Warren Buffett still sees "good value" in stocks, even as the Dow Jones Industrial Average approaches an all-time high.
"Anything I bought at $80 I don't like as well at $100. But if you're asking me if stocks are cheaper than other forms of investment, in my view the answer is yes. We're buying stocks now. But not because we expect them to go up. We're buying them because we think we're getting good value for them."
He said stocks are not "as cheap as they were four years ago" but "you get more for your money" compared to other investments. He added, "The dumbest investment, in my view, is a long-term government bond."
Buffett revealed that a potential acquisition had been "mentioned" to him and he will be exploring the idea, no deal is imminent. "That's always a low probability. Whether it's a five percent or ten percent, who knows? But I get excited when I hear about possibilities." Asked what sector the company is in, he replied with a laugh that it is "in business."
Buffett praised Berkshire's new portfolio managers, Todd Combs and Ted Weschler, and announced publicly for the first time that they'll soon be getting an additional $1 billion to work with. He joked they are making his decisions "look bad" by comparison. The new money will increase the size of their portfolios to $6 billion from $5 billion.
Buffett said it's "quite unlikely" he'll hire another portfolio manager, in part because he's so happy with Combs and Weschler. "We hit the jackpot with these two."
Buffett isn't too worried that the automatic government spending cuts known as the sequester will slow down the U.S. economy too much.
"We're continuing to see a slow recovery," he said. "It hasn't taken off, but it hasn't stopped either."
Buffett said that while the sequester will reduce the government's stimulus of the economy by cutting back on the deficit the remaining spending is still providing the economy a lot of "juice."
"It's not galloping at all, but we are making progress bit by bit. Everybody would love to see it faster. But it's not going into reverse and I do not think the sequester will cause it to go into reverse."
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Buffett said the sequester could go on "for quite a while." He thinks, however, that once the American people see the results of its "meat ax" approach, there will be an opportunity to make more considered spending cuts.
Buffett remains confident, however, that Washington's red ink will be reduced. "We're going to bring down spending. We're going to bring up revenues. We may get there in fits and starts. And everybody may scream each time we do it. But the deficit is going to come down. It needs to come down."
Buffett has "enormous respect" for Federal Reserve Chairman Ben Bernanke, but thinks it will be interesting to see what happens when the Fed begins to unwind its efforts to keep interest rates very low. He said that rates near zero have pushed stocks higher than they would have gone otherwise and the global markets are on a "hair trigger," looking for any sign the central bank may start raising rates.
"I think the Fed will try to give little signals here and all of that. But in the end, there are an awful lot of people who want to get out of a lot of assets if they think the Fed is going to tighten a lot."
The results of higher rates, he said, "will be very noticeable" in the markets. While stocks will be hurt by higher rates, Buffett said other investments will also be affected and he still thinks equities are the best thing to buy now.