in the United States of whom 700,000 were slaves. There were 900 million people around the world. So we had at that time a half of 1 percent of the world's population. And it was a friendly country in terms of the soil, and the minerals, and the temperature and all of that. But there were other friendly spots around the world. And so why did this ... why did these four million people do something that 900 million people hadn't been able to do before, where progress had been very slow? And I would say that it was a combination ... none of these perfect, but I think the market system was absolutely essential to it. It was not a planned economy and I would say that rule of law was important, 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 that to some extent selected for people that were ambitious and really wanted a new life. But I would ... if I had to pick one thing I would say the market system ... was the overwhelming factor that contributed to it.
Kernen: You know what? Life is weird too, because I think it's weird that Adam Smith wrote that book in 1776 and it...
Buffett: Yeah, exactly.
Kernen: That's not a coincidence. That when you're able to own an idea, and you got, like, a court system that will back up your ownership of patent law, and then you can commercialize it, I think maybe that was it. I think intellectual property, and property rights, and things like that. Because prior to that, after 10,000 years of spinning our wheels no one ... What was the average GDP per person? And then all of a sudden, starting when you were able to own an idea and commercialize it, suddenly it exploded, GDP, like, in multiple times.
Buffett: It unlocked human potential, Joe. I mean, you know, 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,the sky's the limit. And it's just starting.
Quick: Yeah, 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?
Buffett: No, and you say you've heard it at all times from all sides. I've been hearing it, you know, all my life. And 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, that was early ... was shortly after Pearl Harbor. And there was no doubt in this country we were going to win over time. I mean, and people said, "Well, this is let's wait till things are clear, let's wait till we start winning the war." There's always a reason to wait and I've listened to that all my life. You know, when I got out of school the Dow had never been above 200. There'd never been a year when the Dow had not been below 200 during the year. Even in 1929, when it got to 381, the low was below 200. Never been a year. Well, so what, you know? But that was a big subject at that time. And then you know, we ran into price controls, we ran into the oil shocks, you name it, just all kinds of things. And those are diversions. So all my life I've been hearing, "You know, maybe there's a better time to invest, you know?" Or, "Things are more unpredictable now." They're always unpredictable. I can't predict what's gonna happen tomorrow. I mean, you could have anything happen tomorrow. We've had October 19th, 1987, 22 percent down in one day. So I can predict what'll happen ten or 20 years in a general way, but I have no idea what'll happen tomorrow. And the important thing is if you got these wonderful assets out there, to own 'em, and which ones do you own? I mean, if you ... if you save money you can buy bonds, you can buy a farm, you can buy an apartment, house, or even buy a part of American business. And if you buy a 10-year bond now you're paying over 40 times earnings for something whose earnings can't grow. And you know, you compare that to buying equities, good businesses, I don't think there's any comparison. But that doesn't mean the stock market can't go down 20 percent tomorrow. I mean, you never know what it's going to do tomorrow, but you do know what it's going to do over ten or 20 years. And people talk about 20,000 being high. Well, I remember when it hit 200 and that was supposedly high. The Dow, I mean, the Dow, in your lifetime. You know, you're going to see a Dow that certainly approaches 100,000 and that doesn't require any miracles, that just requires the American system continuing to function pretty much as it has.
Quick: You know, you had made some headlines when you said maybe a month or two ago that you had spent about $12 billion in stocks since the election. Have you continued to spend since that time?
Buffett: Well, not sure exactly when I said it. But we certainly bought in two groups. I'm adding 'em together now. We spent $14 billion with ... we probably spent ... since a little before the election, maybe. 'Cause we were b — maybe $20 billion, even.
Quick: $20 billion? You're just counting the billions in your head as you sit here doing this?
Buffett: Well, I was ... yeah, yeah. I quit when I got to $20 billion.
Quick: And why now? Again, is there a reason for this? Or is it just, you look at individual stocks that you wanted to own, and you bought them?
Buffett: I absolutely look at individual stocks. It has nothing to do what the Federal Reserve, it has nothing to do with the election. As it does have, it would have something to do with interest rates if they did something extraordinary. It hasn't had, because they haven't been, they haven't changed that much. But there just were a couple of things I wanted 'em to do and we had the money. And I like investing. And I would much rather have that $20 billion in these companies that I don't look at it as being in stocks, I look at it as being in businesses. It's just small pieces of businesses. And I would so much rather have that than have the money in treasury bills, which is my alternate, that I don't have any problem with the decision at all.
