Warren Buffett: His 5 Most Controversial Quotes You Probably Missed

The Oracle of Omaha Warren Buffett speaking

Warren Buffett | Drew Angerer/ Getty Images

Warren Buffett is not typically known for causing controversy. Instead, the billionaire investor is widely seen as a folksy uncle with a knack for picking winning stocks. He offers timeless wisdom, plays the ukulele, and drinks enough Coca-Cola to keep even the most addicted drinkers satisfied. Even so, some of what he says may be considered controversial — or less controversial — once additional details float to the surface. Let’s take a look at five of the most controversial Buffett quotes, and why you might want to change your position on certain issues.

1. “I don’t have anything against raising the minimum wage but I don’t think you can do it in a significant enough way without creating a lot of distortions.”

Should we raise the minimum wage, and if so, by how much? The minimum wage is a hot-button issue in America. Politicians get voters riled up over how much workers should be paid, while economists continue to debate the unintended consequences of any increases. The economy is a complex machine that doesn’t always respond to adjustments as expected. Buffett himself admitted in 2014 that he thought about the issue for 50 years and still didn’t know the answer. More recently though, he has taken a stronger stance.

When you use “but” after saying you’re not against something, it can sound disingenuous. However, despite Buffett coming off as if he doesn’t support relief to low-income Americans, he explains in a recent WSJ op-ed that he favors an expansion of the Earned Income Tax Credit (EITC) over a minimum wage hike to better help workers. “The process is simple: You file a tax return, and the government sends you a check. In essence, the EITC rewards work and provides an incentive for workers to improve their skills. Equally important, it does not distort market forces, thereby maximizing employment.”

2. “What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)”

Did you catch that? The world’s most legendary investor advises to simply allocate 90% to an S&P 500 index fund. That alone sounds controversial, but it touches on an important truth that many investors don’t want to acknowledge: you are not the next Warren Buffett, and you’re probably better off avoiding the stock-picking game. When you frequently trade stocks, you may encounter high transaction costs and miss the best days in the market, which routinely account for most long-term gains.

According to JP Morgan, $10,000 invested between January 3, 1995, and December 31, 2014, would have grown to $65,453 if it was constantly invested in the S&P 500. If you missed the 10 best days during that period, the investment would have grown to $32,665, just less than half of the amount if you simply left the money untouched. Missing the best 20 days would have resulted in a haul of only $20,354.

3. “We need Congress, right now, to enact a minimum tax on high incomes. I would suggest 30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that. A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours.”

Buffett is a strong advocate for making the wealthy pay higher taxes. So much so, the Buffett Rule was born from his vocal criticism. Yet Buffett does everything legally possible to reduce or avoid paying taxes. Berkshire Hathaway had nearly $62 billion in deferred taxes in 2014. Buffett, the largest shareholder of Berkshire Hathaway, avoids dividend taxes by not issuing a dividend, and reduces his overall tax rate by taking a relatively small salary as chief executive officer ($100,000) since wages are taxed more than investment income. Last year, Berkshire Hathaway’s NetJets even defeated the IRS when it attempted to recover more than $500 million in unpaid taxes.

Does Buffett have room to talk? This appears to be a case of “hate the game, not the player.” Buffett and company are simply doing everything legally possible to reduce tax bills, like all of us should. Not only does Buffett benefit, but other shareholders do as well. However, when Buffett claims to pay a lower tax rate than his secretary, it would be nice if he didn’t ignore the fact that since he owns roughly one third of Berkshire Hathaway — he pays a significantly higher amount of taxes to Uncle Sam than he leads people to believe. Employees cost money via Social Security and Medicare taxes, and Berkshire Hathaway’s tax rate was 28.2% in 2014.

4. “The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time. And you don’t want to pay too much for them so you have to have some discipline about what you pay. But the thing to do is find a good business and stick with it. We always keep enough cash around so I feel very comfortable and don’t worry about sleeping at night. But it’s not because I like cash as an investment. Cash is a bad investment over time. But you always want to have enough so that nobody else can determine your future essentially.”

Anybody paying attention to household expenditures realizes that inflation makes cash a terrible investment over the long term. The Federal Reserve’s current monetary policy certainly doesn’t help the case either. Nonetheless, Buffett’s words may be seen as controversial since he is one of the biggest cash hoarders in Corporate America. At the end of 2015, Berkshire Hathaway held $61.2 billion in cash and cash equivalents, the highest amount in company history.

On the other hand, you need to recall that the usual rules don’t apply to Buffett. He holds at least $20 billion so Berkshire Hathaway and its insurance operations remain financially strong. The rest of the cash pile can be seen as an option to purchase companies at attractive prices when the time is right. Buffett is patient, but he’s not afraid to spend billions when he comes across a deal he likes. Last year, Berkshire Hathaway completed its $4.1 billion purchase of Van Tuyl Group (renamed as Berkshire Hathaway Automotive), the largest privately held dealership chain in America.

5. “Indeed, who has ever benefited during the past 238 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. In my lifetime alone, real per-capita U.S. output has sextupled. My parents could not have dreamed in 1930 of the world their son would see. Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one-way ticket).”

Buffett is bullish on America. He makes this widely known with statements like the one above, as well as his advice to allocate 90% to an S&P 500 index fund, something that even Vanguard itself doesn’t recommend. But, during times of financial angst, optimism is not a popular opinion. Many people would rather talk about what could go wrong with America than what could go right. The topic hardly matters. As long as it’s scary, it’s appealing. For example, the financial crisis in Greece automatically leads to comparisons with America, even though the two countries are in completely different situations.

In the end, America and human ingenuity finds a way to persevere. It may be hard to feel optimistic in the short term, but the long-term results are impressive to say the least. Buffett provides another quote illustrating this. “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

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