Outlook Money Outlook Money, June 2018 | Page 25

Warren Buffet (R) and Charlie Munger Photo: AP do the deals. People can see how our subsidiaries operate in the future and the truth is that I think some of the other executives are getting better known. As I mentioned, my phone isn’t ringing off the hook with good deals but maybe the next guy will get more calls. We absolutely are the first call and we will continue to be the first call whether Charlie or I answer the phone or somebody else does. MUNGER: It is weird that about 99 per cent of public companies that change hands in a sort of auction provided or presided over by an investment banker is leveraged to the gills and then re- leveraged. Their money is coming out of charitable endowments and pension plans. Sooner or later this is going to end in an unpleasant episode, and, I think, we’ll be around in good shape at that time. Warren, one of your more famous and perhaps most insightful quotes goes as follows, “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” In light of the unauthorized accounting scandal at Wells Fargo at what magnitude of leakage would Berkshire consider changing vessels? BUFFETT: Wells Fargo proved the efficacy of incentives and it’s just that they had the wrong incentives. That was bad. But they committed a much greater error by ignoring the fact that they had a faulty incentive system. You can’t have 377,000 employees and expect that everyone is behaving like Ben Franklin. If we find something wrong is going on, we need to do something about it. Wells Fargo and Salomon didn’t do it. The truth is we’ve made a couple of our greatest investments with people who have made similar errors such as American Express and Geico. And that caused a lot of pain at American Express in 1964. It caused a lot of pain at GEICO in 1976. It caused a layoff of a significant portion of the workforce, all kinds of things. But they cleaned it up. I see no reason why Wells Fargo as a company from both an investment standpoint and a moral standpoint is in any way inferior to the other big banks with which it competes. I like Tim Sloan as a manager, and he is correcting mistakes made by other people. Charlie says that an ounce of prevention isn’t worth a pound of cure but about a ton of cure. MUNGER: Wells Fargo is g oing to be better going forward than it would have been if these leaks had never been discovered. I think Harvey Weinstein has done a lot to improve behavior. If I had to say which bank is likely to behave the best in the future, it might well be Wells Fargo, of all of them. I’m a huge fan of your Charlie, mostly for your [book]- The 25 Cognitive Biases. I’m fairly certain that your cognitive biases work for Internet-related companies. Now that you’re partnering with Amazon [and JPMorgan] on health care, I’m curious, have you started to understand how to apply these biases to Internet-related companies? Or is there another set of tools you use to decide if you www.outlookmoney.com June 2018 Outlook Money 25