Warren Buffett 2018 Annual Letter Interview - Tax Reform, Wells Fargo, Apple, IBM

Breaking tradition: 'This is the 53rd letter...this one was a little different you actually broke with some of the formatting...why did you just decide to shake things up after 53 years.' Buffett: 'I'm 87 maybe I'm in my second childhood...I just felt we sort of worn out that format and there was quite a bit of information that I would put in the letter that was repeated in the 10k so we just append the entire 10k.' Result: 'Probably 60 or 65 as long as...previous letters.' Big news: '$65.3 billion increase in net worth for the company in 2017. 29 billion of that comes from the tax changes.'

Two tax reform benefits: (1) Unrealized gains: 'We had about a hundred billion of unrealized gain in equities...when they're sold you pay tax on that and...previously when the tax was 35 we would have had a 35 billion dollar reserve...that would drop to about 21 billion so 14 billion roughly...was a reduction in the amount of tax.' (2) Bonus depreciation: 'When we buy some kind of fixed asset locomotive...we're entitled...to 50 percent appreciation in the first year...you got to have...bonus depreciation and take 50 of it the first year...that became a deferred tax.' Impact: '$6B utility...goes to the customers...but the amount that related to' railroad and others 'about $15B.' Total: '$29B one-time benefit.' Nature: 'Wasn't cash now but it reduced a liability when you reduce the liability and net worth goes up.'

Tim Sloan: 'I have confidence in Tim Sloane but Wells did...they came up with some terrible incentives and incentives work in both directions...they had some incentives that incentive system which incentivized bad behavior and...the bad behavior became somewhat contagious apparently in some offices more than others where people put in phony accounts.' Core problem: 'What they didn't do was they didn't correct it when they were getting word that...these terrible practices were taking place.' Parallel: 'Same thing that happened to Solomon...28 years ago is that management didn't react when they found out that something had gone very much awry.' Fed response: 'If the federal reserve is mad at you because you've flouted them in one way or another...you're in a big big big dog house and...digging your way out of it takes time.' More issues: 'There's never just one cockroach in the kitchen...you find other things I was always terrified of that at Solomon.' Conclusion: 'You obey your government and if you don't you can have plenty of consequences.'

Unreported position: 'Berkshire has owned...samsung it doesn't get reported in our 13 f I think 13 f's just apply to domestic...we bought some when Samsung was about a million won...we did sell it when it went up it's higher than this now it went up to a million eight...I think it's around two million three or four.' Profit: 'We probably made in the hundreds of millions someplace...yeah...even kind of been 500 million or four I don't remember exactly.' Rationale: 'Why were you looking at Samsung...very very cheap they had a lot of cash...they hadn't done much on buying in their stock but they had they talked about it...it was just very cheap it's a big strong good company.' History: 'The Korean market was very cheap I mean ridiculously cheap after the 1998 when they had all kinds of troubles...there were a lot of bargains in Korea.'

IBM admission: 'I was wrong on at least I felt I was wrong on IBM now I may have been wrong when I sold it to but I certainly was wrong when I bought it.' Apple rationale: 'I felt that Apple has an extraordinary consumer franchise...Apple's a different kind of business than IBM...I think I understand consumer behavior perhaps better than I do the tech business...I liked it I like Tim Cook very much I like their policies.' The stickiness: 'I see how strong that ecosystem is is to an extraordinary degree...I look at my...grandchildren my great-grandchildren and everybody in the office...their families I talked to the people the Furniture Mart when the tent hadn't arrived nobody goes over to...buy it by Android...you were very very very locked in at least psychologically and mentally to the...product you're using.' IBM's problem: 'The cloud came along and what one of the most extraordinary things I've ever seen in business is when an unrelated type company a retailer you can call Amazon...goes into another big industry and...sees the future in it gets into it and then...Jeff Bezos would say...he got this amazing runway...the other players here all these 200 IQ people...they gave him year after year after year it wasn't a secret of what he was doing...revolutionizing the industry and the other people sat on their hands basically.'