Warren Buffett & Carol Loomis: Tap Dancing to Work, Taxes, and 45 Years of Friendship

Buffett discusses his op-ed proposing a minimum tax for the wealthy. He argues for a 30% minimum tax on incomes over $1 million and 35% on incomes over $10 million, noting that half of the 400 highest taxpayers paid below 20% rates. He emphasizes that taxes don't deter investors from good opportunities and challenges anyone who won't invest because of taxes to contact him.

Buffett advocates for immediate minimum tax implementation rather than waiting for comprehensive tax reform. He proposes capital gains at 25%, dividends as ordinary income, and a more progressive system. He emphasizes the importance of including payroll taxes in tax calculations, which many discussions overlook. Buffett argues against letting the perfect be the enemy of the good by waiting for complete reform.

Buffett expresses confidence that the fiscal cliff won't significantly harm the economy because a solution will be found quickly. He notes that the economy has been improving steadily since summer 2009, with four consecutive years of positive stock market returns. He maintains that despite the tremendous bubble and its aftermath, the economy is on the mend.

Discussion of Carol Loomis's book 'Tap Dancing to Work' and Buffett's famous quote about loving his work so much he 'tap dances to work.' Buffett explains that he can hardly wait to get to work each morning and has never had a day he didn't look forward to. The conversation reveals his work habits, including working on weekends, and the seamlessness between his work and personal life.

Buffett recounts how smart people he loved, including his father and Ben Graham, advised against entering the securities business because the Dow Jones was above 200. However, he believed in getting started rather than waiting for the perfect time. This 'worst advice' story became one of Carol Loomis's memorable interview moments when Buffett answered the wrong question.

Carol Loomis shares the story of first mentioning Warren Buffett in Fortune magazine in 1966, where she misspelled his name with only one 'T'. Her husband John Loomis met Buffett first and declared he'd met the smartest investor in the country. The coverage grew from one misspelled sentence to two paragraphs in 1970, then to a 7,000-word piece by Buffett himself in 1977.

Discussion of Buffett's famous 1977 Fortune article 'How Inflation Swindles the Equity Investor,' which people still reference and write about today. Buffett reflects that if writing the same kind of piece today, he would still emphasize that for people who can invest over time, equities are overwhelmingly the best place to put their money.

Buffett explains his approach to writing the annual shareholder letter, addressing it to his two sisters Bertie and Doris - bright women not in the financial world who've been gone for a year and have their money in Berkshire. Carol Loomis has edited the letter since 1977, initially making minimal changes but developing a collaborative process with multiple drafts. Buffett writes it in longhand first.

Carol Loomis explains Buffett's exceptional ability to analyze accounting statements and find telling points in footnotes, combined with his broad business knowledge and rationality. Buffett describes only investing in businesses he understands, emphasizing he doesn't need precision - knowing something is in the right range is enough. He looks for enduring competitive advantages that will last 5-10 years, using Coca-Cola and Wells Fargo as examples.

Buffett discusses his major holdings in Coca-Cola (joking he was slow to buy it - first Coke in 1935, bought stock in 1988) and Wells Fargo. He emphasizes looking for two key qualities: excellent management and enduring competitive advantage. The emphasis is on 'enduring' - businesses that will maintain their advantages 5-10 years out, not fads like hula hoops.

Buffett discusses seeking large acquisitions in the $20 billion range, explaining that he knows the universe of all companies at that size. Companies must approach him rather than vice versa, as most aren't for sale. Carol Loomis notes his remarkable ability to make decisions in minutes or seconds about whether to pursue a deal. The best companies come to Berkshire because they want to be there.

Buffett acknowledges his biggest mistakes are acts of omission - knowing he should buy a stock but not doing it, citing Fannie Mae as an example. Carol Loomis discusses the David Sokol situation, where someone who had done remarkable work for Berkshire acted inappropriately. Buffett reflects on the difficulty of detecting such issues and notes Sokol had done many good things for the company.

Carol Loomis discusses her 1988 article 'The Inside Story of Warren Buffett' which documented Buffett's transition from pure investor to CEO managing actual businesses. At that time he had seven companies called 'the Sainted Seven.' Charlie Munger was instrumental in this transition, pointing out the virtues of quality businesses like See's Candy. Loomis notes that Berkshire Hathaway's operational power remains somewhat underestimated.

Buffett describes his delegation approach as 'abdication' - giving subsidiary CEOs complete autonomy and not wanting to know what his investment managers are doing. He emphasizes he delegates not because he wants to do something else, but because he doesn't want to direct the orchestra, just listen to it. The CEOs send profits to Omaha and Buffett allocates the capital, generating $12-13 billion annually to deploy.

Buffett shares his famous investment rules: 'Rule number one never lose money, rule number two never forget rule number one.' On career advice, he tells college students to take the job they would take if they were independently wealthy, emphasizing they'll do well at it. He shares his own example of taking a job with Ben Graham without knowing the salary, just knowing he would love the job.

Buffett and Loomis discuss their daily phone conversations and deep friendship spanning decades. Buffett identifies his father, Ben Graham, Joe Rosenfield, Tom Murphy, his wives, and Carol as major influences. Loomis notes she's one of the few people who argue with him, knowing the details of his life and investments well. Their conversations range from current events to business discussions.

