Warren Buffett CNBC Interview - Columbus Ohio 2012 - Full Interview

Buffett discusses his recent prostate cancer treatment, noting he feels great despite some side effects from radiation and hormones. He mentions getting hot flashes (which he calls 'power surges') and feeling tired after the radiation treatment.

Buffett analyzes the global economic slowdown, noting that worldwide there's definite deceleration. He says the U.S. is doing better than Europe and Asia, with residential housing finally picking up after a long wait. Europe is weak and Asia is declining from a higher base, but the U.S. trajectory is the steadiest.

Buffett explains how Iscar serves as a real-time economic indicator. They sell small cutting tools for large machine tools, and because customers don't need large inventories and can receive quick delivery, their purchases directly reflect manufacturing usage. Europe and Asia have fallen off significantly.

Buffett discusses Burlington Northern's freight trends: coal is down, oil is up, and fracking operations require significant sand transport. The railroad carries 15% of all freight by tonnage in the U.S. Overall seeing small gains in lumber, cars, and intermodal freight.

Buffett reveals Berkshire's massive and growing capital expenditure: $6 billion in 2010, $8 billion in 2011, and $9 billion projected for 2012 - all records and all in the United States. Much of this goes to rail and energy businesses. He notes rail industry infrastructure is in the best shape it's ever been.

Buffett discusses the transformational impact of natural gas and fracking on U.S. energy. He explains how cheap natural gas affects utilities like MidAmerican Energy. With Jeff Immelt, they discuss GE's 10-year bet on natural gas being long-term dominant, while maintaining exposure to wind, nuclear, and coal.

Buffett reveals he bought Wells Fargo stock in the last week, adding to Berkshire's already massive 430 million share position. He explains his philosophy of being happy when prices fall, comparing it to shopping at a supermarket or clothing store - lower prices are better for buyers.

Buffett provides a masterclass on banking economics, explaining that profitability is a function of return on assets and leverage. With regulations reducing leverage from 20:1 to 10:1, and return on assets staying around 1.5%, banks will earn less than the 25% ROE they achieved in the past. European banks remain dangerously overleveraged.

Buffett expresses reservations about QE3, saying his instincts would lean against it while still respecting Bernanke's judgment. He worries it's much easier for the Fed to expand its balance sheet by acquiring securities than it will be to unwind that massive position later. The Fed made $70-80 billion in profit last year - unprecedented.

Buffett strongly endorses Bernanke for another term, saying he'd vote for him and get his family to vote too. He acknowledges inflation concerns from QE but trusts Bernanke understands the problem better than anyone. If Bernanke declines another term, it might be concerning because he knows what he's leaving behind.

Buffett delivers a profound insight comparing interest rates to gravity's pull on Earth - they affect the valuation of every asset globally. Everything from stocks to Brazilian plantations is valued relative to the risk-free interest rate. This fundamental relationship drives his investment decisions.

Buffett discusses investing primarily for future earnings rather than current yield. He praises IBM's consistent $3 billion quarterly share buyback program, noting that when they buy cheap, Berkshire's ownership interest increases. He points out that IBM's Q3 earnings gain was entirely from selling a subsidiary, which media largely missed.

Buffett reveals Berkshire will add approximately 8,000 jobs organically and another 10-15,000 through acquisitions this year, on a base of 270,000 employees. About 50 of Berkshire's 75 companies fit the middle market category ($10 million to $1 billion in sales). Companies like Geico, Burlington Northern, and Clayton Homes are all hiring.

Buffett reveals Berkshire has at least $40 billion in cash and he's 'salivating' for a major acquisition. Two deals around $20 billion each had CEO support but fell through due to tough pricing. Cheap money makes acquisitions expensive. He compares new opportunities to his best current holdings, creating a high threshold.

Buffett explains his IBM investment rationale despite not being a technology expert. He researches by talking to Berkshire's operating managers about their IT plans and supplier relationships, discovering extreme customer stickiness. He expects IBM to do better internationally than in the U.S. He's delighted with the investment and has added hundreds of millions in shares.

