Question: Would you please recommend some books that you’ve enjoyed lately?
Answer: Well you people send me books, like 30 a week. That I tend to skim them so rapidly that I no longer develop the joy of reading I use to when I picked a few books of my own to read. (laughter) So you’re ruining my judgment of books. I can’t resist reading the damn things when you send them to me. No I skim a lot of them, and I like each one in its way, because it’s different from anything else I normally do. But I’m no longer a good book source.
Question: Regarding philanthropic work, what inspired you and what results do you look for?
Answer: Well, I never wanted to tackle problems like world peace. I read enough biographies. Carnegie thought he was so smart and so rich, so he thought that he’d use his money to create world peace…I watched Carnegie try to do it and I decided that if he couldn’t do it, then I’m going to leave it alone. So I don’t take up those big subjects.
I like to create dormitories, science teaching facilities, stuff like that. It’s a pretty modest activity, but it’s interesting to me, and it’s easy to do them better than most people do them. I have no feeling that I have any advantage about bringing about world peace, but I am pretty good at dormitories. So I do what I’m good at, and I suggest that all of you do the same thing.
Lesson 27: Why You Shouldn’t Be Jealous Of Tiger Woods. Aristotle said: “People will cheerfully tolerate considerable differences of outcome if they seem deserved.” Nobody minds the fact that Tiger Woods has a big income because he’s the best golfer who’s ever lived.
Mr. Buffett has stated that he believes that income inequality is an issue that needs to be addressed. With Senator Sanders, he has built his campaign around this issues. And with so many from my generation starting to “feel the Bern”, how would you address this issue?
Well, that’s a very good question because it’s…we’ve had Piketty and then Sanders. My attitude is that both Sanders and Piketty are a little nuts. People who really were passionate about egality and wanted to bring it about by government action, gave us things like the Soviet Union, with all the death and agony and the poverty they have now in spite of (having egality). And Communist China, they got egality, and think of the unnecessary deaths. North Korea?
I’m suspicious for all of this passion for egality that has such bad examples. On the other hand, if you want to look at what non-egality brings us. Let’s just take Communist China. Communist China had egality, meaning that three fourths of their people were dirt poor, subsistence level poor. But they had the advantage of being equal. They were all struggling to get enough to eat. And of course when they adopted private property and more property rights, and so on, what they got was living standards that had advanced by a factor of 10 or so more quickly than anyone ever had. But of course they had a lot more inequality. You have all of these rich Chinese. I think it’s been a very good bargain for the Chinese to have.
In other words, I don’t think Bernie Sanders understands this at all. He doesn’t want to understand it. He has a religion. He’s had it for 30 years. He’s a Johnny one note. It doesn’t matter. As an intellectual he’s a disgrace. I think that we’d all be glad to have him marry into the family, but as a thinker he’s…pretty bad. Now I don’t think he’s any worse than some of our Republicans, but at least they’re crazy in a different way.
But the egality has one effect in a democracy, which Aristotle comments on, people will cheerfully tolerate considerable differences of outcome if they seem deserved. Nobody minds the fact that Tiger Woods has a big income because he’s the best golfer who’s ever lived. Or you find somebody who invents something wonderful, or a surgeon who’s way better than other surgeons, etc , etc. But differences in outcomes that are perceived as undeserved tend to disrupt democracy. That’s why Aristotle commented on it in one of his most well known observations.
And of course who is getting the undeserved money in America now? Good question. It is not Bill Gates, it is not the people who create the new companies… We don’t resent their success.
I think we have a lot of underserved wealth that causes a lot of envy. And to some extent, well, I think envy is always a bad idea. I think it’s also inevitable that we’re going to have a lot of it. There’s a lot of undeserved wealth in the financial class. In a lot of cases for doing nothing, or being counterproductive. So I think that fixing the obviously undeserved wealth of a lot of people would be a constructive thing. If you take the ordinary investment partnership, not only do they get capital gains on what for anybody else would be ordinary income, but they don’t pay any income tax at all. Because it’s unrealized appreciation that gradually shifted to the general partner and he can take securities out when he leaves the business and not recognize the gain. They have enormous liquid fortunes being made on paying no taxes at all. Naturally that’s resented. It would be resented even more if people understood it. But that’s not very complicated to understand. And so, I think by and large, feeling unhappy with inequality…Inequality is the natural outcome of a successful civilization that is improving for everybody.
Most of these guys (wealthy individuals) are not that interested in politics. People like to talk about the terrible influence of the rich on politics. But when you’re rich, you realize how little influence the rich really have.
I think that these people who are raging about inequality, like Picketty and Sanders are wrong. But I think that the people who say that the undeserved wealth deserves some attention, I think they’re right. I think a huge source of the undeserved wealth is coming from the old finance.
Lesson 28: If A Securities Got Pounded So Hard That’s It’s Selling Way Below It’s Worth – Buying Is Not A Bad Idea
Question: You mentioned Wells Fargo earlier and its culture and the reason that you bought it back in the 80’s. Daily Journal Corporation owns U.S. Bank as well. You also own Bank of America and its culture is a little different. And I’m curious if the decision to buy Bank of America was driven by its low price or if you also see the compounding element.
Answer: Bank of America was bought through the way that we use to buy securities. It just got pounded so hard that it was selling for less than it was worth. Way less. And there’s a lot in the Bank of America which is sound.
Lesson 29: Self-Driving Car Is Not Going To Happen Quickly
Question: I’m pretty excited about the prospect of self-driving cars over the next 10-20 years. It seems like the technology is moving very quickly. As a Berkshire shareholder I’m worried about the implications about the entire auto insurance if accidents, hopefully, become a thing of the past. That’s good for civilization, bad for the auto insurance business. I would love to hear your thoughts on that.
Answer: Well you’re right. If all the cars run around without drivers, it will be bad for Geico. And I don’t think it’s going to happen very quickly. In fact I think it’s going to be quite slow. But in the auto industry…the first thing that people did when they got new wealth was (buy) more cars. I think that even if we don’t get self-driving cars, that culture may be waning. Not so much in the third world, but in places like America.
Lesson 30: Avoiding Areas Outside Your Circle Of Competence Can Pave Way For Other Passions
Lesson 31: Beware Of Sleazy Financial Activities. Large amounts of easy money cause regrettable human behavior. …. To Be Continued ….