Buffett appeared for three hours Wednesday on CNBC four days after releasing his annual letter to Berkshire Hathaway Inc. shareholders and discussing his insatiable appetite for big acquisitions like last year’s purchase of the Burlington Northern Santa Fe railroad.
Berkshire’s chairman and CEO said most of the businesses his company owns, except the ones that make housing-related products, continue to improve despite the fluctuations in public sentiment about the economy.
“What we’ve seen now for two years is things have been getting slowly better,” Buffett said Wednesday.
And he said he is optimistic about the future because of the strength and resiliency of the U.S. system.
He said he doesn’t think the U.S. economy needs as much monetary or fiscal stimulus as it is getting from the Federal Reserve and government spending.
Buffett said all the government’s stimulus efforts were needed in 2008 and 2009 to keep the economy moving, but he’s seen no indication of the nation trying to break its addiction to stimulus spending. He predicted the current deficit spending in the United States is guaranteed to generate inflation.
“We are following policies that will lead to lots of inflation down the road if things don’t change,” he said.
Buffett said he’s looking to make acquisitions, but it’s hard to find big businesses that fit into Berkshire Hathaway well. Buffett had said over the weekend in his annual letter that his “elephant gun” for acquisitions is reloaded and Berkshire finished the year with $38 billion cash.
But he said Wednesday the challenge is there aren’t many elephants available that meet his criteria, and the businesses that do appeal to him usually aren’t selling at the right price.
Plus, Buffett says not all elephants want to be part of Berkshire’s zoo, which already includes about 80 different companies, including insurance, furniture, jewelry, utility and corporate jet firms. Berkshire also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.
Now that the stock market has largely recovered from the depths of the financial crises, Buffett said most good public companies are selling at prices higher than he’d want to pay if he were acquiring the entire company at a 20 percent premium.
Buffett said he tries to close deals quickly partly to avoid the kind of insider trading a former Goldman Sachs board member has been accused of engaging in just before Berkshire invested $5 billion in Goldman in 2008.
“If enough time goes by and enough people get exposed to it, somebody is going to talk,” Buffett said. “At Berkshire, I don’t even tell the directors.”
Buffett said a mid-sized deal Berkshire was pursuing fell apart a couple days ago, so it’s hard to predict when he’ll make another acquisition. He said that failed deal was more of a zebra than an elephant, but it was still big enough to excite him.
But Berkshire Hathaway won approval to sell insurance in India with the past week. Buffett’s company plans to set up an agency to begin selling auto insurance in India within the month through a new Berkshire India subsidiary. Berkshire owns a number of U.S. insurance companies, including Geico, National Indemnity and General Reinsurance.
Buffett is also planning to visit India about three weeks from now with his friend and fellow billionaire Bill Gates. The two men plan to hold an event to discuss philanthropy with wealthy people in India that will be similar to an event they held last fall in China. Buffett also uses his foreign trips to promote Berkshire Hathaway as a prospective acquirer of businesses.
Most of the stocks Berkshire Hathaway unloaded over the past six months were sold because the investment manager who bought them was retiring, Buffett said. He said he decided to liquidate Lou Simpson’s portfolio after Geico’s investment manager decided last summer to retire.
Simpson ran a portfolio worth several billion dollars, and he was one of the few people at Berkshire other than Buffett who was making investment decisions.
In the fourth quarter, Berkshire sold stakes in Bank of America, Comcast, Nike, Lowe’s, Becton Dickinson, Fiserv, Nestle and Nalco Holdings.
“I never inherit any investment decision from anyone else,” Buffett said.
And Buffett said he wanted Berkshire’s new investment manager, Todd Combs, to be able to build his own portfolio of investments worth between $1 billion and $3 billion. But Buffett continues to manage most of Berkshire’s investments.
Buffett said he doesn’t think Wells Fargo & Co. did a good job with the disclosure of the retirement of the bank’s chief financial officer for personal reasons earlier this month. Buffett said it’s clear there is more going on than the company acknowledged in its news release, but the departure of Howard Atkins doesn’t change the way Buffett views Berkshire’s investment in Wells Fargo.
“I feel very good about the whole Wells operation,” he said. Buffett and Berkshire control 367 million Wells Fargo shares, or about 7 percent of the bank, including 2.2 million shares Buffett holds directly.