Notes on Warren Buffett's Tokyo Interview

“We run [Berkshire Hathaway] so that we will be the last man standing.”

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On Wednesday morning, Warren Buffett sat down with CNBC’s Becky Quick for a three-hour, live interview in Tokyo, Japan. At the top of the second hour, Quick pointed out that it’s been a while since Buffett granted such an interview.

In fact, his last Squawk Box takeover came in February 2020 — just weeks before the Covid-19 pandemic paralyzed the American economy (and way of life). Ever since, he has mostly limited his public remarks to Q&A sessions at Berkshire Hathaway’s annual shareholder meetings.

“Yeah,” Buffett admitted. “As they say in England, I’ve gone quiet.”

But, last week, he broke his silence in a big way. Buffett spoke on a wide range of topics — mincing no words on hot-button issues like train derailments and the nascent banking crisis, while also offering surprisingly frank commentary on a number of Berkshire’s recent investment decisions.

It doesn’t get much better than this.

(Reminder: I covered the first hour of Buffett’s interview on Friday. Today’s article focuses on the final two hours of his Squawk Box appearance.)

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BANKING BLUES: Last month, the collapse of Silicon Valley Bank sent shockwaves rippling through the banking industry. And, before the proverbial dust even settled, all eyes turned to Warren Buffett and Berkshire Hathaway.

After all, over the past few years, Buffett exited several long-term positions in leading American banks. Did the Oracle somehow see this whole mess coming?

“I didn’t like the banking business as well as I did before,” Buffett said.

We sold a number of banks — we had held some of them for 25 years — but I don’t like it when people get too focused on the earnings number and forget basic banking principles. I’m not gonna get into naming any names or anything like that, but it has happened to varying degrees throughout the industry.

Since 2020, Berkshire has fully exited Wells Fargo, Goldman Sachs, JPMorgan Chase, PNC, and M&T Bank — and drastically reduced its stake in U.S. Bancorp and Bank of New York Mellon.

But, while Buffett evidently soured on many of these banks, he has kept faith in Bank of America. With 1.03 billion shares (currently valued at $30.4 billion), BAC 0.00%↑ remains the second-largest holding in Berkshire’s massive stock portfolio.

I invited myself in [at Bank of America] many years earlier and they made a very decent deal for us — and I like [CEO] Brian Moynihan enormously. I just don’t want to sell it.

For all of those other banks on the Berkshire chopping block, though, Buffett has his reasons. “I did sell banks that we’d owned for 25-30 years,” he said. “And if they asked me why I did it, I told them.”

“I liked the people, [but] I just think the system isn’t set up quite right in terms of connecting punishment to culprits on something that’s incredibly important.”

Before moving on, Buffett dropped this banger on the banking industry: “It gets back to that old story — when the tide goes out, you learn who’s been swimming naked. And, you know, we actually ran into a nudist colony here.”

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PROTECT DEPOSITORS & PUNISH THE GUILTY: To drive home the point that bank depositors have no reason to fear losing their money in future bank failures, Warren Buffett put his money where his mouth is.

He offered a $1 million bet that, in the next year, no American depositor will lose any of his or her money in a bank failure. Even if no one takes him up on his wager, Buffett’s confidence in the FDIC (even above the current $250,000 insurance limit) should calm the waters a bit.

CNBC’s Joe Kernen countered that backstopping all deposits could create unintended moral hazards. Like bank managers taking more risks with deposited money since it would all be “protected” by the feds. How can that be prevented?

Buffett quipped that, while he currently has a lot of friends in the banking industry, that number might get a lot smaller after he laid out his plan to hold guilty executives accountable.

I would suggest that anybody that’s CEO of a bank that screws up and costs shareholders a lot of money that, in effect, they get no pension from the bank. They go back to living like a person that works on the production line of Ford or something like that. They don’t deserve anything special.

And I would suggest to the directors of the bank that sat there for five years and listened to people come in and give reports, that they give back all of their director’s fees. There’s got to be consequences to the people who make the decisions.

And the man who says that any CEO worth his or her salt should act as the company’s Chief Risk Officer also threw shade at the bureaucratic tendency to delegate everything to committees.

The answer isn’t to have more risk committee meetings or anything like that. I’ve been on the board of banks and the answer is to have the board of directors feel like, “God, if this guy screws things up, I’ve got to give back all this money that I’ve gotten — $300,000 a year or whatever it may be.”

Believe me, that changes behavior of the people that cause the problem. I want to penalize people who make the decisions and have it very clear to them. That will not be met with great enthusiasm from a lot of friends of mine, but that’s exactly what I believe should be done.

