Warren Buffett On Why Berkshire Doesn't Pay Dividends | May 7, 2012

Transcript

go to liz clayman in omaha with i believe warren buffett and company right you bet from varney and company to warren buffett and company thank you so much barney you got to watch this because we're going to talk about a lot of things that you and your viewers have talked about but first we welcome warren buffett the chairman and ceo of berkshire ha... Read More

Summary

In this interview with Warren Buffett, the chairman and CEO of Berkshire Hathaway, he discusses various topics related to the company's stock valuation, dividend policy, succession plan, derivatives, and a major mistake he made with energy future holdings bonds. Buffett emphasizes his belief in the long-term value creation for shareholders by retaining earnings rather than paying dividends. He also provides insights into the succession plan and the importance of the insurance business to Berkshire Hathaway. Additionally, Buffett addresses his prostate cancer diagnosis and expresses his confidence in continuing his work without interruption.

Questions & Answers

Q: How does Warren Buffett view the current trading of Berkshire Hathaway stock, which he mentioned as undervalued?

Buffett states that the slight increase in stock value does not change his conclusion that it is undervalued. He admits that he cannot predict its short-term movements but finds it attractive compared to the businesses Berkshire Hathaway owns.

Q: Why doesn't Berkshire Hathaway pay a dividend when many other companies do?

Buffett explains that retaining earnings allows shareholders to benefit from the reinvestment of those funds, creating greater wealth in the long run. He acknowledges the possibility of being wrong in this approach but highlights the historical success of Berkshire Hathaway in generating value for shareholders.

Q: Will Berkshire Hathaway ever pay a dividend in the future?

Buffett believes that a dividend will eventually be paid when Berkshire Hathaway becomes so large that it cannot effectively use all the earnings. He admits that the company is closer to that point now compared to 20 years ago.

Q: What is Warren Buffett's stance on a potential stock split of Coca-Cola, in which Berkshire Hathaway holds a stake?

Buffett expresses a neutral stance on a stock split for Coca-Cola, stating that it would not impact the value of Berkshire Hathaway's stock in the company.

Q: Who is the successor to Warren Buffett, and what is their role in the insurance business?

Buffett confirms that the successor is a male, without revealing the exact identity. While acknowledging the importance of the insurance business in Berkshire Hathaway's past and present, he also mentions that the company has diversified into other industries over the years.

Q: Is Berkshire Hathaway expected to have a major derivatives book in the future?

Buffett clarifies that Berkshire Hathaway currently has a relatively small derivatives book. He attributes this to the changing rules and regulations surrounding derivatives, stating that posting collateral for them makes them more dangerous for individual enterprises.

Q: How will Warren Buffett's prostate cancer diagnosis affect his work at Berkshire Hathaway?

Buffett reassures that his diagnosis of stage one prostate cancer is a non-issue and will not cause any absence from work. He estimates that he may miss around 15 minutes a day due to treatment.

Q: Has Warren Buffett started preparing his successor for taking over at Berkshire Hathaway?

Buffett believes that his successor does not require any apprenticeship, emphasizing that none of the three candidates need it. He has confidence in their abilities to lead the company without prior training.

Q: What was the big mistake Warren Buffett made with energy future holdings bonds?

Buffett takes responsibility for the mistake and admits that he did not properly assess the risks associated with the bonds. He underestimated the impact of the plummeting natural gas prices, which significantly affected their value.

Q: How much worse could the situation with energy future holdings bonds get for Berkshire Hathaway?

Buffett acknowledges that the bonds could potentially become worthless. While he cannot predict the exact outcome, he acknowledges the possibility of further losses.

Takeaways

In this interview, Warren Buffett provides insights into Berkshire Hathaway's stock valuation, dividend policy, succession plan, and derivatives. He highlights the long-term value creation for shareholders through retaining earnings and discusses the importance of the insurance business within the company. Buffett's candid admission of his mistake with energy future holdings bonds demonstrates his ability to accept responsibility for errors. Despite his prostate cancer diagnosis, he expresses confidence in continuing his work without interruption.