For the first time since February 2020, Warren Buffett did a live, three-hour interview on CNBC's "Squawk Box" this week. He sat down with Becky Quick in Tokyo to talk about Berkshire's investments in Japan, the recent U.S. bank failures, toxic railroad derailments, and more. 

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FRI., APRIL 14, 2023

WARREN BUFFETT WATCH
 

Live from Tokyo

For the first time since February 2020, Warren Buffett did a live, three-hour interview on CNBC's "Squawk Box" this week.

 

He sat down with Becky Quick in Tokyo to talk about Berkshire's investments in Japan, the recent U.S. bank failures, toxic railroad derailments, and more. 

Warren Buffett in Tokyo for CNBC ''Squawk Box'' interview, April 12, 2023. Photo: CNBC | Lacy O'Toole

Photo: CNBC | Lacy O'Toole

 

Buffett gets bigger in Japan

Warren Buffett came to Japan to highlight Berkshire Hathaway's growing investments in the country's five biggest "trading houses," large companies that "import goods and services across multiple industries vital to the nation's economy, from automobiles to infrastructure to clothing." 

 

After initially buying stakes in 2020 of slightly more than 5% in Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp., Buffett revealed this week that Berkshire now owns 7.4% of the companies' outstanding shares.

 

In his "Squawk" interview, Buffett said when he first invested in them, he was "confounded" that he could buy into companies with strong earnings and growing dividends at what he considered a "ridiculous" price, especially when compared to the near-zero interest rate at the time.

 

He has not been disappointed, telling Becky Quick, "It's turned out to be better than I thought it would be."

Stock price gain is calculated using June 1, 2020 to illustrate the increases since around the time Berkshire began buying the shares. When Buffett first revealed the holdings in November 2020, he said they had been purchased over a roughly 12-month period.

Another plus for Buffett is that he "generally understood what they did" since they "were similar to Berkshire in that they owned lots of different interests."

 

He and Greg Abel, Berkshire's vice chairman for non-insurance operations and Buffett's designated successor as CEO, had a "terrific" time meeting with top executives of the five firms and "we couldn't feel better about the investment."

 

While Buffett has promised not to buy more than 10% of any the companies' shares without their permission, he did indicate there may be more purchases to come.

 

And Abel said that in their meetings, they promised to give a quick response (Buffett will "answer the phone on the first ring") if the companies come up with any incremental opportunities, "the bigger the better."

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Monex Group’s Jesper Koll told CNBC's "Street Signs Asia" that "for Japanese institutional investors, this really is now the stamp of approval that Japan can deliver superior returns."

 

"He’s got the track record globally, but now he’s got a very positive track record in investing in Japan."

 

Koll also says that since the Japanese trading houses will have "superior intelligence and superior access" to any new business ventures in the region, they will give Berkshire "a unique antenna into the future view in Japan as well as the Asia-Pacific."

 

Investor Mark Mobius is not enthusiastic about the Japanese trading houses because he thinks the prices are now too high.

 

But in an interview on "The Exchange," Mobius suggested Buffett has "plans for something else ... a big deal ... that may need the help" of the trading companies.

 

He points out that Berkshire has been selling bonds denominated in yen, including a new $1.2 billion offering this week with yields "nearly seven times higher" than what the company paid when it started selling yen debt in 2019.

 

Berkshire paid for its trading house shares using the yen it has been borrowing to protect itself from the risk of a big currency move, but the bond sales have also raised speculation the money could also be used for other purchases.

 

Buffett told Nikkei it's "always a matter of consideration."

 

"At the moment, we only own the five trading companies. There are always a few I'm thinking about."

 

Buffett: More banks will fail but depositors will be OK

Buffett said the nation's banks "haven't made the same sort of mistakes that they made back in 2008 or 2009," but some, like Silicon Valley Bank, did not protect themselves against investment losses produced by higher interest rates.

 

After its failure, "All of a sudden everybody was worried about [banks] all over the country."

 

But Buffett says even though banks will continue to "go bust" in the future, "People shouldn't be worried about losing their money and the deposits they have in an American bank."

 

He is confident that the federal government will continue to guarantee deposits larger than the stated $250,000 limit just as it did with SVB and Signature Bank, even if it means Congress will have to give its approval.

Warren Buffett is interviewed by CNBC's Becky Quick in Tokyo, April 12, 2023. Photo: CNBC | Lacy O'Toole

Photo: CNBC | Lacy O'Toole

Buffett is even willing to bet $1 million of his own money that no American depositor will lose money from a bank failure over a one-year period, with the pot going to charity.

 

One common objection to having the government explicitly guarantee all deposits is that it will encourage bank managers to take excessive risks.

 

Buffett has an answer to that "moral hazard" problem.

 

Even though he thinks his friends in the banking world may not like the idea, Buffett argues that any CEO of a bank "that screws up and costs shareholders a lot of money should get no pension from the bank... They don't deserve anything special."

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Why has Berkshire been selling big chunks of its bank stock holdings, including U.S. Bancorp, JPMorgan, Goldman Sachs, and Wells Fargo?

 

Buffett says it is not because those banks aren't being run well. 

 

"I did think that banking could get into a lot of trouble ... I didn't like the banking business as well as I did before."

 

Why did Berkshire keep its Bank of America stake, currently valued at more than $30 billion?

 

"I invited myself in many years earlier and they made a very decent deal for us [in 2011] and I like [CEO] Brian Moynihan enormously. And I just don't want to sell it."

