GATES: In some ways. You know, his company is doing a different thing, but he's— works long hours, he's a Harvard dropout, he's very logical in his thinking and he's willing to pursue his view of the world even when it's not sort of faddishly, you know, popular. And he's got a vision of where he wants to go. So, you know, I hope some of those positive attributes might— Mark has that are— have some similarities to my equivalent years.

BECKY: How often do you get to chat with him?

GATES: Well, actually you know, we've got two topics. He's, you know, talked to me about some Facebook things, just to get advice. Facebook and Microsoft are partners on a lot of things and so that comes up and also Mark is getting into philanthropy at an earlier age that I did, and so talking about philanthropy in general or the educational work that he's doing, you know, that's another topic we've been able to talk about.

(End of clip)

BECKY: Again, we're live with Warren Buffett this morning. And, Warren, you hear conversations like that. Does Zuckerberg remind you of either Bill Gates or yourself?

BUFFETT: There— yeah, there's a certain similarity. And certainly with Bill. They both have this intense focus and I probably have had some of that in the past. I'm maybe calming down a little. And— but you see they're— they've got a vision for their business and no matter what anybody else thinks they're going to— they're going to paint the painting the way they see it. And, you know, they've both done, you know, extraordinary things and they did them at a very early age. So there's some real similarities between the two.

BECKY: And just to quickly recap comments you made earlier, you said that that's actually a good thing for shareholders to have an owner like that, to maybe cede some control to an owner who does something like that.

BUFFETT: Yeah. I mean, it can go in the wrong direction, too, as we may have seen an occasion or two in recent months. But when you get somebody like a— go back years, Walt Disney or Steve Jobs or Mark or Bill, what you do see with those people is a passion. And to some extend they're not thinking solely about the money involved. I mean, they are not running their businesses to get extremely rich. They don't mind getting rich, and you know they know how to do that, too, but what really drives them is what they're creating and you see— you saw that with Bill, you see it with Mark and it— when you get that— when you find that and they've got big ideas and the rest of the world doesn't necessarily understand them very well, but they're doing it. You know, you can get some amazing achievements.

BECKY: Hey, guys, I know you had a lot of questions you wanted to talk about from back there. You want to bring up a couple of those topics that we had just mentioned before, maybe the Buffett tax?

ANDREW: Yeah. No, Warren, to me one of the most interesting answers that came out of the meeting was actually about the Buffett rule and in particular it sounded to me like you were indicating that what the White House has done with the Buffett rule is different than what you would have done. And I think you used the quote that it's been butchered a bit. Could you elaborate on that?

BUFFETT: Oh, no. No, I said some of the commentary about has been butchered or— but, no, I would not say the rule at all has been butchered. I— obviously if I were writing a bill myself there'd be— there'd be a little difference. For one thing, there'd probably be a different break point, maybe at 10 million or something of the sort. But it's interesting, you mention the term White House because it's Senator Whitehouse who introduced the bill, Senator Whitehouse of Rhode Island and I wrote him a letter after he introduced the bill and said, `I'm fine with it.' I mean, everybody knew something a little bit differently. But it encompasses the principles that I believe in.

BECKY: Some of the criticism that's come out, though, has been that it's really a Band-Aid on a really bad tax system.

BUFFETT: Well, it doesn't— it is a small improvement in a very bad tax system. It doesn't cure all, it doesn't cure all revenue problems remotely. In my original article I said, you know, we've got major problems on the expenditure side.

JOE: Right.

BUFFETT: And no, but it— no, all it does is it says when you've got 131 of the 400 largest incomes in the country that are averaging 270 million, you have 100— a third of them paying at rates less than 15 percent counting payroll taxes.

JOE: I mean, that's amazing.

BUFFETT: But that is something that should...

JOE: Warren, you said 10 million.

BUFFETT: Yeah, that should be corrected.

JOE: You'd do it at 10 million. And that's so totally different than what we're talking about here. But my point was...

BUFFETT: No, no. I— no, no. what I said, Joe, is I would do the 30 percent at one million and I'd do 35 percent at 10 million.

JOE: Oh, 35, you'd go up.

BUFFETT: Yeah, yeah.

JOE: But for you, because you're a genius, if you had spent as much time on trying to figure out our entitlements, take your pick, Social Security, Medicare, some way of using that mind to figure out a trillion dollar problem instead of something that would raise 40 billion over 10 years, I would put my name on that thing. I would— if...

BUFFETT: Yeah.

JOE: ...to rise to the level of something called the Buffett anything, I would make it a much bigger— you know, solve a much bigger one of our problems. I just don't think you like these 130 people or something.

BUFFETT: No. I think— I think— you know, I like them. Many of them are my friends. I just think in terms of fairness...

JOE: Not any more.

BUFFETT: ...it's a, it's a very— oh, no, that is not true. I met...

