Key Warren Buffett lieutenants shed light on roles at Berkshire Hathaway

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Posted: Monday, March 3, 2014 12:00 am

Warren Buffett favors raising the earned income tax credit, not the minimum wage.

He would vote for the Keystone XL pipeline, but not because of jobs it would create.

He bought shares in an English company Friday and will buy more because the crisis in Ukraine is sending stock prices down.

And he believes the U.S. economy will continue modest improvement for at least the next five years.

Buffett took on a wide range of topics during a three-hour cable TV appearance Monday, following up on Saturday’s online posting of his annual letter to shareholders of Omaha-based Berkshire Hathaway Inc.

Also on CNBC’s “Squawk Box” program were Todd Combs and Ted Weschler, who each handle $7 billion worth of Berkshire investments, and Tracy Britt Cool, Buffett’s financial assistant.

Weschler and Combs talked about how they choose investments.

Combs said he rules out 99 percent of the possibilities through a “gating system” that potential investments must pass through. He also reads “anything I can get my hands on” to learn about businesses before they come up as possible investments.

Weschler said he doesn’t want to meet a company’s management because the personal connection might influence his investing decision. “Know the situation,” he advised. “Wait for the right price.”

For example, he said, he has followed the dialysis industry for 30 years and invested in DaVita HealthCare Partners because it offers high-quality service that lowers health care spending and has good returns, growth prospects and a shareholder-friendly management.

Asked whether Berkshire should be divided into separate companies, Weschler said, “No reason to break it up. Terrific culture. You don’t want to mess with it.”

The two said they have a free hand on investment decisions but let Buffett know what they’re doing in case there’s a potential conflict with other Berkshire holdings.

Buffett said he looked at hundreds of applications for investment deputies before hiring them. “Things jump out at you,” he said. “People do give themselves away. It’s a judgment about their intellect ... and their character. ... It’s a combination of soundness and brilliance,” and the ability to think about potential problems that haven’t happened yet.

Cool, who is chairwoman of four Berkshire subsidiaries, said she works with their managements to solve problems and sometimes asks other Berkshire managers to lend their expertise.

She said one of the businesses she oversees, paint company Benjamin Moore, has a strong brand and staff but is adding emphasis to its dealer network to “reinvigorate them with trust.”

She said Berkshire’s 50 percent purchase of H.J. Heinz Co. will pay off. “That company will be much stronger a couple years from now than it is today.”

Buffett said he hopes to keep Berkshire’s ownership of Heinz permanently and add more when it’s available. The other 50 percent owner, members of 3G Capital, are under no obligation to sell their shares to Berkshire, but Buffett could be a buyer.

He said Cool would be a “repository of knowledge” about the Berkshire companies for his successor. He has said she is not a candidate to succeed him, and said Monday that the top candidates, whose names are secret, are men who work for Berkshire already.

Buffett said Weschler and Combs have handled some recent transactions that might not have happened otherwise and have made billions of dollars in profit for Berkshire.

Buffett said he would favor building the Keystone XL pipeline, which would cross part of Nebraska on its way from Canada to oil refineries in the South. “I just believe it’s a useful pipeline,” he told interviewer Becky Quick.

On Monday, Russia’s military advance into part of Ukraine sent stock market indexes down and hurt the value of Russian currency.

“This is unfolding,” Buffett said. “Who knows what’s going on behind the scenes?” His advice to people worried about stock prices due to the crisis: “I would tell them it doesn’t change anything.”

In fact, he said, if market prices drop because of the international situation, that could make share prices in good U.S. companies more attractive.

If the situation escalates into a violent confrontation, he said, investors would have even more reason to put their money into “productive assets” rather than pulling out and holding cash.

Buffett said raising the earned income tax credit would get more money into the hands of deserving people, while raising the minimum wage likely would eliminate some jobs. “Very, very few” of Berkshire’s 330,000 employees make the minimum wage, he said.

Other Buffett comments:

>> Berkshire isn’t likely to come under added regulatory scrutiny as a “too big to fail” financial institution because its finances are too strong and its operations too diverse.

>> Before press reports, he didn’t know about agreements that Berkshire’s BusinessWire division had with high-frequency stock traders, but they didn’t get a time advantage over others using the information. BusinessWire canceled those agreements, saying they might give the wrong impression.

>> Coca-Cola is under “attack” from competitors but is still a “very, very good business.” He said 3 percent of what people drink are Coke products.

>> It was news to him that Yahoo is joining with Quicken Loans in the promotion offering a $1 billion prize if someone chooses all of the winners in the NCAA’s 64-team men’s basketball tournament this month.

>> Buffett likes Creighton University and Arizona for the Final Four.

>> Pension plans are having problems because the people in charge made too many promises. “We are starting to reap the problems that were sowed decades ago.”

>> Bitcoin, an electronic form of payment, is not a real currency but instead is a “very speculative kind of Buck Rogers-type thing.” He compared it to the tulip bulb craze that caused huge losses for speculators in the 1600s. “I won’t be surprised if it’s not around in 10 or 20 years.”

>> While he prefers to hold some stock investments forever, he would sell if he needed more cash to buy good businesses that would become part of Berkshire.

>> A small part of the Republican Party is holding the rest of the party “hostage,” and as a result, “it’s more or less a stalemate in Washington.”

>> All four of the nation’s major freight railroads, including Berkshire’s BNSF Railway and Union Pacific of Omaha, have a good future because of their efficiencies over truck traffic.

>> Berkshire is buying a real estate firm in San Jose, Calif., and will keep buying them because he likes the real estate business.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

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