Value Investing

CNBC’s Full Interview With Warren Buffett And Jamie Dimon

Warren Buffett and Jamie Dimon team up to talk about ending quarterly earnings guidance, jobs, the economy, bitcoin, Uber and health care.

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Warren Buffett And Jamie Dimon

CNBC's Full Interview With Warren Buffett And Jamie Dimon

Transcript

I'm thrilled to be on with you Becky with you warn him. We're not about to stage a couple of times but not on TV. Yeah. This is big news and it's something that both of you have been very interested in for a long time but I just wonder I mean you all have very few things that you could really throwing your weight behind that you couldn't really say that this is important to us. This is what we want to be doing. Jamie why the subject matter why. Why is this such an important note. You know so you know America the largest countries in America are owned by literally 100 million people including veterans retirees teachers. You know we all feel a tremendous obligation to deliver in the long run to build great companies and therefore corporate governance is important. And one important step and I actually really learned this lesson unworn is that some of the ills and problems of people making short term forecasts overly quarterly earnings forecasts earnings forecasts not transparency not openness not having quarterly reporting and it can often put a company in a position where management from the CEO down feels obligated to deliver earnings and therefore may do things that they wouldn't otherwise have done. So if you have a good board the board will save you a great investment opportunity and you say it's going to cost me another couple hundred million dollars this quarter. So like Warren would say absolutely do it. That's good. That's future earnings don't don't hurt your company because you're trying to meet a short term thing.

So we've been pushing on it and you know Warren has been part of the other person make it a real thing. So we think it's a good thing to give people an umbrella to move away from and hoping a bunch companies dropped it right away. And this is something you've been preaching about for a long time too. And what's an example of where you've seen it gone wrong. Well I've seen it when when companies get where they're sort of living by so-called making the numbers they do a lot of things that really are counter to the long term interests of the business and I've never seen a company whose performance has been improved by having some forecast out there by the CEO that we're going to earn X because that is sending Zottoli sending the wrong message and delivering the wrong results to that to the company and to the country. It's also teaching the people that work under them or her that the quarterly performances is the end the end game. I tell our managers just pretend you're going to own is the only business you and your family going on for 50 years and you can't sell it and you'll make the right decisions. Have you seen this play out the wrong way either in the boards that you've sat in or the companies that you Vonda other friends that you've now Becky. I've been on 20 boards of publicly owned companies and accounting Birchers and I have seen I have seen managements that I really think well personally I'd be glad stay married my daughter or were named as executors of my will or moved in next door.

But they get tempted by this the predictions that they made their ego gets involved with them and when they find they can't make the numbers sometimes they make up the numbers. It's a it's a bad it's a very very bad practice. And once it gets going it feeds on itself because it feeds that your investor relations department told you you know we we put out you're going to earn a dollar rate and you get a reputation for making your numbers or beating your numbers you're going to do some very stupid things at some point because business does it just doesn't work that way. And for 53 years at Berkshire you know I consider Berkshire an unfinished painting all the time and the horizon really is infinity as far as I'm concerned. Jamie what does this mean from a real perspective are the companies in the Business Roundtable I think there are 200 companies are they going to not be issuing quarterly guidance at this year. So somebody just coming in Warren said well first of all remember this goes down in the company. So there could be pressure. The divisional level the sales level that they should go do something different than what we always do and very often it's very easy for a CEO to change a short term profit number by not doing market who should do by not opening the branches they should open or by selling more product at a cheaper price they can get a revenue number or something like that. So it just just creates a disincentive. And like Warren said it feeds on itself if you start doing that and you have to meet it and you have to meet it years later you'd find it corrupted.

And so I think it's a good thing that you really care about how and when the use earnings guidance in particular and so the B or T. You know I think the beer to something like 60 percent or remembers do annual earnings guidance. I would personally eliminate that to one day and something like owning 20 percent plus or minus do quarterly. But this is the first step to try to get people to focus on the long run. I should also say by most these companies they're pretty good at focus in the long run you are in the capital expenditures. This is just one case that we think we should go another step to to improve the governance of corporate America. Well let me let me ask you. You know you mentioned that it's up to us CEOs discretion to be able to say if you want it to. How could you change the numbers of JP Morgan to try and do this if you are more focused on short term. Well you can change in short exposure by making a phone call and do some swaps and add hundreds of dollars of revenue you can cut marketing. A lot of people cut marketing because that's one of the easiest things to cut right. You can reduce you can pay people less. I says like airplane maintenance you can reduce airplanes but that's a really bad idea. And so you know people tell me if you're doing that a I know that's kind of what it is you're doing.

You don't have to build a new data center where you should build the systems you need you should do the orn do you need and explain it to your shareholders or your board. And you of course you know some of the CEOs will say is the buy side I mean the sell side that we put pressure but I'm trying to say to people be free to drop it. You'll be ok. Companies have done it.

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