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PORTFOLIO UPDATES: Warren Buffett proved surprisingly revealing when asked about some recent investment decisions made at Berkshire Hathaway. Typically, he brushes such questions away or filibusters them with a non-answer, but he actually shed quite a bit of light on the following Berkshire holdings…

• TSMC: We learned two very important things about Berkshire’s TSM 0.00%↑ purchase and subsequent reversal in the latter half of 2022. (1) This was a Buffett buy. “Yeah, that was me,” he admitted. “That wasn’t one of the two other guys.” (2) And, on second thought, he just didn’t feel comfortable enough with the geopolitical situation in Taiwan to invest Berkshire’s money there. “I’d reevaluate that part of it, but I didn’t reevaluate the business, the management, or anything of the sort. It’s a fabulous company.”

• Apple: With AAPL 0.00%↑ now making up 44.0%(!) of Berkshire’s stock portfolio, Buffett didn’t seem overly concerned by the tech giant’s deep manufacturing ties to TSMC and China. Instead, he once again sang the praises of Apple’s moat and brand power. “If you’re an Apple user and somebody offers you $10,000 but the only proviso is they’ll take away your iPhone and you’ll never be able to buy another, you’re not gonna take it.”

  • Buffett waved away worries that Berkshire’s Apple position is too big. “People say, ‘Isn’t that a lot of money to have [in Apple]?’ Well, we’ve got a railroad worth a similar amount. We’ve got a utility business worth a similar amount. [Apple] is a wonderful business. We can’t develop a business like that, so we own a lot of it.”

  • In the second half of 2020, Berkshire sold 93.5 million shares of Apple. And, not for the first time, Buffett lamented that fact — calling it “a dumb sale”.

• BYD: Over the past nine months or so, Berkshire has nearly halved its position in the Chinese EV maker. “We’ve been selling it because our interest is being valued at $6.5 billion or whatever it may be. I think it’s an extraordinary company and I think the fellow that runs it — who’s run it right along ever since we purchased it fourteen years ago — is an extraordinary person.” But Buffett added, “I think we’ll find things to do with the money that I’ll feel better about.”

• Paramount Global: All along, I assumed that either Todd Combs or Ted Weschler bought Berkshire’s stake in PARA 0.00%↑. But, now, I’m not so sure. On Wednesday, Buffett delivered some pretty tough comments about the economics of streaming — and I’m not sure he would publicly criticize a Ted/Todd pick like that. “Streaming is not really a very good business,” Buffett said. “They’ve been able to attract subscribers, but they attract them at a terrible price.” When asked why he bought Paramount if he feels that way, Buffett replied: “Well, we’ll see what happens.” This one may not be long for Berkshire’s portfolio.

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THIS MONEY MACHINE NEVER STOPS: It’s startlingly easy to become desensitized to how much money flows in and out of Berkshire Hathaway.

Warren Buffett revealed that Berkshire spent $7+ billion in late January for an additional 41.4% (and majority ownership) of Pilot. That puts the travel center network’s overall valuation at just a hair under $17 billion. With $45 billion of revenue in a normal year, Pilot immediately becomes one of Berkshire’s most significant subsidiaries.

“We spent $4 billion buying in stocks,” Buffett added, too.

But, even with those pricy outlays, Buffett thinks that Berkshire’s cash pile is “probably” up over year end 2022. “The money comes in every day,” he said. “We are in the neighborhood of [making] something over $100 million a working day.”

Berkshire also continues to cash in on rising interest rates.

We’ll keep buying Treasury bills every Monday — we haven’t missed a Monday yet — and we keep all our money short. We keep it in Treasuries. We were getting four basis points, which was $40 million on $100 billion worth. Now, we get almost 5%, which is $5 billion. So we’ve got 100 times the earnings.

For years, Berkshire’s conservative approach of keeping a lot of cash on hand netted the company almost nothing in terms of earned interest. Now, Berkshire’s careful stewardship is being rewarded in a big way.

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NO SOFT LANDING? Apologies for the downbeat ending, but Warren Buffett sounded slightly worried about the economic data that he’s seeing pour in from Berkshire Hathaway’s subsidiaries.

With Berkshire owning so many businesses in such a wide range of industries and sectors, Buffett might possess a more accurate understanding of the country’s economic health than just about anyone else.

And, unfortunately, the picture is not a rosy one.

“I just got a report from one of [Berkshire’s subsidiaries] that happens to be in the retail-related business,” Buffett told CNBC. “It was -22% [in sales] in February from a year ago.” He added that profits were down even more than that.

“It’s a tougher world out there in a great many businesses.”

One exception, though, appears to be insurance. “[Our] insurance business should be better this year than last year,” he said.

Becky Quick then asked point blank if a recession seems more likely now than it did six months ago. Buffett’s answer was hardly reassuring.

Well, I think most of our management would say that they are [negatively] surprised at where they are now, compared to how they thought they were going to feel six months ago at this point.

In any event, Buffett has never been one to wring his hands over macroeconomic cycles. “We run our business so that we don’t depend on everything being hunky-dory always,” he said. “We run [Berkshire] so that we will be the last man standing.”