Warren Buffett’s Most Iconic Interview Ever (Long Lost Footage)

Being a sound investor really just requires a certain control of your temperament and the ability to know what you know and know what you don't know, and occasionally [Music] act. The greatest investor of our time, but you'll find him in Omaha, Nebraska. He has billions of dollars, but his lifestyle is Midwest simplicity, and all that money is going to charity. He's been mildly successful but says there's nothing to it.

We're off to meet the wizard of Omaha, Warren Buffett, next on Adam Smith's money. [Music]

World Adam Smith's money world is set in motion by a grant from the MetLife family of companies, a financial leader for more than 100 years and is funded in part by Unisys, an Information Systems company delivering solutions to businesses and governments worldwide. Unisys, the power of two.

Hello, I'm Adam Smith. On this show, you will meet a remarkable man, probably the greatest investor of his generation. When you say greatest investor, they measure these things with numbers, and this man didn't inherit any money but has made in the stock market more than a billion dollars. That's billion with a B.

I met him almost two decades ago, and I'll tell you, you can't help liking him. In the investment world, he's a legend, but he doesn't have an office on Wall Street. He doesn't sit with his eyes glued to a computer. He says if you invest right, they could close the stock exchange for two years, and it wouldn't make any difference.

He doesn't generally do interviews, but I called on him recently to get some of the wisdom and aphorisms of Warren Buffett on the record. It is characteristic of Warren that he runs his financial empire not from Wall Street or the trading pits in Chicago, but from Omaha, Nebraska in America's Heartland. Omaha is home to the Union Pacific Railroad and, of course, the Mutual of Omaha insurance company, but it is hardly a financial capital. In fact, Omaha is better known for its stockyards than its stock market.

Buffett's headquarters are in this Omaha version of an office tower. He runs his empire with a staff of only seven people. "Warren, if I had given you $10,000 when I first met you—and I devoutly wish I had—I would have millions today. If you joined the partnership when we started in 1956 and when we disbanded it in '69, reinvested the proceeds in Berkshire, which was somewhat of a continuation, I think you'd have a little over $15 million now from $10,000."

"From $10,000 to $15 million? Something like that?"

"Yeah, that's a pretty good record."

"That's okay, but that doesn't tell you anything about tomorrow."

"Well, let's talk about tomorrow. Could anyone do the same thing you did starting today if they didn't try and do too much the first week?"

"Yeah, right."

How did Warren Buffett turn $10,000 into $15 million? The old-fashioned way. He has no computer, no Quotron screen, only common sense and a set of strict principles. We'll look at the Buffett formula for investing, and we will hear his wisdom on everything from the stock market to the evils of inherited wealth in a moment.

First, here is how the man known as the Wizard of Omaha got his start. Buffett's interest in the stock market came early. His father, Howard, was a stockbroker until he was elected to the United States Congress. Howard Buffett was a frugal Republican. When Congress voted itself a raise from $10,000 to $12,500, Howard Buffett refused to accept the additional money.

Warren, meanwhile, bought his first stock at age 11 and made a $5 profit. He eventually attended the University of Nebraska, then was rejected by the Harvard Business School. So Buffett went to New York and the Columbia Business School, where he met Professor Benjamin Graham. Graham was not only the co-author of the classic Security Analysis; he also wrote The Intelligent Investor.

Graham preached something called value investing: find companies that are undervalued by the stock market, buy shares, and then hold on and wait. Warren put those theories into practice. At age 25, he formed his own investment partnership and began to buy stocks. An investor who put up $10,000 when Buffett began the partnership in 1956 had nearly $300,000 in 1969 when the partnership was dissolved. During that time, the Buffett partnership never had a down year.

"You know what the academics say? They say the market is efficient and no one can beat it."

"But you have, and a number of other people that followed Ben Graham's principles have."

"Right. In fact, everyone that I personally know that has really stuck with the Ben Graham principles over 20 years or more has done appreciably better than the market."

"Well, what about all the learned business schools that say you can't beat the market?"

"Well, then they aren't so learned."

"But you've seen some of these papers."

"I've seen the papers, but I've seen some other people's tax returns."

