Warren Buffett Answers 10 Key Investing Questions

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Berkshire Hathaway (ticker: BRK.A, BRK.B) CEO and legendary Wall Street investor Warren Buffett recently spoke to CNBC following the annual release of the company's shareholder letter. Buffett gave his take on the current valuation of the stock market, buying stocks on a price dip, the trade war with China and a number of other important issues on investors' minds. Here's what you may have missed:

What's going on with Kraft Heinz?

Berkshire holding Kraft Heinz Co. (KHC) dropped by more than 30 percent after the company recently announced a $15 billion writedown, cut its dividend by 36 percent and disclosed a Securities and Exchange Commission investigation into its accounting practices. Buffett told CNBC that Berkshire overpaid for Kraft. "I think that when you're going toe to toe with a Walmart (WMT), or a Costco (COST), or maybe an Amazon (AMZN) pretty soon ... you've got the weaker bargaining hand than you had 10 years ago," he says. However, he said he has no intention of adding to or selling his 325 million Kraft Heinz shares.

Is the stock market expensive?

After a 10-year market rally, Buffett was asked if the stock market is expensive. He said investors should always consider interest rates when determining the relative valuation of the stock market. Interest rates have been at or near zero for most of the bull market and the Federal Reserve hasn't been particularly aggressive in raising them in recent years. "If there were a way to short 30-year bonds and own the S&P for 30 years, I would give you enormous odds that the S&P is going to beat 30-year bonds," Buffett says.

How are Berkshire's portfolio managers performing?

Ted Weschler and Todd Combs are two Berkshire portfolio managers that are often seen as part of the key next generation of management for Berkshire after Buffett, 88, steps down. Buffett said Weschler and Combs each manage about $13 billion for Berkshire and each have lagged the S&P 500 by a "tiny bit" since they joined Berkshire in 2012 and 2011, respectively. However, Buffett said the two managers have added value to Berkshire by working on acquisitions. Buffett also reassured concerned Berkshire investors about the pair's stock-picking abilities. "They've done better than I have," he says.

How do you know when to buy the dip?

On the topic of Kraft Heinz, Buffett was asked how he determines when bad news about a company is a buying opportunity and when it is a sign to cut losses. Buffett said a stock's share price is not there to instruct investors but rather there to serve investors. He said investors first need to determine what they believe is the true long-term value of the company, then the market price will dictate whether or not a sell-off has created a buying opportunity. "So what you like is bad news about a fundamentally good business," Buffett says.

Will the trade war have a good outcome?

Berkshire's largest public holding, Apple (AAPL), cited the trade war with China as a major reason for cutting 2019 guidance. President Donald Trump recently announced he would be delaying a tariff hike previously set for March 1, but a trade deal has not yet been announced. Buffett said what's good for China is good for the U.S. and he's optimistic about the outcome of the trade war. "And I generally think when two very smart countries have something very important at stake they'll end up making rational decisions," he says.

How can GE turn things around?

Buffett was one of few General Electric Co. (GE) investors to turn a profit on the struggling company over the past decade, buying shares during the 2008 financial crisis and unloading them at a 40 percent gain in 2017. Buffett said GE should focus on selling noncore assets and deleveraging its balance sheet. He said GE has "a couple of very good businesses," but he opted not to comment on why he isn't buying GE stock. "I think all America's cheering for GE, but I'm certainly one of those that is cheering," he says.

How would increased taxes on the wealthy affect the economy?

Some Democrat Party leaders have discussed tax plans that include rates at or above 70 percent for the wealthy. Buffett didn't comment on specific policy proposals, but he said there's no good reason for a $1 trillion U.S. deficit in a very good year for the economy. "You can cut spending, you can raise taxes. But I would say that the wealthy are definitely undertaxed relative to the general population," Buffett says. Buffett famously wrote an op-ed for the New York Times in 2011 calling for higher taxes on Americans earning more than $1 million annually.

What's the state of the economy today?

Economists are calling for U.S. GDP growth to slow from slightly below 3 percent in 2018 to just to 2.4 percent in 2019. Buffett said retail numbers in January were a bit disappointing and he's definitely seeing signs that growth rates are tapering off. He also said he is starting to see signs of inflation in rising materials costs. However, business is still growing, even with the current 10 percent tariff on Chinese imports and he sees no major red flags. "I don't see anything to be alarmed about at present," he says.

Why did Berkshire sell Apple stock in the fourth quarter?

Berkshire's most recent 13F filing caught Apple investors by surprise when it revealed Berkshire actually sold a small portion of its Apple stake. When asked if he has changed his mind about Apple, Buffett said there's a simple explanation for the modest reduction. Buffett said Weschler and/or Combs made the decision to scale back on Apple in their portfolios and their decisions don't have to be approved by Buffett. He said he has no intention of selling his Apple stake. He also said he wouldn't be buying at recent prices. Berkshire's average cost basis is around $141 per share.

Has Buffett softened on bitcoin?

Buffett has been brutally bearish about bitcoin over the years and his stance has clearly not softened. Buffett said bitcoin is "ingenious" and blockchain technology is "important," but bitcoin makes for a dangerous investment. "Bitcoin has no unique value at all. It doesn't produce anything. You can stare at it all day and no little bitcoins come out or anything like that. It's a delusion, basically," Buffett says. Buffett said he is sympathetic to people who lost money during the bitcoin bubble. Bitcoin prices are now down roughly 80 percent from its December 2017 peak.

Warren Buffett answers 10 investing questions.

-- What's going on with Kraft Heinz?

-- Is the stock market expensive?

-- How are Berkshire's portfolio managers performing?

-- How do you know when to buy the dip?

-- Will the trade war have a good outcome?

-- How can GE turn things around?

-- How would increased taxes on the wealthy affect the economy?

-- What's the state of the economy today?

-- Why did Berkshire sell Apple stock in the fourth quarter?

-- Has Buffett softened on bitcoin?