Warren Buffett: I initiated Berkshire Hathaway's investment in Alphabet

I appreciate it. I mean, I normally wouldn't give you an answer on something like that, but I will because I am not doing anything that he doesn't approve of. He's not doing anything I don't approve of. We talk all the time. He's, you know, every day, I mean, but he is the decider. And getting back to Alphabet or Google, it's probably number five or six.

Yeah. But we've got the Burlington Northern Railroad which is certainly worth far more money than...

Absolutely. I mean we are always making the choice between whether marketable securities or come. We look at them the same way. There are some minor exceptions to that. We can't set dividend policy, for example, if we don't own it. But the chances of those being material, the important thing is to buy a good business and to buy it on the right terms and to get the right person to run it.

American Express.

So Coca-Cola would be smaller, Bank of America would be smaller, kind of close. But if you take Coca-Cola which we've owned 45 years whatever it may be, you know, we don't have a thing to do with running that business, but it's a very good business. And when I say a very good business, I mean something that you can expect to own and earn high returns on capital over a long period of time. Now the question is when you get into Google, or any of the AI companies, you're putting out huge amounts of money, and I can put huge amounts of money into government bonds and get 20 or 30 or 40 billion dollars a year in terms of payments from them. So a good business is one that earns a lot more than, and has prospects of continuing to earn a lot more than the returns on essentially riskless investments which you could define as treasuries. But if you take something like American Express, you know, there are most of the banks earn 13, 14% on capital. If I asked everybody to guess what American Express would, they would come up with some figure similar, but it's so different that it earns 30% plus on capital and does not incur more risk in doing so than the banks that earn 13 or 14%. And the trick in life is to find, I mean in investing, is to find businesses that are going to earn high returns on capital for an extended period of time. And that's what happened with Berkshire for a long period of time. Long period of time gets to be very important because those doubles later on of very big numbers. But Charlie Munger, my partner for many decades, he just pounded the idea that it wasn't a good business just because it was doing sexy things or whatever it might be, but if it wasn't earning real cash that it would or be expected to do it in a very short period of time and to be able to distribute it if it wanted to. Better yet, if it could employ it as a business, it was even better than one that had the ability to earn high returns, but you couldn't deploy the excess capital of those returns.

Google? The real question with Google and all of its competitors now, because they're all laying out hundreds of billions. I mean that...

Yeah. And that's real money. I mean, if our railroad were to lay out 300 million or billion or 200 billion, you know, that kind of money wasn't even put in the railroad business, you know, in terms of developing it. So they are, that's the game they're playing now. They weren't playing that game with computer software.

I think they're more likely to be a winner based on the record than 90% or 95% of what gets merchandised through Wall Street. Wall Street is interested in whether they can sell something. And I can't recall a report on Wall Street that really gets into the internal rates of return that a business is actually earning, which is what's more important than what a business is earning. But they ask all these questions about what'll happen next quarter, you know, it's just ridiculous. But investing is coming up with probably the close to the most successful long-term investor was Rockefeller, but look at what oil and gas has done over 150 or a couple of hundred years. So he kept compounding at a very good rate. Not as good a rate as Geico would have achieved in his early years because it's easier to do when you're small. Getting to do it when you're large is you've got the whole world looking at you trying to figure out how those guys are doing it and we're not doing it.

I would say that I don't like it as well as at least four or five other businesses that we own.

Well, American Express, you're not going to get the whole out of that, but of course...

I like Berkshire that way. I mean, Berkshire earned high returns on capital without using tricks of leverage or that sort of thing. I'm all...

Amazon, Microsoft, whoever it may be...

No. Well, I don't want to sit around knocking the others. They don't have any choice.

Yeah. They're now playing a game in many cases where they're playing a game they don't want to play. IBM would have loved it if they just kept playing the game that IBM was playing in the 30s or the 40s or the 50s and the 60s, you know, and then somebody came along and said we'll get a better result for you achieving the objective of all the customers you have, because that's all you're going to have. You're either going to have happy customers or you don't have customers over time, and the customer is not dumb. Wall Street can be very dumb in terms of they can dream, but a guy with a grocery store can't dream. I mean, I worked at my grandfather's grocery store, and we had one store in 1869 and we had one store in 1969, and other people were earning high returns on capital some on a national scale. A&P, which people don't associate with anymore, in the 1930s they were number one, enemy number one of trustbusters in Washington. And they had a very good hand, and that hand disappeared.

Well, there's all kinds of games I don't understand. Sure.

But this game, why should I expect to make money in all kinds of things I don't understand?

Yeah. But I've done it. And actually one of the most successful companies I was associated with going back to 1958, right, we started a company called Data Documents. We started Data Documents because a couple pals of mine read in the paper that IBM had settled an antitrust suit by divesting. They had to divest 50% of the capacity of what was their best business, and everybody knew it was their best business. Now it so happens it ran out after 10 or 15 years, and I knew some of the people that caused it to run out. But if you have a wonderful business, you are going to be subject to attack. So it's not a question of whether it was wonderful yesterday. The question is how long is it going to be wonderful?