Buffett discusses how he avoids industries that the internet might disrupt, using chewing gum as an example of something unchanged by technology. He explains that innovations are enormously important for society but disrupt many businesses. Using the auto and airline industries as examples, he notes that while these industries were transformative, most investors lost money - joking that a capitalist should have shot down Orville Wright.

Buffett explains the airline industry's structural problems: commodity product, near-zero incremental seat costs tempting airlines to fill seats at any price, enormous fixed costs, and lack of sustained competitive advantage. In contrast, he invested in Burlington Northern Santa Fe railroad because railroads carry 42% of inter-city tonnage, can move a ton 500 miles on a gallon of diesel, and only four major railroads exist with no new ones being built.

Carol Loomis highlights Buffett's 1982 letter to Congressman Dingell warning about index futures trading, which Fortune published after the 1987 crash. She notes the contradiction: Buffett warns about derivatives while buying mispriced ones because he can't ignore mispriced securities. He owns 200+ derivatives but knows every single one, contrasting with General Re's disastrous 23,000 derivatives with 900 counterparties that cost $400 million to exit.

Buffett analyzes the 2008 crisis as a housing bubble unprecedented in scale - $22 trillion at peak out of $60 trillion total US assets, with 50 million families having borrowed $11-12 trillion against it. When the bubble burst, it rippled through the economy as executives failed to see the domino effect. Companies thought they had credit lines but discovered they didn't, leading to the wildest panic Buffett had ever witnessed.

Buffett explains why he closed his hedge fund partnership in 1969: things were getting very speculative and he didn't know how to make money in that environment. Rather than do poorly or adopt strategies he disagreed with, he gave the money back to investors. He discusses his famous million-dollar bet that hedge funds will underperform the S&P over time due to high fees.

Buffett reveals the board knows his successor but the successor doesn't know they're the chosen one. The CEO role will be split: one person will run the businesses (more important over time), while Todd and Ted will run investments. Running the businesses provides more psychic satisfaction to Buffett than pure investing, which he grew up doing.

Buffett recounts meeting Bill Gates and both answering 'focus' when asked what quality they most admired. After Susan Buffett's death, Warren chose to give to five foundations, with the Gates Foundation receiving the largest portion because it could scale. He recently doubled giving to each of his children's foundations (over $2 billion each). The amount to Gates Foundation is approximately 5% of declining balance.

Discussion of Berkshire Hathaway becoming the sixth largest company by market cap, surpassing General Electric. When Carol first met Warren, Berkshire was $22 per share; it's now $130,000 per share (Class A). Buffett emphasizes what matters is outperforming the general market over time, not the absolute market cap ranking.

Buffett assesses the global economy: Europe continues sliding, Asia is coming down from peak growth rates, but the US is strongest relative to 6-9 months ago with housing coming back significantly. He expresses long-term optimism that capitalism and market systems work, predicting the world will be doing better everywhere in 5-10 years. He declares babies born in the US today are the luckiest in history on a probability basis.

Discussion of whether the financial sector is disproportionately large relative to its contribution to society. Buffett notes that finance created many billionaires, observing that in a huge capitalistic system, even the crumbs can make people rich, especially with favorable tax treatment. He jokes about his old advice: if you want to get rich per point of IQ and per erg of energy, hold your nose and go to Wall Street.

Buffett discusses buying community newspapers, clarifying it's in his blood but he won't overpay like Rupert Murdoch might. In Berkshire he won't pay more than value because it's shareholders' money. He doesn't dictate editorial positions - during the 2012 election, 10 of his 12 newspapers endorsed Romney while only 2 endorsed Obama, whom Buffett voted for.

Buffett analyzes Obama's relationship with business, noting mutual misunderstanding in the first term - business felt Obama misunderstood them and vice versa. He believes Obama understands business is where jobs come from and is dependent on capitalism working. Buffett recommends both sides wipe the slate clean and work together, predicting Obama will succeed big time with the economy helping him.

Buffett suggests Jamie Dimon would be terrific as Treasury Secretary, particularly in a market crisis, noting world leaders would have confidence in him. Regarding the London Whale trading loss, Buffett defends that in any large institution - whether a $2 trillion bank, Berkshire, an army, church, or government - people will go off the reservation and sometimes for long periods, with financial institutions able to add zeros quickly.

Buffett advocates for a fiscal plan raising 18.5% of GDP in revenues with no loopholes and embodying progressive taxation, while reducing expenditures to 21% of GDP. This won't eliminate the annual deficit but will keep debt as a percentage of GDP constant in the 70s range (it was 120% after WWII). He argues these sustainable ratios may even reduce the debt-to-GDP ratio slightly over time.

Carol Loomis reflects on the value of her friendship with Buffett - having access to ask his opinion on almost anything and every story. She expresses pride in creating the book and seeing how Fortune stayed with Buffett through his evolution, describing it as 'standing by while Warren Buffett was becoming Warren Buffett.' She calls the experience priceless and remarkable.

Buffett supports the Volcker Rule, arguing banks should stick to pure banking given their government franchise. He notes that depositors view bank deposits as government-guaranteed, which allows banks to attract funds regardless of creditworthiness, necessitating strong regulation. He criticizes the moral hazard problem where management captures upside while shareholders bore the losses in the financial crisis.