Warren Buffett reveals his investment strategy and mastering the market (PART 2).

ANDY SEWER: Should the government tell companies when to do it or, at least, mandate conditions where they can?

WARREN BUFFETT: Well, they do restrict you a little in terms of some general rule of the SEC, if you're having some kind of-- this isn't quite the right word, but-- manipulative activity or anything like that in the stock. But no, I don't think the government should decide your dividend policy. I don't even think they should direct your capital investments.

They can make it enticing to make certain kinds of capital investments, which they do with renewable energy, for example. I mean, the government has interest in fostering certain developments in this country over time. There used to be a special oil depletion allowance 50 years ago and so on.

That was more politics than it was governmental policy. But certainly, renewables are a prime example of that. But the idea of directing whether you are entitled to return cash to shareholders and the manner in which you do it, I don't think, really makes a lot of sense.

ANDY SEWER: The 2020 election is going to be upon us before we know it. And I know that you had some nice things to say about Mike Bloomberg, but it appears he is not going to be running now.

WARREN BUFFETT: Yeah, it's hard to win with just the billionaire vote.

[LAUGHTER]

ANDY SEWER: He'll have your vote and a few others. That's funny.

WARREN BUFFETT: But I admire him enormously. I wish he had run. I want to be very clear on that.

ANDY SEWER: President Trump was a business executive. So two questions. Is a business executive the right kind of person to be president? And what characteristics do you look for for a president that you would support?

WARREN BUFFETT: Well, I think a business executive can be the right person. But I don't think that because they're a business executive that you give them extra points. Number one, I want a president that wakes up every morning and realizes that the greatest threat to a country which has got all kinds of things going for it are weapons of mass destruction, and that we live in a world where people, organizations, and, occasionally, countries could have people that would like to wipe out a large percentage of the American people or maybe other countries as well.

And that you now have capabilities, which I always thought, until recently, I'd classify as nuclear, chemical, and biological. But I think, you have to add cyber now. If you have some evil genius someplace that, for crazy reasons, just like what happened with anthrax back-- who knows what motivates somebody that starts sending anthrax in letters-- if you have somebody that thinks it'd be great to send a false alarm to the Russians and to the US that the other side was launching or something of the sort-- it's a very, very dangerous world.

It's a wonderful world, but it has dangers now that started in August of 1945 when Einstein said, you know, this changes everything in the world, except how men think. So I want a president that has that same fella that all of these other things are important. But protecting the country and reducing the chance of successful use of weapons of mass destruction against us is the number one job. And I think most of the presidents-- I've talked to a couple of them about it over the years, and I really think that they do realize it. They may get lost in the events of every day as they go along.

And then beyond that, I want a president that has two objectives with the economy. One is to make sure that this marvelous goose we have keeps laying more golden eggs. And then I want a president that also feels that if GDP is $60,000 per capita in the United States, that nobody should get left behind. We've got a market system that works marvelously in turning out more goods and services, better ones year after year, done it all through my life.

ANDY SEWER: Would you ever talk to a candidate and say, hey, what do you think about these three things?

WARREN BUFFETT: Well, they'll tell me what I want to hear in most cases. So I want to hear what they tell people who disagree with them on the subject. I always like to ask a candidate-- they usually finesse me somewhere-- but I say, what are you for that the majority of your followers are against? I know you really believe in that, and that's really the test. But I'm not sure that, except under some kind of sodium pentothal or something you're gonna get a great answer to that question.

ANDY SEWER: That's great that that's the question you ask the presidential candidates or presidents that you would speak to.

WARREN BUFFETT: If I really want to get-- and that's why Bernie Sanders was so successful. 90% of the people who voted for Bernie Sanders had probably not heard of him two years earlier. They felt they knew exactly what he would do. They felt he was authentic. And if you asked him what he was for that most people might be against, he would tell you.

ANDY SEWER: A few questions about Kraft Heinz. Was that a mistake?

WARREN BUFFETT: We'll find out over time. But we did pay too much, in my view, for Kraft. We didn't pay too much for Heinz.

So when we started out, it was originally a non-public partnership between us. And we did pay too much, in my view, for Kraft. There's not much you can do about things if you pay too much.

And secondly, there's always been a struggle between the retailer and brands. If I've got a terribly weak brand, and I want to get into Walmart, I'm not to be able to do it. I'd have to offer all kinds of crazy concessions, you know? And I want to be in Walmart if I have some sort of consumer-packaged goods.

The negotiation is way different if you have something essential versus nonessential. 10 years ago, Costco tried to get rid of Coca-Cola. Costco's got terrific loyalty among customers, and their own Kirkland brand is a $39 billion brand now. And it moves from category to category, and they only started in 1992.

So they know brands. But in the end, they put Coca-Cola back in. If had been Royal Crown Cola, they wouldn't have had to put it back in. So there's always that struggle between the brands, and there always will be. But the retailers net has been moving in their direction, particularly, I think, because of the Amazon revolution.

ANDY SEWER: First Walmart, and then--

WARREN BUFFETT: Yeah, Walmart. But it's been accentuated, I think. We have a new retailing environment now. It isn't like it goes from night to day, but it moves somewhat. And brands that people spent billions of dollars developing and sponsoring TV shows or sponsoring radio shows in the old days-- Campbell's soup was always on there with Jack Benny or something when I was a kid, and it was big.