Quick: What are the businesses? Should I assume it's Apple and the airlines, based on what we've seen?
Buffett: I think that's a good guess.
Quick: But $20 billion ... is that more than what we have been told based on the 13-F filings? I'm just going back...
Buffett: Yeah, it was more than showed on Dec. 31 because we spent a lot of money since Dec. 31.
Quick: On what? Is it more Apple, more airlines?
Buffett: Since we're not buying it now — it's at a price different than I would buy it now. But we bought a lot more Apple after year end.
Quick: With the holdings that you'd had, Apple was already ... was it the fifth biggest holder, the third biggest?
Buffett: I think we showed $59 million, or something like that.
Quick: Yeah, I'm sorry, I'm just looking through the report right now to grab that page. Yeah, it was already your fifth-biggest holding as of Dec. 31 at $7 billion. How much more did you buy?
Buffett: Well, it...
Quick: $7 billion.
Buffett: You know, we could change our mind tomorrow and all of that, but we have not bought Apple in the last ... well, 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 for Berkshire's account about 123 million. So, we got about 133 million shares.
Quick: One of the fellows ... that's Todd or Ted?
Buffett: Yeah.
Quick: Would you care to say which one? Or?
Buffett: I never identify which one does which.
Quick: So, one of them bought, and then you as a result bought some additional?
Buffett: One of them had had 10 million shares, and then I bought another 123 million shares, or something like that.
Quick: Why?
Buffett: 'Cause I liked it.
Quick: You know, you've always said that you're not a technology investor, and now when you start looking through the earnings, through the holdings...
Buffett: Say, I'm not a technology investor.
Quick: Wait, but again, hold this ... hold that up higher, they can't see it. That's your phone.
Buffett: There's a vast, untapped market out there. I mean, 86-year-old guys who haven't got it yet.
Quick: So, you say you're not a technology investor, but you're buying shares of Apple, which is now Berkshire's fifth, or maybe even larger than that based on how many that you've put in since then, how many you've bought since Dec. 31. IBM is your third-biggest holding, too?
Buffett: Well, I would say Apple's — I mean, obviously it's very, very, very tech-involved, but it's a consumer product to a great extent too. And I mean, it has consumer aspects to it. And one of the great books on investing, which I've touted before, is one that Phil Fisher wrote back around 1960 or thereabouts, called "Common Stocks and Uncommon Profits." It had an effect on me. I went out to meet Phil Fisher after reading the book, I found him in this little office in San Francisco. And I recommend any investor read that book. And it's still in print. And he talks about something called the scuttlebutt method, which made a big impression on me at the time. But I used it a lot, which is essentially going out and finding out as much as you can about how people feel about the products that they ... it's just asking questions, basically. And Apple strikes me as having quite a sticky product and enormously useful product that people would use, and not that I do. Tim Cook's always kidding me about that. But it's a decision-based ... but again, it gets down to the future earning power of Apple when you get right down to it. And I think Tim has done a terrific job, I think he's been very intelligent about capital deployment. And I don't know what goes on inside their research labs or anything of the sort. I do know what goes on in their customers' minds because I spend a lot of time talking to 'em.
Quick: Have you spoken with Tim Cook about this?
Buffett: No, not about this, not about this. He would've seen our 13-F filing, and he would've seen the one before, so he would've known somebody had — Berkshire owned some shares, and then he would've seen the 13-F filing. And I usually see him maybe twice a year. I see him at Sun Valley and perhaps one other time.
Quick: Wow. Can I ask you, you said it's how many shares that you own, 133...?
Buffett: Well, 133 million.
Quick: Million? Which, I'm sorry, how many did you own as of Dec. 31 that worked out to $7 billion? I can't do it in my head.
Buffett: Well, I think we had 59 million at year end.
Quick: So, you've more than doubled it since that time?
Buffett: That's correct. And we act ... it's amazing how much you can buy of some of these things. 'Cause we had bought that, the added 70 million plus, we bought that all by the time they reported their earnings. So, it was done probably in 20 business days, or...
Quick: And their earnings were better than people had expected, and the stock jumped as a result. So.
Buffett: Yeah, I don't think they were that much better than people expect. I mean, they, the company.