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"I think they handled it terribly"

Buffett was very critical of Norfolk Southern's response to the early-February Ohio derailment of one of its trains that was carrying toxic chemicals.

 

"I don't know the person personally, the CEO, or anything, but they were tone deaf. And I don't think they're necessarily bad people or anything of the sort...

 

"Looking with hindsight, the CEO of Norfolk Southern, if he'd gotten there and drank the first water and said we're going to do whatever it takes to restore your life as it was before this happened ... that's the way to behave.

 

"I've done a lot of things I'd rather have do-overs on, too... But I sure hope we don't do that ever at BNSF, I'll put it that way."

 

Katie Farmer, the CEO of Berkshire's BNSF was praised by Minnesota's governor for quickly coming to the scene of a fiery derailment late last month.

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Buffett on the sales of two China-related stocks

Buffett acknowledges that it was his decision, not a move by one of Berkshire's two portfolio managers, to sell almost all of the company's Taiwan Semiconductor stake, roughly $4 billion of stock, just months after the shares were purchased.

 

He called it "one of the best companies in the world" ... a "fabulous enterprise" ... but he "reevaluated" the geopolitical risk posed by Beijing's claim that Taiwan is part of China.

 

"I think there isn't any question that conditions change. I just don't know what the results are of conditions changing...

 

"It's a dangerous world."

 

Berkshire has also been steadily reducing its stake in BYD, an electric carmaker in China, that it first purchased in 2008.

 

Buffett says it is an "extraordinary company" being run by an "extraordinary person," but "I think that we'll find things to do with the money that I'll feel better about."

 

In its most recent filing on BYD, Berkshire revealed it has cut its stake by almost 47% since the end of 2021.

Berkshire's Shrinking BYD Stake: 119.7 million shares, down 46.8%
 

Things are already beginning to change at Berkshire

Buffett says Greg Abel, who is designated to be Berkshire's next CEO, "gets it the same way I get it, but the difference is that he likes to work, and I like to sit around."

 

Specifically, "He's probably tougher than I would be in terms of getting things done" and as a result, Buffett said with a laugh, the management of Berkshire has "already improved dramatically."

 

Abel says because he's learning about the businesses, "there's going to be an active dialogue with the managers" to "discuss their businesses and expectations around it." And he says, "They like that type of input."

 

Buffett adds, "Our managers like autonomy, but they also get lonesome."

 

"I give them the autonomy, but Greg gives them both, and he gets somewhat more discipline out of the managers ... than I would get."

Greg Abel and Warren Buffett are interviewed by CNBC's Becky Quick in Tokyo, April 12, 2023. Photo: CNBC | Lacy O'Toole

Photo: CNBC | Lacy O'Toole

Buffett also revealed that Ajit Jain, who had been seen in the past as a possible CEO successor, loves running the "one-of-a-kind insurance company, which he built himself," and "never wanted to run Berkshire." 

 

As a result, "You didn't have two guys competing for the same job or anything like that."

 

But wait, there's more

  • Buffett would give up a year of his life to keep eating like a six-year-old
  • Buffett asked ChatGPT to write a song. He thinks AI is "extraordinary" but doesn't know whether its "beneficial"
  • Buffett on crypto: It's part of "an explosion of gambling"
  • Buffett on commercial real estate: "The people who lend too much money should take losses"
  • Buffett on the economy: It's a "tougher world out" out there for many businesses
  • Buffett on the Fed: Jerome Powell has been "terrific"

If you are a CNBC Pro subscriber, you can watch the full "Squawk Box" interview.

 

An audio version is available in three parts on CNBC's Squawk Pod.

 

BUFFETT AROUND THE INTERNET

Some links may require a subscription

 
 
  • Knoxville News Sentinel: Berkshire Hathaway launches new era of Pilot Company ownership with CEO change
  • CNBC.com: Warren Buffett-backed BYD announces new shock absorption tech for premium EVs
  • Bloomberg (subscription): Texas Californias Its Energy Grid and Buffett May Benefit
  • Fortune on Yahoo Finance: Jeremy Grantham says Warren Buffett’s favorite corporate tactic facilitates ‘stock manipulation’ and hurts the economy
 
 

BERKSHIRE STOCK WATCH

 
 
BRKA vs BRKB vs S&P - 1 month
BRKA vs BRKB vs S&P - 1 year

BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Apr. 14, 2023

 
 
Berkshire's Top Stock Holdings

Berkshire's top holdings of disclosed publicly-traded U.S. stocks, and BYD, by market value, based on today's closing prices.

 

Holdings are as of December 31, 2022 as reported in Berkshire Hathaway’s 13F filing on February 14, 2023, except for:

 

  • Apple, Bank of America, and Chevron, which also include shares held as of December 31, 2022 as disclosed in New England Asset Management’s 13F filing on February 14, 2023
  • BYD, which is as of March 31, 2023
  • Occidental Petroleum, which is as of March 27, 2023

 

The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.

 

QUESTIONS OR COMMENTS

 
 

Please send any questions or comments about the newsletter to me at alex.crippen@nbcuni.com. (Sorry, but we don't forward questions or comments to Buffett himself.)

 

If you aren't already subscribed to this newsletter, you can sign up here.

 

Also, Buffett's annual letters to shareholders are highly-recommended reading. There are collected here on Berkshire's website.

 

 

-- Alex Crippen, Editor, Warren Buffett Watch

 

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