JOE: I know, I know, I know.

BUFFETT: But the 47 billion was scored on the basis that the Bush tax cuts would expire. So— which would raise rates generally. Scored on the basis of the present system, it actually comes in at I think something like 170 billion. And that would— that's the figure given by the same people who gave the 47 if the tax cuts expired. But I agree with you. I think— and incidentally, I think most Republicans and most Democrats, most independents know that we have to bring spending down to 21 or 21-1/2 percent of GDP, and they know they have to bring revenues up to 19 percent. People privately agree on that.

JOE: Yeah.

BUFFETT: The problem is in our— in the political atmosphere we're in, neither side wants to go first because they figure they'll get crucified if they go first, particularly in an election year. But you're absolutely right.

ANDREW: Warren— but Warren, one of the— one of the questions you got over the weekend, and I think Becky was the one who asked it, from a shareholder, was this idea that there are some shareholders who don't like your politics, and whether that's either bad for business or bad for the stock. What do you say to that?

BUFFETT: Well, I just say that, you know, when I went into business or started running Berkshire Hathaway, I did not— I did not put my citizenship in a blind trust. And I don't expect any employee, any director of Berkshire, I don't care what their politics are, I don't care what their religion is, and I— and I hope they express their views on things that affect citizenship.

ANDREW: I remember years ago you guys had that— remember there was the charitable program, and you guys gave money away...

BUFFETT: Right.

ANDREW: And you ended up shutting the program down because ultimately, in an odd way, it became bad for business because it created some controversy.

BUFFETT: No. It didn't— it didn't become bad for— it was bad for business in a small way all along. Certain people would say, `We're not going to buy See's Candy because we don't like what you're— the fact you're giving money to Planned Parenthood,' even though it was the shareholders making designations and they— and they could easily give more money to pro-life organizations. When we— when we quit it, it was because independent consultants who depended upon a Berkshire company were getting hurt themselves. And they were not— it was not part of Berkshire. These were people who were having their livelihoods threatened by a bunch of radio people who were blasting away at them and trying to interrupt the showings they were making and all that sort of thing. If it just affected Berkshire, we'd still be doing it.

BECKY: That's interesting. You know, guys, one of the big conversations that we've frequently had around the Squawk table has been centered around Paul Krugman, The New York Times columnist. We have talked a lot about how he's been pushing for more stimulus.

And that's actually something that came up in a conversation, Warren, that I had with Charlie Munger over the weekend. I asked him if he agreed with Krugman on his take about this idea that we need more stimulus to go into the economy. And listen to what he had to say about that.

(Clip from Charlie Munger interview)

MUNGER: Krugman did not sufficiently understand the kind of sin that the Democrats like. You know, the crooked plaintiffs' lawyers. That stuff disintegrates the body politick and it affects how well that these economic principles that he believes in works. That said, I think Paul Krugman is one of the smartest and most articulate people we have, and he's very often right.

(End of clip)

BECKY: Now, that gets us into a broader discussion, especially after this weekend where we see a lot of the elections in Europe pointing away from austerity and towards more fiscal spending. What do you think about the idea? Just of stimulus, have we done enough? Is there more that needs to happen?

BUFFETT: We are doing a ton of stimulus right now. I mean, we are spending, as a government, you know, maybe 1.2 trillion, maybe 8 percent of GDP, more than we're taking in. That is stimulus on a scale, like I say, that Keynes would be proud of us. And so we have lots of stimulus, and it's helped the economy. But do I think we should— do I think we should run $2 trillion deficits instead of 1.2 trillion? Absolutely not. In fact, I think we should start moving the other direction, and I think we should have a well thought out plan, and it should be very clear and it should be very binding, to bring down those deficits over time. But as long as we're running a deficit, we are stimulating.

BECKY: OK. So enough is enough, though, at this point?

BUFFETT: I think— I think— I think we should be thinking about bringing them down. Absolutely. You know, I think we have to bring down expenditures and bring up revenues, and I think everybody knows it. And I think the problem is that we can't find a way for the two political parties to think it's in their advantage to push forward on both sides of equation.

BECKY: What does it change— what does it take to change that?

BUFFETT: Probably a little time. It'll change. I mean, we will do the right thing in the end in this country. We always do. But it— you know, it's probably regarded as a political disadvantage for any Democrat to start going out and talking about cutting expenditures, and it's thought of as a political disadvantage for any Republican to talk about increasing revenues.

JOE: Warren, do you think France should start taxing a lot more and spending a lot more? I mean, what about austerity over there? They're in a much worse position than we are in terms of this.

BUFFETT: Yeah.

JOE: I mean, do you think that they should just accept the medicine and reform labor laws and do the growth things that need to be done over time? Or should they just go on a big Keynesian, you know, lollapalooza or whatever and just tax the heck out of everyone and just keep spending and add public service jobs for the unemployed? Will that work?