Quick: Stock was up after the earnings report...
Buffett: Yeah, yeah. It did jump, and that's why we couldn't buy. We probably would've bought more. 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, well, in the fourth, fifth — I mean, the December quarter, they're on a fiscal year. I don't think that was that big, or should've been that big a surprise. But they've got an extraordinary business. Yeah, there's always people—
Quick: Wow—
Buffett: 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 who are gunning for ya. And you've got some very smart people that are gunning for them.
Quick: You know, we could talk more about this in just a moment, if you don't mind if we sneak in a commercial break.
Buffett: Okay, yeah.
Quick: By the way, for anybody who didn't think we were gonna get to big news very quickly, you're already missing a lot. Warren Buffett already telling us he's been buying more stock since the beginning of the year, since the last 13-F filings, telling us he's bought more than double the amount of Apple that they had disclosed at that point. Stick around, 'cause you never know what's gonna come out of his mouth. We'll be back with more from Warren Buffett in just a moment.
[Break]
Quick: Welcome back to "Squawk Box" everybody, we are live in Omaha, Nebraska this morning with Berkshire Hathaway's chairman and CEO, Warren Buffett. And if you thought you could sleep in this morning and catch up with us, well, you are late already. Warren Buffett has already told us this morning some secrets that nobody else knew until just now. Warren Buffett and Berkshire Hathaway have been buying a lot of shares of Apple. In fact, as of the end of the year, according to SEC filings and the annual report it was the fifth largest holding of Berkshire at $7 billion in that stock. Warren 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 about 2.5 percent of the shares outstanding of Apple, and is now the second largest holding after Wells Fargo for Berkshire Hathaway.
Buffett: Yeah, it'd be very close, but—
Quick: Very close to Coca-Cola?
Buffett: Yeah.
Quick: Very close, neck and neck, with Coca-Cola, but it looks like it edges it out, at least where the price is right now. Warren, we were talking a little bit about how you came about to this decision and I, you know, I assumed you had people who would go out and do some of these channel checks for you and do some of these things. But you just mentioned to me you've done some of the research yourself right here in this building.
Buffett: Well, I've, yeah, I had learned that from a fella named Phil Fisher who wrote this great book called "Common Stocks and Uncommon Profits." And he calls it the scuttlebutt method. And Phil was a remarkable guy. And I first used it back in 1963 when American Express 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 I went to banks to see what they were doing with travelers' checks and everything. And clearly American Express had lost some money from this scandal, but it hadn't affect their consumer franchise. So I ask people about products all the time. When I take my great-grandchildren to Dairy Queen they bring along friends sometimes. They've all got a iPhone and, you know, I ask 'em what they do with it and how ... whether they could live without it, and when they trade it in what they're gonna do with it. And of course, I see when they come to the furniture mart that people have this incredible stickiness of — with the product. I mean, if they bring in an iPhone, they buy a new iPhone. I mean, they're ... it just has that quality. It gets built into their lives. Now, 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 a pretty nice, it's a pretty nice franchise to have with a consumer product.
Quick: Hey, Joe, you can relate to that, the stickiness of the product and being hooked into the Apple eco-sphere, right?
Kernen: So many different ways, too. I think it's funny, that Warren doesn't have one. But it's weird 'cause you're walking around. You're walking around with the Encyclopedia Britannica on your back, but it's the size of this little thing. And anytime, anywhere you need to look up anything and, I mean, you could be on Jeopardy, and if people didn't see that you were looking at your iPhone you'd get every question right. And I could listen to every song that's ever been recorded. And, you know, I used to live in L.A. and I was afraid to leave the freeways because I had no idea, I'd get lost. So I'd just sit in that traffic for, like, 11 hours to get five miles. All of a sudden with this, you just press it in and I got all the surface streets ... it's so bizarre, it's so life-changing. But the thing that I, you know, you don't buy stocks, Warren, for 10 percent, 20 percent, 50 percent normally. You like to buy stocks at — that over time double and triple. So you're fully saying that this $700 billion company is gonna be $1.3 trillion, then it's gonna be $2 trillion, then it ... right? It's $700 billion...?
Buffett: You're saying it. I'm hearing...
