Warren Buffett on Fox Business - Berkshire Undervalued, No Dividends, Energy Future Holdings Mistake

Buffett made rare statement over the weekend that Berkshire Hathaway stock is undervalued. When asked about the half percent stock increase on this news, he dismisses short-term movements: 'It doesn't change my conclusion because it's up a half a percent. I have no idea whether Berkshire stock will go up or down in the next week or month or year but in relation to the businesses we own it's attractive.' Shows his focus on intrinsic value over market price fluctuations.

Top question at Berkshire meeting: Why no dividend when S&P 500 companies are paying and Berkshire owns dividend-paying stocks? Buffett's answer: 'We think our shareholders five years from now will be wealthier counting what they would get from the reinvestment of the dividend. We think they'll be wealthier if we hold on to the money. We may be wrong in that but historically we've been right and if we'd paid a dividend over the years our shareholders would be considerably poorer.' Will eventually pay dividend when company gets so large it can't use all the money effectively.

Claman gets Buffett to confirm successor is male. Shareholders increasingly think it's Ajit Jain who runs insurance business. Buffett on insurance: 'It's been enormously important in getting us to where we are now, still enormously important. Actually not as important relative to the entirety of Berkshire as it was 10 years ago - we've added more businesses away from insurance.' On culture: 'All three of the candidates understand the culture very well.' On apprenticing: 'My successor doesn't need apprenticing. If they needed apprenticing they wouldn't be the successor. None of the three candidates would need apprenticing.'

Buffett explains why new CEO will have smaller derivatives book. 'There isn't that much of a derivatives book right now if you look at the total value of Berkshire. We have one particularly good size position in terms of our equity put situation but that's nothing compared to what we have in equities overall.' Key insight: 'The rules have been changed on derivatives. We would not have the derivatives position we have now if the rules have been the same five or ten years ago in relation to posting of collateral. We think that derivatives become much more dangerous for the individual enterprise when they're required to post collateral.'

After brief discussion of his prostate cancer diagnosis (stage one, non-aggressive, won't miss work except maybe 15 minutes a day), conversation turns to Energy Future Holdings mistake. Bonds from Texas utility tied to natural gas price which plummeted after purchase. 'How did you get that so wrong?' Buffett: 'It was easy. I'll probably be able to do it again. It was just a case of not cranking that in to my decision, weighting with the appropriate probability.' 2010: $2 billion write-down. 2011: another $398 million. Total invested about $2 billion, now written down to maybe $400-500 million. 'How much worse is it going to get?' Buffett: 'Well it can go all the way to zero.' 'Do you think it will?' 'Easily could.' 'Who sold you on this idea?' 'Me. I have a real ability to pick these babies out.' Shows Buffett's candid admission of personal mistakes.