BUFFETT: Well, actually Keynes probably wouldn't tax the heck out of everybody, and he would just— he would probably run very large deficits. But I'm— you know, when you— when you don't have the luxury of a printing press of your own, that really isn't so easy to do. I mean, we can run huge deficits. We run the printing presses, if necessary. But they don't...

JOE: Yeah.

BUFFETT: ...they don't have a printing press. They need the cooperation of the ECB to do that. So I think they've got a much, much tougher problem than we have.

BECKY: What...

JOE: But Krugman is constantly pointing to the— that the austerity's not working over there, so why should we try and...

BUFFETT: Yeah.

JOE: ...why should we try and do it here. But I don't see what their choices are at this point. It's like, you know, you can't— the uncle can't double the profligate nephew's credit card when he's got 100 grand that he already owes. You don't double it to 200 grand, do you?

BUFFETT: No, particularly when you've got a few other nephews around who are saying, `I'd like to join that parade, too.'

JOE: Right.

BUFFETT: No. The contagion problem over there is huge. We've got a— we've got a far different and far better situation. And actually, you know, our economy is behaving pretty well. We had the incredible overhang in residential housing, and that is a huge asset for people. They borrowed a lot of money against it. It was— it was a big— it was like— it was like 1929 but it was in houses rather than stocks. And the degree to which the public was participating in it was huge. They'd gotten used to using their houses as refinancing machines. They thought they could flip houses if they bought one. They could always sell it for more next year. And it was a huge asset class that just went crazy. And we've worked our way out of it to a degree and, in my view, we're well on our way to recovery.

BECKY: Hey, Warren, there's an article on the front page of The New York Times today that takes a look at stock trading. And even though it points out we've come back in the major averages and really have made up a lot of ground, volume of trading is still incredibly low. It's something at 6 1/2 billion shares traded vs. 12.1 billion from well before the collapse in 2008. It points out that one of the main reasons for this is that individual investors, retail investors, still have a lot of concern about what's happening in the stock market. They're still scared off by what happened back then. Have they missed the biggest part of the rally? Should they still be getting back into the markets?

BUFFETT: In my view, aside from the single family houses we talked about, I think...

BECKY: Yeah.

BUFFETT: ...I think equities are— I think equities are very attractive for the long term. And I— they may get more attractive next week or next month. But it's the same thing I said in October of 2008. I didn't know where bottoms were going to be or where they were going to be in a year. But equities, producing businesses, good producing businesses are a great thing to own over time, and they've been a great thing to own, you know, for a hundred— several hundred years in this country. They will be a great thing to own for the next 100 years. But who knows whether they go up or down in price next week. As to the volume, though, there's still way too much volume in the market. I mean, the idea that the ownership of a company should turn over a hundred percent in a year, that is not the way people behave with apartment houses, it's not the way they behave with farmland. But they have this notion in stocks that they ought to do something every day. The best thing to do with stock is buy stock with a good company and don't look at the price for five years or something.

BECKY: So you're not a fan of high-speed trading?

BUFFETT: I'm not a fan of active trading of any kind.

BECKY: Right. So...

BUFFETT: I don't know how to make money trading actively. Maybe if I did, I wouldn't be so negative on it.

BECKY: But again, the idea that retail investors feel like, wow, they got burned really badly when things collapsed in 2008. Some of them, they've had to put off retirement. Some of them maybe didn't have money that they needed for their kids to go to college. They can't find other ways to come up with it. You look at that and you think, `I don't want to get burned by that again. I'm going to keep my money in safer investments.'

BUFFETT: What's safer? I don't know anything safer. I know things that don't bob around in price, but their purchasing power just goes like that over time. So the one thing I can guarantee you is not safe is the dollar in your pocket, you know. That is going to get— become worth less, not worthless, but worth less over time. We've got that...

BECKY: That total in the past.

BUFFETT: So, you know, the safest thing, well, greatest asset to own is your own abilities. I mean, no matter what happens in the economy or with currency, if you— if you develop your own talents— I tell the college students that the best thing to have is your— develop your own talents. The second best thing is to buy into other people's talents. You know, here's Coca-Cola, and people are going to be drinking it 10 years or 50 years from now, and they're going to be drinking more of it, and they'll make more money. So I don't have any idea what Coca-Cola stock is going to do next week or next month or next year, but I'm pretty darn sure where the company will be in 10 or 20 years. And people beat themselves in the stock market. The stock market, literally, in the— in the 20th century, went from 66 on the Dow to 11,400. And you'd said, `How could anybody not have a good experience?' But millions of people don't because they get excited at the wrong time, and they get depressed at the wrong time. So you've got to put your emotions aside, you've got to give up the idea that you can decide when to buy stocks and when to sell stocks. The time to buy stocks is consistently over time.