One of the companies Buffett acquired during his partnership years was a small New England textile mill, Berkshire Hathaway. He later sold the mill but kept the name. Buffett began investing Berkshire funds in the stock market, and in some cases, he bought companies outright and made them part of Berkshire Hathaway.

Berkshire Hathaway is now a holding company with a net worth of more than $3 billion. Last month, Berkshire Hathaway held its annual meeting, presided over by Buffett and vice chairman Charles Munger. Buffett believes it's very important to have patient, rational shareholders, since it's one of his tenets that Wall Street's obsession with the short term and with frantic trading are counterproductive.

So Berkshire has never split its stock, and Buffett never talks to analysts. But this is the happiest tribe of shareholders you'll meet anywhere in America.

"Warren Buffett is certainly the greatest investor in the post-World War II period and maybe the greatest investor in history. I think he's has tremendous integrity and a very clear way of looking at the world. The superlatives could go on and on and on."

"And I'm not related."

Berkshire Hathaway shareholders have every reason to be happy. One share of stock cost $12 in 1965. Today, a single share sells for more than $3,900. That's right: $3,900 a share in the over-the-counter market.

Buffett has achieved all this by sticking to those fundamental principles and by keeping things simple.

"Warren, you say you like to buy businesses. How do you know what a company is worth?"

"I look for a business where I think I know what, in a general way, is going to happen. If you buy a bond, you know exactly what's going to happen, assuming it's a good bond, a U.S. Government bond. If it says 9% coupons, you know what the 9% coupons are going to be for maybe 30 years if it's a 30-year bond. Now when you buy a business, you're buying something with coupons on it too, except the only problem is they don't print in the amount, and it's my job to print in the amount on the coupon. Some companies I feel capable of doing that with, and others I don't have the faintest idea."

"You seem to stay away from high-tech companies. You named 10 high-tech companies to me and asked me where they're going to be in 10 years or 10 months, and I don't have the faintest idea."

"So that would be exactly like buying cocoa beans or something. I just don't know what's going to happen."

"Do you ever really get a big hit just buying these predictable stocks?"

"Yeah, you do, but not very often. But occasionally, sensational businesses are given away. In the mid-'70s, the whole Washington Post Company was selling for $80 million at a time when the properties were worth not less than $400 million, and no one would have argued with you about the properties being worth $400 million, and the price was there for all to see. But people just didn't feel very enthusiastic about the world then. Buffett took full advantage of that undervaluation."

"In 1973, he bought 1.7 million shares of the Washington Post Company. As a boy, he delivered the Washington Post. Now he owns 13% of it. That investment cost Berkshire Hathaway $9.7 million. Today, it's worth $370 million, and Buffett says he'll never sell his shares. Another of his permanent holdings is in Capital Cities. In 1985, Buffett bought three million shares of Capital Cities when it took over ABC. That investment cost $517 million, and it's now worth $927 million."

"The chairman of Capital Cities is Tom Murphy, Warren Buffett's good friend. Recently, the two men were asked to play small roles in the ABC soap opera Loving."

"That's Tom Murphy on the left, Warren Buffett on the right."

"Surprise! Can you get that through your thick head, please do not make a scene."

"Well, that's up to you, Buster. I am not leaving until you set me right down next to Clay Alvis."

"Wait a minute, you're making a big mistake. Clay's going to want to see me. He's going to be real ticked off."

Luckily, Buffett is a better investor than actor. Another killing came in a troubled company, Geico: Government Employees Insurance Company. In the mid-'70s, Buffett bought 42% of Geico at a cost of $46 million. The value today: $849 million. Last year, Buffett made just one major investment. He bought a convertible preferred worth $700 million of Solomon Brothers, the New York investment banking house.

It's far too early to tell whether this investment will be another Buffett coup. One thing all these deals have in common: The stocks were bought because Buffett thought they were undervalued by the market.

"You have been talking this philosophy for years. It's no secret."

"It's no secret! Why doesn't everybody do it?"

"Well, it requires patience, which a lot of people don't have. People would much rather be promised that they're going to win a lottery ticket next week than that they're going to get rich slowly. Gus Levy used to say that he was long-term greedy, not short-term greedy. If you're short-term greedy, you probably won't get a very good long-term result."