Kernen: Okay, but—
Buffett: Joe—
Kernen: You're not worried about the law of large numbers. 'Cause it's over — it's the most valuable company in the world right now at, what — at something like $720 billion. So you have no problem thinking that it's gonna go, be the first company to go over $1 trillion in market cap? And, I mean, sooner or later it's gotta happen, obviously—
Buffett: I won't make any prediction of that, Joe. But what I do know is when I take a dozen kids, as I do on Sundays out to Dairy Queen they're all holding their Apple, they barely can talk to me except if I'm ordering ice cream or something like that. And then I ask 'em how they live their lives. And the stickiness really is something. I mean, 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 gonna get they overwhelmingly get the same product. I mean, they got their photos on it and, I mean, yeah, I know you can ... you can make some shifts and all that. But they love it.
Kernen: That's my point. I mean, you see what I mean about the law of large numbers? It will be $1 trillion company even it's only gotta go up 40 percent from where it is now. So I mean, I don't think you'd buy it if you thought it was gonna peak at $800 billion.
Buffett: Well, or they could, Joe, which they, you know, they've bought shares quite aggressively—
Kernen: Buyback stock? Buyback, yeah.
Buffett: Yeah, so they could — yeah, you could have a lot fewer shares outstanding at some time and still do very well on a per share basis. They bought in about 4 percent of the company last year. And they've been pretty, pretty aggressive on that. So my guess is they've got about 5.25 billion shares out now, but my guess is that ten years from now they'll have substantially fewer.
Quick: Let me ask you a question. What would you put a bet on? Which company goes to $1 trill first: Apple or Berkshire Hathaway?
Buffett: Oh, I'd bet on Apple just 'cause they've got a stronger position. And, if Tim wants to swap and even up, you know, I've got an' 800 number for him.
Kernen: I can't believe you're for—
Quick: While we're on the subject—
Kernen: Oh, sorry—
Quick: Oh, go ahead, Joe.
Kernen: No, I was just thinking that one of your, one of your guys, you wouldn't say which one, you know, I mean, did you really have to do that, Warren? I mean, would you say he had, like, "Oh yeah, I've built up quite a position. I've got..." what did he have, Becky? How much did he have? Like, ten—
Buffett: Ten million shares—
Quick: Ten million shares... ten million shares?
Kernen: Ten mill — "Yeah, I like it. I've really, I love it. I've got ten million shares." And you go, "Yeah, I like it, too. I got 133." I mean, that's just ... that's cold, Warren. To just—
Buffett: 123 actually.
Kernen: You know what I mean? I mean, you took his idea and then you ... he had ten and thought —he was feeling good about himself. And you bought another 123 million on top of him, seriously?
Buffett: He gets to go first, Joe.
Kernen: He was feeling good. "Yep, I'm a big investor."
Quick: I'm feeling good about Warren.
Kernen: Yeah, right. Yeah.
Quick: Look, if Warren Buffett takes your ideas and follows you, man, I think that would make you feel pretty good.
Kernen: That's true.
Quick: Walking around with that. Right. All right, let's talk about another thing that 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 in each of them, and they were pretty significant stakes ... for the four majors. That would be American, Delta, United Continental and Southwest. At the end of the year we were reporting that you had stakes of about 7 to 8.5 percent for some of these airlines. Where are you now?
Buffett: It's about the same. They may have been tweaked just a shade. They're, again, one of the fellows in the office has essentially one of those positions. While he was building that position he owned a couple of the others, just 'because he wanted to get the money invested and then he was going to shift over. So, but one of them has, he has the American Airlines position and I have the other three. Those positions you mentioned we're fairly close to 10 percent. We don't wanna go over 10 percent, virtually on any stock. It complicates life for us. We do it occasionally, but it's a big decision to make to go over 10 percent.
Quick: Why is it complicated, for people who aren't familiar with the rules on what you can and can't do once you go over 10 percent?
Buffett: Yeah, once you go over 10 percent you become subject to what they call the short swing rule. So if you buy and sell a stock that you have over 10 percent of in six months you actually have to give any profit to the company. Actually, if you sell and then buy, or buy and then sell and they take the lowest purchase price, and they take the highest sell price. It's been on the books a long time. And it just ... it can complicate things. Plus you have to publish what you do every, within two days or so after you do it, which is not the case when you're below 10 percent, when you report quarterly. So we don't go over 10 percent very often. And with the airlines, all four of the ones you named are repurchasing their shares. Now, at Wells Fargo we went over 10 percent, simply because the company repurchased its shares. We didn't buy any stock that cost.