And adult brands, and people obviously like the product, too. But people are more willing to change, and it's a somewhat different world than what-- it is night and day. You're very unlikely to keep changing brands everyday. But it really surprised me that Gillette lost position. Men don't like to experiment much. Women are better at experimenting.

When you were a kid, Gillette cavalcade of sports was your pal, and brought you the Rose Bowl and the World Series, and all that sort of thing. You just shaved with Gillette the rest of your life. And you still do to a great degree. But it's not exactly the same as it was, even five years ago or so, when we bought Kraft.

ANDY SEWER: You mentioned Amazon as a game-changer. And I have to ask you, you haven't bought the stock. You're an admirer of Jeff Bezos. A listing of the richest people in America came out. He's number one. I think, your friend, Bill Gates, is number two. You're number three.

So you can see what he's done in myriad ways. And, of course, the question is, how come you haven't bought Amazon? Is there still time to buy? Would you still buy?

WARREN BUFFETT: I always admired Jeff. I met him 20 years ago or so, and I thought he was something special. But I didn't realize you could go from books to what's happened there. He had a vision and executed it in an incredible way-- something that would not have--

But there's a lot of games I've missed. I would've missed Microsoft, even if I'd gotten to know Bill earlier or something. Those just aren't my games. I don't worry about the things that I miss that are outside my circle of competence of evaluating.

I have missed things that were within my circle, and that's a terrible mistake. Those are my biggest mistakes. You haven't seen them. It's not a mistake because I missed Netscape or something like that at all. I would say that maybe 5% of the companies or 10% of the companies, at most, are within an area of my circle of competence, there's something I should be able to understand.

ANDY SEWER: All right, well let me switch gears then and ask you about leverage a little bit. Corporate debt people are concerned about, people are concerned about federal debt at $22 trillion dollars. Should we reduce, let's just say, the federal debt and how would we do that?

WARREN BUFFETT: Well, if you're running a deficit getting close to 5% when things are really good, that's a new world. Neither the Republicans or Democrats are particularly concerned about it, and we're not having a lot of inflation.

That wasn't supposed to happen, but it's happening. That's why I say, you don't want to get hung up on trying to make economic analysis, because nobody is any good at-- you don't get rich doing that. If you look at-- you mentioned that Forbes list, if you get out the list, the number of people that have done that by economic analysis, I think, are just about zilch on there.

ANDY SEWER: OK, fair enough. Income inequality, wealth inequality-- you've talked about the Earned Income Tax Credit. Is there more to it than that? Should we adjust tax policy? It seems to be going the other way right now.

WARREN BUFFETT: Well, it was going the other way. But I think, the Earned Income Tax Credit is the best way to put money in the pockets of people that don't fit well into the market system, but that are perfectly decent citizens and that have made a good bit of the success, something like I've had with Berkshire or something possible. It wouldn't have happened without the America we have.

And if you go back 200 years, and 80% of us are working on farms, the person that's the best at that-- working on that farm, whoever it may be-- is worth maybe twice the ones that's the worst. I mean, that's the difference between super-talent and no talent in the farm economy-- picking cotton or whatever it may be.

Now, if you're the best middleweight fighter in the world, you may get $20 or $30 million. And if you are just a good citizen, raised nice kids, helping the neighborhood and everything else, but you don't have market-related skills, you'd be good on that farm still. And you would be earning something comparable to most of the people around you.

But you don't have something out as it gets more and more specialized. And it's going to continue to get more specialized. You want two things for that person. You want them to have a decent life. They live in a country with $60,000 of GDP per person. You want them to have a decent life, and they can.

I also think you want them to have a feeling of accomplishment. So you want them to have a job, assuming that they're not handicapped in some way. You want them to have a job. But the minimum wage would be one way to say, well, we'll make sure that they have enough in their pocket. But that's got a lot of effects in disturbing the market system.

They just need more cash. They don't need a higher wage. They need more cash in their pocket. And the government, at relatively low cost, can provide a decent living for any that's living, that's working 40 hours a week and has a couple of children.

And we've gone in that direction, and it's sort of bipartisan. And I find both Republicans and Democrats for it. I think it would be better not to have one annual payment, that they get it monthly.

I think there are various things you could do. But you want them to feel part of the system, and as more and more of these golden eggs are laid, you want them to get a little bit more of their share.

ANDY SEWER: I mean, if we don't do that, and the Democrats win, it's possible we get big taxes on wealthy people, free college for all. And those are bigger plans.

WARREN BUFFETT: You want more money in the pockets of everybody that's willing to work or is unable to work. And we can do it. A rich family would do that. If I had six or seven kids, and I had some business I wanted to pass on, you'd pick the most able person to run it, because that's the market system to do that. But you'd make sure that all seven of the family participated.

You might give more to the one that kept producing the golden egg. You would. But you wouldn't just say to the one at the lowest end, who might be the best kid of all in most respects-- he's the one that shares with everybody and does all kinds of that-- you wouldn't say to him or her, too bad. That's just the way the market system works. Have your spouse get a job and look for housing someplace.

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