"You've said they could close the New York Stock Exchange for two years, and you wouldn't care. Can you explain that?"

"We own parts of businesses when we own stocks. The New York Stock Exchange being open has nothing to do with whether the Washington Post is getting more valuable over a five or ten year period. What we want to do is be right on the business. If we're right on the business, the market will take care of itself. If the Stock Exchange closes on Saturday and Sunday, you know, I don't break out in hives. So if it closes for a couple of years, and the business does well, we'll do very well."

Buffett is known not only as a savvy investor but also as a kind of sage. His annual report has no photos and no fancy charts, but it's filled with Warren Buffett's prairie wisdom. These reports are in such demand that the company has put together a compilation of past reports. It's a kind of Warren Buffett's Greatest Hits.

"I noticed in your annual report you say that if you're in a poker game for 30 minutes and you don't know who the patsy is, you are the patsy. How do you apply that to the market?"

"Well, or to investing in the market. If you think the market knows more about what your business is worth—in other words, if your stock goes down 10%, and that upsets you, it obviously means that you think the market knows more about the company than you do. In that case, you're the patsy. If it goes down 10%, and you want to buy more because you know the business is worth just as much as when you bought it before, or perhaps a little bit more with the passage of time, then you are the patsy."

"Where do you get these aphorisms that you've gotten so well known for?"

"Well, I know. It's just—they're about the limit of my intellectual capacity, so I have to work with one sentence."

That is a typical Buffett put down of himself, but he doesn't fool many people. Buffett is a brilliant man. Those around him say his mind works so fast they have trouble just keeping up. He reads just about anything he can get his hands on, and beyond that, he thinks. A good part of his day is spent just thinking.

"Often that thinking is about the stock market. Was October 19th an aberration, or could it happen again?"

"Oh, always anything can happen in stock markets. If you read financial history for a couple of hundred years and take the South Sea Bubble and the Tulip Boom and some of the panics we've had in this country, we closed the stock exchange for a few months back around 1914. Anything can happen, and you ought to conduct your affairs so that if the most extraordinary events happen, you're still around to play the next day."

One thing Buffett has long warned about is the development of stock index futures. Those are basically bets on which direction the stock market will go. Back in 1982, when index futures were first developed, Buffett wrote a letter to Congressman John Dingell. He warned that these new instruments would be quote "overwhelmingly detrimental to our capital markets."

"Anytime you offer a big prize for a small amount of money, you encourage stupid behavior on behalf of those you're appealing to. Low margins, which you can get through the futures market, encourage that sort of activity."

"How should the small investor look at stock index futures and index arbitrage and all the volatility that has come into the stock market?"

"Well, he should hope that they cause other people to behave very silly, and then he should step in occasionally. He should ignore them himself, but to the extent that silly instruments occasionally cause silly prices, he can take advantage of them. Then the rest of the time, he ignores them."

"Old basketball players lose their legs. Do old investors lose their legs?"

"I don't think so. I think that they probably lose their legs, but they don't need their legs that much."

"Really being a sound investor really just requires a certain control of your temperament and the ability to know what you know and know what you don't know and occasionally act. I don't see any reason why that goes with age."

"When you think we—I may give you an illustration in another few years, but so far it has no effect. I mean in a sense, you keep accumulating a little more business knowledge as you go along, and that's a plus."

Warren Buffett the investor is only half the story. There's also Warren Buffett the manager. Through the years, he's bought not only pieces of companies in the stock market, he's also bought entire companies which are now under the Berkshire Hathaway umbrella. These companies are not very glamorous or famous, but they are usually tremendously profitable.

One example is See's Candies of California. See's has been making candy for more than 60 years and is known for high-quality chocolates. Berkshire Hathaway bought the company in 1968 for $25 million, and last year alone, See's earned $30 million before taxes.

Another Berkshire Hathaway company is World Book encyclopedias at $26 million of profit last year. Berkshire Hathaway also owns Kirby vacuum cleaners, the Fetchheimer uniform company, and various insurance companies.

"There's been a lot of talk about the Silicon Valley culture. Is there a Berkshire Hathaway culture?"

"I guess there's a Berkshire Hathaway culture, but it would be a long way from the Silicon Valley culture."