Quick: Well, you couldn't. For a financial company you're not allowed to buy over 10 percent?
Buffett: Not unless you want to become a bank holding company, yeah. There's more laws on that. In any event, on the airlines, if we own 9 percent we might find we were 9.5 percent, or something like that, because of repurchases. So we will stay under 10 percent in all probability. And that's where we are now. And, like I say, one fella owns the American, and I own the other three.
Quick: All right, let me read a couple of things back to you. In the past you've said things like, "I have an 800 number that I can call if I get the urge to buy an airline stock. 'My name is Warren and I'm an air-acholic,' and then they talk me down." You also said that, "If a capitalist had been present at Kitty Hawk back in the early 1900s he should've shot Orville Wright; he would have saved his progeny money."
Buffett: That's so true. He'd a saved him a lot of money. If you look at the last 30 years you can look it up on the internet, I think there have been almost 100 airline bankruptcies. I mean, that is a lot. So it's true that the airlines had a bad first century. I mean, they're kinda like the Chicago Cubs, you know, everybody had a bad century now and then. And they got that century out of the way, I hope. But it's, it's been a disaster for capital. I mean, it's got glamour to it so you can always get guys to put some money up for an airline. And you can go to the internet and look at 100 of them that failed then, and all of them now that are operating, you know, with the exception, Southwest, I mean, the — they've been through bankruptcy. And I bought into one called U.S. Air, that was my previous investment in the late 1980s. Ed Colodny, who was the CEO, came out here. We had dinner at Garazzo and I gave him $358 million, and it disappeared almost before we finished dinner. I mean, the airline ... U.S. Air had some favored routes, but Southwest was coming at 'em over time. And I tried to sell that stock at $0.50 on the dollar ... it was a preferred stock. Fortunately, I wasn't able to do it, and then they had this blip so we actually made quite a bit of money. I mean, we're one for one on airlines, actually, but not because we were smart. And then it went bankrupt twice afterwards, U.S. Air did. It's part of American Air now.
Quick: So why in the world do you buy back in now? If you are so—
Buffett: Well, I—
Quick: I'm sure that this was a horrible business, what's changed?
Buffett: It's a very tough business because it's got the marginal cost of a 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 sell the last seat too cheap it becomes the first seat for, in a way, so it has- it has this dynamic to it. And unless the airlines operate in the well over 80 percent capacity — what kills ya is when they really have too many airplanes around. I mean, they do what anybody else does. If they got too many airplanes around they just think it down to marginal cost, and marginal cost cause you to go broke over time in the airline business. I- the hope is that they will keep orders in reasonable relationship to potential demand. And-- lately they've been operating in-- in the 80s now for a while. But it's a business you can always mess up.
Quick: You know, Charlie Munger was your partner, your vice-chairman of Berkshire Hathaway was speaking at The Daily Journal meeting just couple of weeks ago. And he talked about how you guys are in the airlines at this point and then said, "You know, I just went on and bought a ticket to Europe for $400 or $500 and I thought, 'What are we doing in this business?"
Buffett: Exactly--
Quick: Was Charlie on board with this decision?
Buffett: Well, Charlie's generally- goes along with me. I mean, he may say, "Well, I've never heard ya come up with a worse idea, Warren," or something like but when Charlie says that to me I know he's going along with me. So we get along very well. You know, he's okay with both these decisions. And- but he, as he would say (and correctly), "It's not like the old days." But I've been hearing that a long time, and it's true.
Quick: Joe?
Kernen: I 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- loves airlines but hasn't been on a commercial flight since the Wright brothers, I don't think. You- know absolutely nothing about being on--
Buffett: You are giving away my secrets.
Kernen: Huh? What? When's the last time you were on a commercial flight, Buffett? Tell me.
Buffett: Well -- we'll save that for after the show. (LAUGHTER)
Quick: Fair to say it's been over 30 years?
Buffett: My family brings up to the same thing to me so I've-- been hearing this before.
Kernen: Was the in-flight movie the- that just released, Casablanca?
Buffett: Actually it was Birth of a Nation.
Kernen: All right. I just thought about that, that you don't need obviously to—
Quick: Hey—
Kernen: --use these things to have an