CNBC Pro Talks: How to profit from Warren Buffett's methods in investing and life 5/3/24

0:01This is CNBC Pro Talks, where we go one on one on one with Wall Street's top investors, smartest traders, and rising stars. We find out what makes them tick, what makes them money, and how you can follow in their footsteps.

0:18Welcome to CNBC Pro Talks. Now, we are releasing this podcast and video just days before the 2024 Berkshire Hathaway annual shareholder meeting. So what better time to talk to longtime follower of Warren Buffett and longtime Berkshire shareholder. Our next guest today is Bill Stone, the chief investment officer of the Glenview Trust Company. We're also joined in person, no less, by CNBC pros Yoon Lee, who is our resident Buffett and Berkshire expert as well. So thanks to both of you guys for being here with us for this portion of this. Bill, Yoon and I are here. You're out there remote for us right now.

0:57I wonder if we could kick off this whole conversation with a little bit about you and your background. I remember talking to you for the first time way back when you were still at PNC. So take us through your career and what's gotten you to here at this point right now at Glenview. Well, it's kind of crazy. I grew up in Ohio to parents who are both very smart and educated, but literally did nothing with stocks and the stock market. I was, was, and maybe some that know me would argue still am a geek and used to read a lot because my mom was an English teacher and kind of instilled that in me. Stumbled across investing books and decided that's what I wanted to do for a living.

1:44Ended up getting a academic scholarship to the University of Dayton. By total luck after that, it turned out that an alumnus of Dayton was a high-up officer at Solomon Brothers at one time. And ever since he passed away, they would keep at least coming to recruit. Because you think of all places that at that time the top firm on Wall Street would recruit. Ohio is not necessarily the place. know the place so uh i ended up making it through uh going to new york never having been to new york ever before in my life uh other than to interview with them and then started on wall street uh in equities and derivatives and uh thought things were great and then they had a huge scandal and uh buffett came in and saved the firm i knew of buffett before uh but uh that kind of really sent me on the studying of Buffett for really since.

2:41So you've been pretty much involved in some way, shape, or form with Warren Buffett and Berkshire Hathaway through an ancillary process since the beginning of your Wall Street career. Yes. In fact, the crazy part is I could actually see all, well, I believe there were all of his trades that he did with Allman Brothers back in the early 90s. They had fake names on them, but we all figured out who it was in the end. I probably should have said that, but I think the statute of limitations is over on that, so I think we're okay. That's too funny here. All right, so how we get into this discussion with you about Warren Buffett and Berkshire Hathaway has a lot to do with just how much you've been tracking Buffett, his portfolio companies over the course of the last several years.

3:35Can you talk to us a little bit about, we mentioned the fact that you're a Berkshire shareholder. At what point did you become a Berkshire shareholder? And take us through the thought process as to what got you into it in the first place, besides just the Salomon Brothers and trading connection. So, you know, I have been a higher shareholder, I looked it up actually, since 1999. And part of it was, you know, for all of you that have ever moved to New York right out of college. And it's fairly expensive to live there, even if you're making a good living. So I didn't really have the money to necessarily buy shares when I first got into the business.

4:15And I also say that the timing was fortuitous, because if you think about that period, I know some people that watch this weren't even around investing then. But that was a period when people were questioning if Buffett had lost his touch. You know, that was the period of the tech bubble. He had long said he doesn't know and didn't know anything about technology, wouldn't invest in technology. And well, in my view, turned out, and it did turn out to be an opportunity to buy the shares at a small or at a reasonable price in terms of why I got more and more interested. I just, even once I got out of college, continued to read more and more about him and about, you know, what Berger Hathaway did and how it functioned.

5:01And, you know, that's what led to being interested in continuing to invest in it. So this professional life has been very much geared towards, you know, Warren Buffett, Berkshire Hathaway. I wonder if you might take us through a little bit about just the effect that Warren Buffett has had and the late Charlie Munger and their investing philosophies have had on your professional life as an analyst, as a chief investment officer, and to where you are now at Glenview? I think it set a phenomenal example, or I'm saying in the past tense for Charlie, but certainly Buffett still does, for just continual learning.

5:41So I was like, I just became and remain a voracious reader of almost everything uh you know i studied kind of like buffett talks about studied even technical analysis um you know i did gravitate because of my you know affinity and and i think it makes sense to me to more valuation is really my main um part of things but it's a bizarre thing i read so many things early on you know benjamin graham things and i was more of a deep value and I've over time become, you know, what Buffett really went to, thanks to Charlie Munger, which is more a combination of quality. And then also obviously being very mindful what you pay for that quality.

6:23So, you know, I think that, and I also think the other part is not really, or as much as you can, not paying as much attention to what other people are doing. And as long as you're thinking things out, hopefully logically and well, that's actually going to serve you. Don't just follow the crowd. Okay. So you made an allusion to it, which was kind of like the crossover in terms of how some of those philosophies carry over into other aspects of your life. I wonder if you might talk about that philosophy. You mentioned value orientation, valuation. For many folks out there, value is a way of living.