"What is the Berkshire Hathaway culture?"

"We like managers who love our business. We like them that feel like I do. I want to tap dance when I get to the office, and that's the sort of managers we have. We have terrific luck where we buy businesses with managers that have been enormously successful over a period of time. They're usually rich after we buy the business, and they keep on working afterwards. We don't have so much luck with business school grads. We find it difficult to teach a new dog old tricks. We like the people that have been around a while."

The perfect example of this philosophy is Rose Blumkin. Fifty years ago, she started a furniture store in Omaha with $500 in savings. She turned it into the Nebraska Furniture Mart. It's the largest furniture store in the country.

Warren Buffett always loved the store, always loved the management, so in 1983, he walked in and bought the company. "And who would expect that our customer will come in shaking hands to buy the store unexpectedly that quick? In two words he asked me how much I want. I told him, and he says, 'Okay, let's—you again. You've got the deal.'"

"One-of-a-kind business, and it's run by a one-of-a-kind manager, and you don't get any other opportunities like that. You'd have to be a fool not to go into business with Mrs. B. I'll tell you that."

The Furniture Mart really is a one-of-a-kind business. At age 94, Mrs. Blumkin, or Mrs. B as she is better known, still prowls the carpet department on her motorized cart seven days a week and rarely goes home. "You go home, you go nuts. You lose your marbles."

That work ethic was passed on to her son, Lou, who was president for 40 years, and her grandsons. One of them, Ron, is the current president. The store is known throughout the Midwest, and Mrs. B is a legend.

"Mrs. B had markdown prices and that's just what happened. Always love to give them the best deals we possibly can all year round."

When Warren Buffett bought the store, he promised the Blumkin family he would stay out of the way, and that's what he's done.

"If you were to ask me who owns the business, I'm going to tell you I own the business because nothing's really changed. We run it with a free hand. Virtually no interference. We have an annual meeting to discuss Nebraska Furniture business every February, and we meet with Warren possibly once every four or five weeks to discuss business other than Nebraska Furniture Mart, and it's just a joy and a pleasure. He's the perfect boss."

Buffett the boss is always on the lookout for new companies to buy. Once, he even placed an ad in the Wall Street Journal offering to provide a new home for interested companies.

"Well, if you had to look over the next five or ten years, what do you think will be good businesses?"

"They're the businesses that have some sort of a franchise to them. What makes a business a good business is when if I go into a drugstore and I want a Hershey bar, they can't sell me an unmarked bar. You know, if I'm going to pay 35 cents for the Hershey bar and they say, 'But wouldn't you like this wonderful unmarked chocolate bar for 30 cents?' I buy the Hershey bar. If they don't have it someplace, I'll go across the street to buy it. That's what makes a good business. I don't feel that way about the carton of milk I buy. I'll take whatever carton of milk is in the grocery store's freezer or cooler, so it's the power of the franchise."

"It's the power of the franchise. When Ben Graham talked about these things, he talked about tangible assets—iron and steel above the ground, bricks and mortar—but you've expanded Ben Graham's idea to this idea of the franchise, haven't you?"

"I learned that subsequent to Ben. The principles of buying value and the margin of safety and the detachment from the market, I learned from Ben. You might say that I learned the proper temperamental set from Ben. The stocks I buy are entirely different from what Ben would buy if they were alive today."

You might be skeptical about one thing: does this billionaire really go to the drugstore to buy a candy bar and to the grocery store for a carton of milk? Don't doubt it. Warren Buffett lives in the same house he bought more than 30 years ago for $32,000.

There are no fancy cars or designer clothing. He has rejected most of the exterior signs of wealth that you might expect from someone with his means.

"You still do your own tax returns?"

"Yeah, yeah. Pretty simple return, really."

"Yeah, it's a very simple return."

"Warren, you have spoken for years against corporate perks, but you finally bought a corporate jet?"

"I can't explain it. It's a total, it's a total blank in my mind, but I've given speeches against them for years, and I got to tell you, I love it."

"But you have the cheapest corporate jet of anybody in America."

"I do. It's the cheapest corporate jet. It works perfectly for me. And I got to tell you that I have an untapped potential for that type of life apparently because it's made life a lot easier the last couple of years."

