CNBC Ask Warren: Warren Buffett on Ukraine, Heinz, Bitcoin, Pensions & Investment Advice (March 2014)

Opening discussion of the developing Ukraine crisis as Russian forces seized Crimea. Markets are down 132 points, gold is up, and the ruble hit all-time lows. Buffett provides perspective on how geopolitical events should (and shouldn't) affect long-term investment decisions.

Buffett reveals details from his will about what he's instructed for his wife's inheritance: 90% in a low-cost S&P 500 index fund (specifically Vanguard) and 10% in short-term government bonds. He emphasizes the importance of minimizing investment costs and explains why index funds are better than Berkshire stock for most investors.

Buffett describes the economy as experiencing moderate but consistent growth since fall 2009, characterizing it as a straight line but at a slope people don't find exciting. He discusses weather impacts on Berkshire businesses like railroads and NetJets, and notes that housing prices in California remain strong despite slower activity.

A viewer asks about the multi-billion dollar 'elephant' acquisition that almost happened in fall 2013. Buffett declines to name the company or even the industry, noting it would narrow down to 2-3 companies. He confirms Berkshire is always seeing opportunities but has nothing 'real hot' at the moment.

Buffett discusses the successful Heinz acquisition partnership with 3G Capital, praising the arrangement where 3G does the work and Berkshire does the financing. He explains that Heinz earnings will be significantly better this year, addresses the potential for a future Heinz IPO, and discusses the McDonald's controversy over Heinz ketchup due to Burger King connections.

Buffett addresses concerns about Berkshire potentially being designated 'too big to fail' by regulators. He notes they've heard nothing from SIFI authorities, emphasizes their derivatives are less than 0.1% of Deutsche Bank's, and highlights Berkshire's strong liquidity position with no significant short-term debt.

Buffett comments on the dysfunctional political environment in Washington as President Obama prepares to release his budget. He describes a situation where a significant portion of the Republican party can hold the entire legislative process hostage, making it hard to see much getting accomplished.

Buffett discusses his 60 years of thinking about minimum wage, acknowledging the tradeoffs between higher wages and employment levels. He strongly advocates for expanding the Earned Income Tax Credit as a better solution to help low-wage workers without negative employment effects, while being more cautious about raising the minimum wage to $10.10 or $15.

When asked about Bitcoin, Buffett provides a critical assessment, arguing it doesn't meet the definition of a currency because vendors price goods in dollars and adjust Bitcoin prices when the exchange rate changes. He compares it to tulip bulb speculation and says he wouldn't be surprised if it's not around in 10-20 years.

Buffett distinguishes between government pensions (which have taxing power) and troubled municipal/private pensions. He explains that many pension promises were made without understanding the long-term implications, and that places like Omaha and Detroit are now facing severe pension shortfalls that will require scaling back promises.

Rare joint interview with Berkshire's two investment managers (Ted Weschler and Todd Combs) and Warren's financial assistant Tracy Britt Cool - their first time sitting down together. Each shares their unique path to Berkshire: Todd reached out to Charlie Munger and moved his family to Omaha, Ted paid $5.3 million for two charity lunches with Warren, and Tracy wrote Warren a letter asking to work for him.

Todd Combs shares the story of winning the Glide Foundation charity auction twice (2010 and 2011), paying a total of $5.3 million for two lunches with Buffett. After the second lunch, Warren surprised him by suggesting he might be a good fit at Berkshire. At the time, Todd was running his own hedge fund and saw joining Berkshire as a way to simplify and focus on being an analyst.

Tracy explains how she first met Warren when visiting with a student organization called Smart Women's Securities. Years later, she wrote him a letter asking to spend a day, week, or month working for him - fully expecting rejection. He said yes, she worked on a project that summer, and it led to a permanent position and eventually board seats at companies like Heinz.

Ted Weschler explains his three-filter approach to healthcare investing using DaVita as an example: (1) Does it deliver better quality care? (2) Does it provide net savings to the healthcare system? (3) Does it have high returns on capital with predictable growth and shareholder-friendly management? He notes he's followed dialysis for 30 years.

Both Ted and Todd discuss their shared interest in DIRECTV and explain their investment process. They have total autonomy from Warren but give him a heads-up before purchases for compliance reasons to ensure there's no Berkshire conflict. The discussion clarifies how to distinguish Warren's picks from theirs: very large positions are likely Warren's, smaller ones likely theirs.

Discussion of the famous photo from Berkshire's annual report showing the entire headquarters staff. With 330,000 employees company-wide, the headquarters has just 25 people on one floor managing everything from $40 billion in cash to 23,000-page tax returns, 10-Ks, 10-Qs, and investor relations.

Brief discussion about high-frequency trading and whether those relying on wire services are at a disadvantage due to fractions-of-a-second delays in information delivery compared to direct feeds.

Discussion of how long Warren and Bill Gates will maintain the #1 and #2 spots on the Forbes billionaire list. Buffett notes that since both are giving away significant wealth, it will likely be someone who isn't giving away as much who eventually breaks the duopoly.

Joe Kernan questions Buffett about climate change, noting that Berkshire's insurance business should be first to see impacts. Buffett acknowledges he's not a physicist and relies on climate scientists, but states that climate change has had no effect on insurance pricing over the past five years and won't affect pricing over the next 3-5 years. He emphasizes the importance of paying attention to planetary issues.

Buffett provides final thoughts on the economy, emphasizing that 2% annual growth in output per capita means 20% more wealth per generation - historically quite good. He reiterates that short-term events like Ukraine shouldn't affect long-term investment decisions, using the analogy that you wouldn't sell a wonderful business in Peoria just because of what's happening in Ukraine.