7:00It's a way of life. It's a kind of philosophy that overarches the things that they do. Would you consider yourself a value person in your personal life? And do you treat many of the decisions that you have in your personal life around that kind of value oriented framework or frame of mind? I'd say I try to, I mean, but obviously, I think it is also goes to, I think you are also willing to pay up for quality. So it's not like I buy the cheapest thing that, you know, every time. And I just think that's different, right? Like sometimes paying for quality makes sense. You know, it's what, you know, it's, it's what, what Buffett and Munger would say is it's better to buy a great company at a fair price than a fair company at a great price.

7:44And I think, you know, that's, I think that is a reasonable way to live your, your life as well. All right. So with all of that in mind, we've kind of set up the broad philosophical strokes, the broad kind of big picture about you and Berkshire Hathaway and Warren Buffett and Charlie Munger. Let's switch gears a little bit now and bring in Yoon Lee at CNBC, a markets reporter extraordinaire, one of my colleagues, very proud to call her a colleague of mine here. Berkshire's annual meeting is coming up, Yoon. And you're going to be covering this event for us every which way we can possibly think of.

8:22So this is a great way for us to preview the lens by which CNBC will be looking at the Berkshire annual meeting. So maybe take us through a little bit of a preview about what you think is going to be the focus for you and our CNBC coverage and our CNBC Pro exclusive coverage as part of that during the Berkshire annual meeting. it's going to be a very significant and special annual meeting this year because Charlie Munger just passed away in November at the age of 99 and it certainly won't be the same without his witty comments you know we all enjoyed and you know we all read Warren's annual letter a couple weeks ago and he gave a really heartfelt tribute to Charlie where he said he was this part loving father, part older brother, which I thought was very touchy.

9:16So I'll be on the lookout for any moments dedicated to Charlie, which I'm sure there will be many throughout the events. And I'll be there in person on the ground reporting along with a team of reporters here. And we will be looking for a lot of macro comments from Warren, which, you know, he's always insightful about inflation just because the range of various businesses that Berkshire holds. And, of course, for our pro subscribers, we break down all the stock picks, all the changes in Berkshire's equity portfolio. So I'm very excited about that. It'll be my third time going there. Bill and I, we met up there last year in Omaha.

10:06It was really fun. That's awesome. So I've never been, I will say I've never been to Omaha to cover one of these meetings. I can only watch it through the live streams, and I pay attention to the letter and everything else that comes out of the event itself. And, of course, you know, between you and Becky Quick, who was going to be there for CNBC as well, we've got a lot of stuff going on coverage-wise. You mentioned Charlie Munger and his passing this past fall. It brings a lot of attention, as it has for years now, to what happens to Berkshire in the event that there is no more Warren Buffett or Charlie Munger at the helm of Berkshire Hathaway.

10:47We know that the stock picking side of things has been relatively set, right? We got, you know, Ted Wessler and Todd Combs kind of directing the portfolio. But there's a lot of curiosity and has been for years about what the succession plan for who ends up running Berkshire Hathaway and its various portfolio businesses, who ends up running it. So how much will succession planning be on everyone's radar for this particular annual meeting? Right. Charlie's passing really brought home this inevitable future at Berkshire when Warren is no longer around, what happens when he's gone. So Berkshire already has a succession plan in place where Greg Abel, the vice chairman of non-insurance businesses, so he overlooks energy, railroad, retail, real estate and a bunch of non -insurance operations.

11:41So he will be succeeding Warren Buffett as the CEO. Now, there are still some questions for the succession plan as to, you know, what the roles that other top executives are going to hold once, you know, Warren is no longer there. especially as you mentioned on the portfolio side, TopCom's and Ted Wessler, they are each managing only$15 billion right now. And the Berkshire equity portfolio is$350 billion. So are they going to split it up or are they going to bring in more people to help managing that? So we will be looking for more clarity on that if Warren is in the mood for sharing. And yeah, so the CEO, the designated successor is Greg Abel.

12:38And Ajit Jain, the insurance side, and he will be continuing overseeing the whole insurance empire. So it's going to be a lot more scrutiny, I guess, on how the organizational chart looks. We know who the key players are. Ajit Jain, with regard to the insurance, reinsurance side of the business, and to Greg Abel on the so-called operating side of things, which are all the non-insurance businesses, and then, of course, the portfolio side of things. Yeah, and just one more thing. Because Berkshire Hathaway is one of the biggest dealmakers in the world, and with so much cash that they have, who is going to be that capital allocator?

13:18Is it going to be Greg alone? Is he going to be a team of different people helping to allocate this mountain of cash and picking stocks? So we will be really on the lookout for any details on that. Okay, so it's interesting. Let's get back to Bill. You heard Yoon's take on this whole thing. This seems very, very, I guess, on par with what everybody wants to know right now, what everyone's kind of previewing. You've been going to these meetings for a long time. Yoon's been going to three of them. I've been to none of them. You've been to a lot of them. So maybe preview for us as a shareholder and investment professional, as opposed to journalists like us, what you think you will be looking for.