It's doubtful that Buffett will suddenly change. He has been the picture of simplicity for his entire life. I met in Omaha with one of Warren's three children, Susan, and one of his nine grandchildren, two-month-old Michael.

"What was it like growing up with Warren Buffett as your father?"

"It was completely normal growing up with him. We didn't know anything. I used to write down on my census cards at school that he was a security analyst, and my friends thought he checked burglar alarms. We didn't know anything. It was normal, you know? We lived in a normal neighborhood and didn't get cars when we turned 16 and didn't know anything about any money."

"Did he make you interested in the stock market at all growing up?"

"He didn't talk a lot about his business. I mean, I honestly did not know a lot about what he did, and I certainly didn't know how much money he had at all, ever, until I really did not find anything out until I read it in your book. Now that was a little bit of an eye-opener. I thought, 'Huh, okay,' and he wasn't even that rich then."

"Yeah, that's right."

"That's right! I find out every year when I look at the Forbes list how much more he's gotten."

According to the most recent Forbes list of richest Americans, Buffett is now worth about $2.1 billion, but there's some unusual news for his heirs. Buffett doesn't believe in passing great sums of money to the next generation.

"Warren, you created a stir with your remarks about money and children. You have three children and grandchildren. You love your children; they love you, but you've said you're not going to give them any money because that would be a bad thing to do."

"I hear children of the rich or the rich themselves talk about the debilitating effect of food stamps on welfare mothers, and they say it's terrible. You know, you hand them all these food stamps, and it causes the cycle to perpetuate itself. But of course, when a very rich child or one who's going to inherit a lot of money is born, when they leave the womb, they're handed this lifetime supply of food stamps. Only they, and they have, they have a welfare officer. He's called a trust department officer, and the food stamps are little stocks and bonds. Nobody seems to notice the debilitating effects of that particular form of lifetime supply of food stamps."

"I think that, I think by and large that if I'm going to be a sprinter, I will become a better sprinter in life if I sprint against everybody else leading the starting box at the same time than if they say because I'm Jesse Owens's child or something, I get the start at the 50-yard line."

"Well, how have your children felt about that?"

"I think they feel really good."

"Yeah?"

"Yeah. You have to say I've got to tell you I'm not quite as Draconian as I sound, but I'm quite close to it."

"Your parents have over a billion. Doesn't that sort of cramp? When you think you have to get the kitchen fixed sometimes?"

"Yeah, I have to tell you the truth about that. It's like you said, it would be nice to have some once in a while, and when you are fixing up the kitchen or doing something, you think, you know, he has a billion dollars; probably he could spare a little. But on the other hand, I think that basically what he's done makes a lot of sense as far as, you know, raising kids and trying to put good ideas in their heads and not totally screw them up, which does happen with some people who get lots of money."

"Do you do this for the money? What does money mean to you?"

"Well, money is a byproduct of doing something I like to do extremely well. I think if you found an athlete that was doing well, my guess is that—and I'm not comparing myself, but—Ted Williams or Arnold Palmer or something, after they have enough to eat, they're not doing it for the money. My guess is that if Ted Williams was getting the highest salary in baseball and he was batting .220, he would be unhappy, and if he was getting the low salary in baseball and batting .400, he'd be very happy. That's the way I feel about this job."

"What do you feel like when you look at this piece of paper that gives you your net worth and it says you're worth over a billion dollars?"

"It's a byproduct of doing things I like to do well. By batting .400 long enough in this business, you get a very big sum. That is a big sum."

"What are you going to do with it?"

"Eventually, it's all going to go back to society, with 99% plus of it going to society."

"Good. Can there be any flaws in this happy chronicle?"

When we checked around Wall Street, the skeptics said, "Sure, he's got a great record, but let's see him do it from here on." Younger competitors, who cut their teeth on computer programs, think that operating without computers and futures is strictly horse and buggy.

But to continue Warren's batting analogy, here is a fellow who has certainly batted over .400 for his lifetime and hit more home runs than Babe Ruth. You get the feeling he would like to be like Mrs. B and go to work seven days a week at age 94 just because it's so much fun.

I'm Adam Smith. See you next [Music] time.