[Orlando] Warren Buffett, CEO of Berkshire Hathaway, which counts Shaw Industries among its many holdings, made a special guest appearance at the Shaw Flooring Retail Network conference here earlier this month. Nicknamed the “Oracle of Omaha,” the legendary investor renown for his keen business insight yet folksy manner participated in an informative question-and-answer session moderated by Vance Bell, Shaw Industries CEO.
Following are excerpts of that discussion:
What worries you about the economy?
Buffett: I never really worry about the economy. The only real worry I have regarding America’s future is the use of weapons of mass destruction, either chemical or biological. Every day there is a very tiny probability that some individual or some group or perhaps some nation will do something extremely foolish. That’s the only thing that could hurt America.
We’ve had hiccups in this country, from 2008-09 we went through something that was really a shock to the American people, and that has taken us some time to get over. But you can’t stop the United States. In 1790 we had less than 4 million people; 240 years later we represent almost 25% of the world’s GDP. We’ve got the secret sauce; Donald Trump knows it, Hillary Clinton knew it and Barack Obama knew it.
I never worried about the economy because of either candidate. The truth is, I did [campaign] for Hillary. But when Trump was elected, we probably net invested over $10 billion since then.
This question centers on one of Berkshire Hathaway’s largest holdings: Wells Fargo. Certainly Wells Fargo historically has had a reputation for being one of the best managed, best performing big banks. As most people know by now, the company was embroiled in a controversy surrounding sales incentives and the creation of unauthorized customer accounts. What is the lesson for business owners and business managers?
Buffett: John Stumpf, [former] CEO of Wells Fargo, is a talented, decent man. But he designed an incentive system that not only didn’t work but encouraged bad behavior. Look, people make mistakes. That’s not the sin; the sin is not doing something about it when you’ve learned you’ve made a mistake. My understanding is this system was incentivizing bad behavior as far back as five years ago.
When we have a problem at our company, our motto is, ‘Get it right’ in terms of the facts, then ‘get it out and get it over.’ Just don’t sit there and suck your thumb. When you’re the CEO you have to do something.
Given the recovery in housing, lower rates of home ownership, Millennials struggling with debt and student loans—what’s your outlook?
Buffett: Housing is going up, but it’s coming out of the biggest shock I’ve seen during my lifetime. You have a $20 trillion asset class (homes), which you can borrow on. That turned into a bubble, and it was a huge bubble. When something so fundamental shatters like that, it takes a while to regroup. We had this huge falloff, not only in housing starts but also household formation. But we’re seeing housing starts come back quite significantly and more of the shock of 2008-09 is receding. We have established momentum, but it has taken a while.
I see this country just exploding moving forward. We’re enjoying better transportation, better entertainment, education, medicine—you name it—than John D. Rockefeller, who was the richest man in the world at one time. We’ve only just started to unlock the human potential. Just think of the things you’re doing differently compared to 20 years ago. Now think about how people were living 240 years ago compared to the way we live today, it’s just unbelievable.
This year marks Shaw’s 50th anniversary. We’ve spent a little bit of time celebrating that milestone but not a lot of time. We’ve been focusing on what the next 50 years are going to look like. In your opinion, what are the traits of successful, long-running companies and what does Shaw need to do to ensure success over the next 50 years?
Buffett: You have to satisfy customers’ basic needs. You’ve got to keep in tune with what your customers are telling you. You have to listen to your customers. If you have happy customers, then you’re going to do well in this world.
You also have to be reactive to change.
What do you think Berkshire is going to look like in the next 10, 15 or 20 years?
Buffett: In 2015-16, Berkshire retained more earnings than any company in America. We plow back everything into the business. We also like to add businesses that have good, basic economics that are run by people who we admire and trust.
We’re going to keep doing what works, and that is let the people who know how to run the business actually run the business but be there with the capital when they need it.
One of the reasons why I feel very confident Shaw is going to be successful over the next 50 years is because we’re part of Berkshire.
Buffett: We play the game in a way that make sense. We’re not subject to banks, we’re not subject to activist investors. We don’t have to do anything based on outside constituencies. We have over $80 billion in cash and treasury bills, and last year we retained $20 billion.
One final question: Berkshire has roughly $250 billion in sales. Do you think it will ever be a trillion-dollar corporation?
Buffett: Yes. I can promise you that. We’re riding a big tailwind here in America, and I expect that to continue. This is the best climate for business and it’s the right time to do this. Bill Gates told me if I was born several thousand years ago I would have been some animal’s lunch. I was lucky to be born in 1930 in the United States, when the odds were 40 to 1 against me.
(Editor’s note: Read Warren Buffett’s tribute to Nebraska Furniture Mart founder Rose Blumkin on page 54 of the 30th Anniversary issue of Floor Covering News. Also, look for more coverage of the 2017 Shaw Flooring Retail Network conference in the Jan. 30 edition of FCN.)