2021: What does Buffett think of high-flying tech stocks?

BECKY QUICK: Well, let me ask a follow-up question on that, then.

This comes from Jack Tsang, who says, “What’s your mindset when you see so many of these high-fliers? Not the GME or meme stocks, but more like the Big Tech growth stocks, gaining 50%, 100%. 200%, et cetera, in a matter of a year or less?”

“I know you eventually bought Apple in 2016 because of the quality of their businesses and their management. How do you assess if these high-fliers are worthy of your investment, given these crazy high valuations that muddy the waters?”

WARREN BUFFETT: Well, we don’t think they’re crazy. (Laughs)

The — but we don’t — at least I — Charlie, you — I feel that that I understand Apple and its future with consumers around the world better than I understand some of the others.

But I don’t regard prices — and that gets back — well, it gets back to something fundamental in investments.

I mean, interest rates, you know, basically are to the value of assets what gravity is to matter, you know, essentially.

And on the way out here, I tore out a little clipping from The Wall Street Journal yesterday — probably the only one that read it — so small I’m having trouble finding it.

But, anyway, on Thursday, the U.S. Treasury sold some eight-week — some four-week notes — Treasury bills.

And the price was — if you looked at your Wall Street Journal, down in a little corner, next-to-the-last page in my paper, in the very bottom corner, the — here it is — the results of the Treasury auction — little, tiny thing. (Laughs)

They sold four — they had applications on the four-week Treasury bill for a hundred-and-some billion. They accepted bids for 43 billion worth.

And it says average — average price: one hundred point-zero-zero-zero-zero-zero-zero — six zeroes.

And, essentially, people were giving $40-some billion to the Treasury — and they offered to give 130 billion or something, whatever the amount tendered — and the Treasury received the money at zero.

And (Treasury Secretary) Janet Yellen has talked a couple of times about the reduced carrying cost of the debt. And I think in the last fiscal quarter, the U.S. Treasury, which — the U.S. Government — which owes a few billion — a few trillion dollars, I should say — a few trillion dollars more than a year ago, their interest expense was down 8%.

So, you’ve had this incredible reduction in the so-called “super risk-free” group, the short-term Treasury bill. And that is the yardstick against which other values are measured.

I mean, if I could reduce gravity’s pull by about 80%, I mean, I’d be in the Tokyo Olympics, jumping. (Laughs)

And, essentially, if interest rates were 10%, valuations (unintelligible) had this incredible change in the valuation of everything that produces money, because the risk-free rate produces, really, short enough, right now, nothing.

It’s very interesting. I brought this book along because for 25 or more years, Paul Samuelson’s book was the definitive book on economics. It was taught in every school.

And Paul was the — he was the first — he was the first Nobel Prize winner — it’s sort of a cousin to the Nobel Prize, they started giving it in economics, I think, in the late ’60s. He was the first winner from the United States, Paul Samuelson.

Amazingly enough, the second winner was Ken Arrow, and both of them are the uncles of Larry Summers. (Laughs)

Larry Summers had the first two winners as uncles.

But Paul — he was a wonderful guy, he was a wonderful writer, the definitive writer — and so I got out the ’73 economics books. And bear in mind, probably economics kind of started in — as kind of an interesting science, and respectable — with Adam Smith, we’ll say.

You know, he wrote “The Wealth of Nations” in 1776, and he’d written some books earlier. But you sort of date it from kind of when our country started.

And then you had all these famous economists subsequently. And Paul became the most famous of his time.

So, I looked up in the back, under “interest rates,” I looked for “negative interest rates.” There’s nothing there. So, I finally found “zero interest rates,” and Paul Samuelson — brilliant man, after a couple of hundred years we’ve had of, kind of, studying economics, basically, he said that — he said you can conceivably, technically, he said, you can conceive perhaps of negative interest rates, but it can’t ever really happen.

And that was, you know, in the 1970s. This wasn’t back in the Dark Ages. And this was — and no economist rode up and said this is a terrible line to have in a book, or anything.

You know, and here we are in this world where we had zero interest rates last year on a — I mean, last week on — or this week — on a four-week note.

And Berkshire Hathaway, which had a — has more than this — but let’s say we had $100 billion in Treasury Bills. We have more than that.

Before the epidemic — pandemic — we were getting about a billion and a half from that a year. At present rates, if it’s two basis points, we’d get 20 million.

Imagine your wages going from $15 an hour to twenty cents an hour or something. (Laughs)

It’s been a sea change. And it was designed to be that. I mean, it was — that’s why the Fed moved the way they did. They wanted to give a massive push, just like (then-European Central Bank president) Mario Draghi did in Europe in, whenever it was, 2012, when he says, “whatever it takes,” and they went to negative rates.

And we — the Fed has said it doesn’t want to go to negative rates, and I think the Treasury actually has got some small (unintelligible).

But if present rates were destined to be appropriate, if the 10-year should really be at the price it is, those companies that the fellow mentioned in his question, they’re bargains.

They have the ability to deliver cash at a rate that’s, if you discount it back — and you’re discounting at present interest rates — stocks are very, very cheap.

Now, the question is what interest rates do over time. But there’s a view of what interest rates will be based in the yield curve out to 30 years, and, you know, so on.

It’s a fascinating time. We’ve never really seen what shoveling money in, on the basis that we’re doing it on a fiscal basis, while following a monetary policy of something close to zero interest rates, and it is enormously (unintelligible).

But in economics, there’s one thing always to remember. You can — you can never do one thing. You always have to say, “And then what?”

And we’re sending out huge sums. I mean, the president said it on Wednesday: 85% of the people were going to get a $1,400 check, you know: 85%. And a couple years ago we were saying 40% of the people never could come up with $400 in cash.

So, we’ve got 85% of the people getting those sums. And so far, we’ve had no unpleasant consequences from it. I mean, people feel better. The people who get the money feel better, and — the people who are lending money don’t feel very good.

But it causes stocks to go up, it causes business to flourish, it causes an electorate to be happy, and we’ll see if it causes anything else.

And if it doesn’t cause anything else, you can count on it continuing (laughs) in a very big way.

But, you know, there are consequences to everything in economics.

But that is why the Googles and the Apples — and we didn’t own Google, we don’t own Microsoft, we don’t — but they are incredible companies, in terms of what they earn on capital. They don’t require a lot of capital, and they gush out more money.

And if you’re trying to find bonds that gush out (unintelligible) more money from the federal government, we got a hundred billion that’s gushing out. (Laughs)

Like, you know, 30 or $40 million a year, or whatever it may be, depending on the short-term rates.

So, that puts the pressure on, which is exactly, of course, what the monetary authorities want done. I mean, that’s — they’re pushing the economy in a —

And they’re doing it in Europe, you know, even more extreme. And they’re pushing and we’re aiding it with fiscal policy, and people feel good, and —

And people have become numb to numbers. You know, trillions don’t mean anything to anybody, you know. And $1,400 does mean something to them.

So, we’ll see where it all leads, but it’s — Charlie and I consider it the most interesting movie, by far, we’ve ever seen, in terms of economics, don’t we, Charlie?

CHARLIE MUNGER: Yes, and the professional economists, of course, have been very surprised by what’s happened.

It reminds me of what (Conservative Party U.K. Prime Minister Winston) Churchill said about (his successor as PM from the Labour Party) Clement Atlee.

He said he was a very modest man and had a great deal to be modest about. And that’s exactly what’s happened with the professional economists.

They were so confident about everything. It turns out the world is more complicated than they thought.