Warren Buffett – How To Buy A Business – Stocks VS Businesses



welcome back everybody this is a special edition of squawk box we're live in Omaha with Warren Buffett who's taking the time to sit down with us today and not only answer our questions but also the questions that you've been sending in as well and Warren we appreciate that we got lots and lots of questions that came in Carl mentioned that the probably most intriguing line of your letter was this idea that your elephant gun is loaded and you already got an itchy trigger finger that's what sparked a lot of the questions that came in so do you mind if we play rapid-fire real quickly with some go to it all right the first one let's say comes in from Michael and Canada who writes in with articles mentioning that you're looking for major acquisitions with the economy favoring the low cost segment wouldn't family dollar be an ideal fit well there are a lot of companies that would be a fit and a price it's easier for us to buy businesses that are privately owned the ones that are trading in the market because people I don't care what the market prices in terms what they're worth to us but but generally speaking at people in evaluating mergers and acquisitions look at the premium paid to the market price and decide whether that's a fair price or not a fair price to us is one that where we think we're going to get our money's worth in terms of future earnings and I would say that we will generally have more luck with private businesses than public businesses although Burlington was a public company yeah most companies most good companies solid prices where if we were to pay a 20 percent premium to market I would not want to buy them I mean if you look at 50 large companies it would sort of fit the elephant category if you add 20 percent to that price I don't want to pay that for the business there's a few exceptions to that but not very many all right well let's talk about a private company we had Whitney Tilson on our air earlier this week he said he knows nothing but it struck him that Mars might be an interesting company well Mars is a wonderful business and we're their partners in Wrigley and if the Mars family were to ask me about selling their business I would say keep it I'm and if you own a wonderful business in life the best thing to do is keep it all you're going to do is trade your wonderful business for a whole bunch of cash which isn't as good as the business and now you've got the problem of investing in other businesses and you probably pay the tax in between and so my advice to anybody owns a wonderful businesses keep it now sometimes there's a some reason in terms of taxes or family situations or whatever it may be that a wonderful business is for sale but but I have told a number of people who've come to me who have wonderful businesses if you can figure out a way to keep it keep it because all you're going to do is take that billion dollars to get or five billion you're going to pay some tax on it now you're going to go and buy some stocks and most of those socks you buy are not as wonderful as the business that you already owned and you don't know as much about it and you know so sometimes it pays to know when you're well-off so why does anybody ever sell these well they sell because families subdivide procreate or work on and and sometimes people lose interest in the business we we bought a company called See's candy one of our very first purchases back in 1972 Mary C had several grandchildren and one of the gang children grandsons was very interested running the business and one was less interested the one that was interested died and the one that was less interested then decided to sell you it Lots there's human dynamics that enter into it but you should never sell a good business just to get money that does not make sense okay let's take a few more viewer questions this one's number 96 and he again this is Paul in Thailand who wants to know on this unloading the elephant gun are you planning to unload in the United States or outside of the United States in any place I can buy I got I can't afford to be picky there's so few chances out there that that you know four or five years ago I was very lucky because I got a letter from Israel about his car mm-hmm and I'd never heard of the company before but but I could tell it was our sort of business and our sort of management so I would hope to get another letter like that tomorrow and I don't care whether it comes from the UK or Germany or France ER or wherever it's more likely to be the United State than any other place but we have certainly not bought our last international company well someone else writes in Sergio from Mexico he wants to know is there some reason not to use the elephant gun on the stock market for instance increasing Wells Fargo to the 10 percent limit or buying a lot more Walmart yeah well we've done in the last year we've done both of those things we've bought some more Walmart's some more Wells Fargo and I like those businesses and I like the prices at which they sell and I like the management's but if I had my choice I would rather buy a big business that fits all our criteria but but we have 60 plus billion in common stocks and those are pieces of businesses that I like and most of those businesses now Wells Fargo we couldn't buy we can't buy a bank you know coca-cola is going to sell out to us Walmart isn't going to sell out to us so we we we would be very happy owning a hundred percent of those businesses at the prices at which they sell or although I wouldn't buy the stock okay Roman from Pittsburgh writes in and I think I know the answer to this one but he wants to know if he'd be interested in purchasing more us-based railroads at the right place you can't do that yeah that would be pretty tough yeah in fact when we bought the BNSF it wasn't actually required by law but we thought it was advisable to sell our holdings in the Norfolk Southern and the Union Pacific and that probably cost me at least a billion dollars I liked those stocks I mean I I knew those companies were going to do well and legally we didn't have to do it we thought that probably was a good idea and now I think it's a bad idea and it's not a reflection of your your vision for the rest I would have I would have bought more of those railroads oh those that the railroads have a common future the big railroads of the United States have a common future now I like the ones in the West a little bit better than these but but oh there are fundamental reasons why railroads were going to do well and and if I could be loaded with at least at the prices of a year ago if I could have been loaded with other railroad stocks as well as by the BNSF I would have done it

14 Comments

  1. Silly question, how do you get the finance to buy the business or part of it – say a railroad, in the first place unless you already have your own? Would a bank back you if you could convince them that it will make a good roi?

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  2. How is that because i have a new and improved internet browser that is the best in the world and he told me no so i say this warren buffet is a great man and a legend warren buffet wants to g8ve his money away and the best thing he could do is give every one 1000000 dollars and he would fix every issue that dems and others fight for.I also have a idea warren buffet would be intrested in but i don't have the money to move to the next step i am just a middle class man and i can barley pay my bills but the product i have made is a multi billion dollar one that the stats show that 86 percent of americans and others world wide enjoy using I know know nothing about the bus.side of things i am not even sure why I was picked to do the things i have done.but I know god wanted me for something and that something is changing the world for the better good.I also am the person behind light coin and many other things.And to be straight up honest with you I am so scared that i don't even know what to do so I just go to work everyday and hope and pray that someone helps me one day cause I so confused and lost with it all That i just want hide and hope it all goes away.

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