BECKY: You know, Charlie, we played that sound bite earlier where he talked about high frequency trading, called them rats in a granary.

BUFFETT: Yeah. He has a colorful way of expressing himself. Sometimes he does that about me, too.

BECKY: But is there— are they dangerous? Is it— is it a situation that we need to be wary of?

BUFFETT: Well, just think of it this way. If somebody is— if a group of people are sitting around playing games with computers, depending on beating quotations by a nanosecond, which Charlie would say is a form of front running, and let's say they're taking $10 billion a year in aggregate, in— as gross profits. That 10 billion is not— it comes out of investors.

BECKY: Right.

BUFFETT: I mean, it's not coming from the profits of the company. The companies will keep making whatever they were making anyway. So 10 billion is somehow moved from the pockets of one group to the pockets of another group. And it is not good. It's not good for investors as a whole to have something that is siphoning off we'll say 10 billion or some number a year from the market. It's like having a tax. I mean, people don't like a tax on transactions. This is a tax. It's just— it's called something else.

BECKY: The rats in a granary tax?

ANDREW: Well, I don't— we'll let Charlie— I want him to get the hate mail, not me.

BECKY: Hey, Andrew, I know you have a question, too.

ANDREW: You know, it's a question that actually came up over the weekend, a number of shareholders, that actually I'd hoped to ask, which was, you know, now, given your size, you've suggested that the company in terms of its stock performance isn't going to necessarily perform the way it did, you know, 15 years ago, but it should still outperform the S&P. If you're just getting into the market today, how big a chunk of your portfolio would you have in Berkshire? And the answer can't be 100 percent but— well, it could be if that's your answer, but.

BUFFETT: I've got— I've got 98 1/2 percent, and I've never sold a share. But I feel, what just quoted me as saying is almost right. I would say we cannot do what we did in the past. Not that it's unlikely, we can't do what we did in the past. But I feel very comfortable at Berkshire because I think we're constructed so that it's very hard over a period of time not to get a reasonably decent result. But an extraordinary result is out of the question. It won't happen. On the other hand, I think the chances of us doing better than average over a long period of time is pretty good. But it'll be a small advantage that we have. I think the chances of us doing way worse than other people is very low.

ANDREW: So should investors then have a certain percentage in Berkshire but also some percentage in what you might describe as shoot for the moon stocks, or not even shoot for the moon stocks, stocks that you would have thought looked like Berkshire 15 years ago?

BUFFETT: Sure, not shoot for the moon stocks. I don't believe in people trying to get very rich very quickly in stocks. They don't know how to do it, I don't know how to do it, nobody knows how to do it. And if you get convinced that you can, you know, you've made a mistake. But there are lots— there are plenty of good businesses that if you buy them, you can have— you'll have a very high probability they'll be worth more money in five or 10 or 20 years. And Berkshire's one of those. But it isn't the best one. I mean, there's— the chances of getting a bad result at Berkshire are very slight, and therefore you can have, in my view, you can have a higher percentage of your money in Berkshire if you're willing to be satisfied with a modestly better than average return. And I have members of my family, you know, my sisters and cousins, that have 80 or 90 percent of their money in Berkshire. I'm not uncomfortable with that. But they do not expect to get the kind of results out of Berkshire in the future that they've gotten in the past, and they won't.

BECKY: OK. You just talked about returns. You've talked about pension funds returns in the past and how we're looking, a lot of them, for 7, 8 percent growth. Is that a relatively good assumption?

BUFFETT: Well, it's not a good assumption. It's— if you got an assumption of an 8 percent returns, and you've got half your money in bonds that when you roll them over are going to get, you know, 2 percent or 2-1/2 percent...

BECKY: Yeah.

BUFFETT: ...that means with the balance you have to be getting like 14 percent. And then when you get— you say, `Well, that's so hard to do that I'm going to have to put my money in a bunch of investments or private funds that are being promoted to me,' and they've got huge management fees and everything like that, it's not going to happen. You should never— you should never buy your investments with the idea, `I have to get a certain return.' You should look at the best return possible and learn to live with that.

BECKY: Right.

BUFFETT: But you should not try to make your investments earn what you feel you need. It doesn't work that way. The stock doesn't know you own it. So you can sit there and think I need 8 percent a year, but the stock doesn't care about that or the bond doesn't care about that. What you should say is, `How much can I earn from my investments?' and then learn to live with that number.

BECKY: Hm. Backtrack it instead.

BUFFETT: Yeah.

BECKY: All right. We're going to have a lot more with Warren from Carter Lake, Iowa, when we come back. Mr. Buffett is here for the remainder of the show. Plus, bridge buddy and Berkshire director Bill Gates is going to talk to us about where he is putting his money to work. We've got more from that interview coming up in just a moment.