14:02What's your preview? What's your crib sheet for the Berkshire annual meeting? Yeah, so you already had it down after three. I'm like 20-some in, so it evidently doesn't take – she got it right away. But I think you already started to hit it on the head, which is the biggest thing really is who's going to make the capital allocation decisions in the future once Warren Buffett's gone. And do we have confidence in that person? because a quick story, and I think it's super interesting about one of the most amazing things about Berkshire Hathaway. I don't think you have the amazing success of Berkshire Hathaway without amazing capital allocation decisions.

14:45That may sound stupid, but think of it this way. Berkshire Hathaway itself was a failing textile business, and Warren Buffett took the money that was produced. They got, some would argue, a little bit lucky. They caught a good period in the textile business, but he made the decision to take the money produced out of that business, dying business. It's easy to say in retrospect, but it was a dying business and invested in other things and obviously did a good job doing that. So that I think is why so many people are so focused on this because it is so important. Okay. Now, now we've got the preview elements done.

15:25Let's go back to some of the investing ideas, strategies, and philosophies that we've kind of all spoken about right now. Do you think there's a lesson or a group of lessons or strategies that our CNBC Pro audience could maybe take away from some of the Berkshire operations and how it kind of treats its portfolio companies and businesses and its stock holdings as well? What exactly can an investor glean from the Berkshire approach? I mean, I'm looking on our website right now, cnbc.com. I just pulled up the quote for the Class A Berkshire shares, and they're hovering just north of$600 ,000 per share right now.

16:12The Class B shares, which are a little bit more accessible, are still about$400-some dollars a share at this point right now. How about for those folks who cannot, say, buy a Berkshire share for$600 and some thousand dollars? What can they do with their own portfolios, learning from what Buffett has done with his? Well, I don't think I can do it any better than kind of steal what I think Buffett says a lot when people ask him this, which is, you know, The Intelligent Investor written by his, you know, his hero, his teacher, Benjamin Graham, is one of the greatest works you can read. And in particular, he points out two chapters, and it's really chapter eight and chapter 20.

16:55So if you don't want, it's a pretty long book if you really just want to focus on two. So one is chapter eight really talks about Mr. Market, and it really is two pieces, right? which is one, you look at stocks, not as pieces of paper, but as businesses, you look at them like, can they withstand competition? Can they continue to earn these profits? Can I possibly forecast that they'll continue to earn these profits? Because that's probably the only way I can really value it anyway, intelligently. And the last part of that chapter eight is don't let the market tell you what to do. And maybe that's a good time to really talk about it because we're in a little bit of, you know, volatility in the market lately where we're having a pullback.

17:35in some of these high-flying stocks. And, you know, so I think you have to really know your companies and know what you want to do. Don't just let price action determine what you want to do because that also lets you buy stocks cheap, you know. So if something's sold off a lot, you know, you don't just assume that it's, I'll say, bad. That may, in fact, end up being an opportunity. The second one, real quickly, is Chapter 20, which is building a margin of safety. And that's the value side of Warren Buffett. So say, I just can't possibly be that good at valuing a company. So I'm going to put a, you know, some sort of a conservative valuation on it.

18:12And then even if I get a few things of my thesis wrong, which I'm guaranteed to do, I'll still work out okay, and I won't get killed. And I think that's it. There's the magic formula. seems pretty simple you right yeah that's a really good point and uh like you said bill so warren buffett he's the ultimate long-term investor right and he likes to say that his preferred time horizon is forever so i think a good lesson for investors and i wonder if he will reiterate is that just focus on the long term ignore the headlines ignore any noises and avoid panic selling. And he likes to tell people an average investor just by index funds and with the power of compounding, you will have, you will amass a budget, you know, in 50 years.

19:01I mean, I think that's exactly what I've done with my 401k is pretty much just an index fund. So I've taken the Warren Buffett approach in that way for sure.

19:13just a brief programming note for everyone you'll be able to watch both the morning and afternoon sessions of the 2024 Berkshire Hathaway shareholders meeting on both CNBC broadcast and on cnbc.com as well on Saturday May the 4th special coverage begins at 9 30 a.m eastern time so thanks Thanks to everyone for listening and watching. CNBC Pro subscribers will now be able to watch our full interview, including our in-depth discussion of Berkshire Hathaway shares, the performance of Berkshire Hathaway's portfolio of stocks, and Bill's answers to CNBC subscriber questions. Just head over to cnbc.com slash protalks.

19:57CNBC Pro Talks is a monthly interview series that's part of CNBC's premium subscription service, CNBC Pro. To hear the full ProTalk interview, including specific stock picks and investment strategies, listeners can subscribe to CNBC Pro at cnbc.com slash ProTalks. That's also where subscribers can submit questions for upcoming guests, or Pro members can email those questions to askprotalks at cnbc.com.