Buffett explains Berkshire's insurance operations hold $70 billion of float (other people's money). When they run an underwriting profit, it's like being given $70 billion for free to invest and earn all the income from. This year they're profitable on underwriting, so they're getting paid to hold money they invest.

Jeff Immelt discusses GE Capital's transformation, emphasizing discipline over growth. They're growing segments where GE excels (like mid-market lending) while avoiding risky distressed debt. Leverage is lower, liquidity better, margins better than any time in history. GE had 8% organic growth and maintains a $200+ billion backlog.

Buffett and Immelt strongly criticize the fiscal cliff situation as a manufactured crisis and complete distraction. The Business Roundtable, led by Dave Cody, is organizing business leaders to demand action. They support Simpson-Bowles framework: lower rates, broader base, about $4-5 billion in revenue. Both believe it will get resolved but find the delay inexcusable.

Buffett discusses P&G, Berkshire's fifth-largest holding, acknowledging disappointing earnings for several years. He sold some shares under both A.G. Lafley and Bob McDonald. While McDonald is a terrific person, the jury is out on results. The board is actively engaged in developing a strategy to improve earnings going forward.

Buffett reveals he sold P&G and other good companies to fund purchases of $11-12 billion in IBM stock over 12 months, plus another billion in IBM, $700-800 million in Walmart, and gave capital to new managers Todd Combs and Ted Weschler. Money moves slowly but continuously gets reallocated to better opportunities.

Buffett, an Obama supporter, discusses the tight presidential race in Ohio. InTrade odds show Obama at 55%. Buffett believes the first debate was crucial, allowing Romney to make a strong first impression. He notes elections can come down to ground game, especially in Ohio. He finds both candidates to be good people who would handle the fiscal cliff responsibly.

Buffett critiques Bloomberg's proposed 16-ounce soda ban, noting 16 ounces of Coke has 200 calories - similar to many other foods. The idea that 200 calories is fine but 210-220 isn't seems arbitrary. He drinks five 12-ounce cans of Cherry Coke daily (750 calories) and attributes his health at 82 to eating what he enjoys, joking he'd be gone if forced to eat broccoli.

Buffett doesn't see Europe clearly on the road to recovery. European banks and sovereigns are dangerously interdependent - sovereigns rely on banks, banks loaded up on sovereign debt. Implementing austerity while growing GDP is extremely difficult. The ECB's money printing buys time but has delayed consequences. Europe won't disappear but faces a rough period.

Buffett calls buying a home with a 30-year mortgage at current rates a 'golden opportunity' for anyone with stable income who knows where they want to live. While he'd love to buy 100,000 homes as an investment, the management problems make it infeasible at scale. He guarantees conditions won't be this favorable in five years.

Buffett reveals Todd and Ted are managing most of the new portfolio activity - his focus remains on four stocks totaling over $50 billion. They buy $500 million positions and one trades more actively than Buffett would. They receive hedge fund-style contingent compensation but pay higher tax rates than hedge fund managers despite doing identical work - an indictment of the tax system.

Buffett discusses owning 28 daily newspapers, noting larger community papers see revenues down 4-5% while smaller community papers perform better. The key is relevance - papers that serve as the primary source of community information maintain stronger positions. The bigger the community, the harder it is to create that community feeling.

Buffett criticizes the Greg Smith Goldman Sachs controversy, noting a 33-year-old making $500,000 (who'd make $75,000 in most other fields) being unhappy about not making a million. He found it absurd that one disgruntled employee leaving a 30,000-person company warranted a New York Times op-ed with no specifics except the word 'muppets' - poor editorial judgment.

In his closing remarks, Buffett articulates his core investment philosophy: buy wonderful businesses and hold them regardless of news. He compares to owning a good farm, apartment building, or local McDonald's franchise - you wouldn't sell based on daily news from Greece. Trying to dance in and out based on current events is a terrible mistake. Buy consistently over time, averaging your entry.

Buffett says even if Zuckerberg explained Facebook's business, he probably wouldn't take a huge stake because he doesn't understand it well enough - and he's not even a Facebook member despite a billion users. He only invests when he has a reasonable idea of how the business will perform 5-10 years out, like buying a farm or apartment building.