You can have any habits, any patterns of behavior that you wish. It is simply a question of which you decide. Ben Graham looked around at the people he admired and Ben Franklin did this before him. Ben Graham looked around at the people he admired and he said, "I want to be admired, so why don't I behave like them?" And he found out that there was nothing impossible about behaving like them. [9:30]
Time is the friend of the wonderful business; it is the enemy of the lousy business. If you are in a lousy business for a long time, you will get a lousy result even if you buy it cheaply. If you are in a wonderful business for a long time, even if you pay a little bit too much going in you will get a wonderful result if you stay in a long time. [12:20]
The whole LTCM is really fascinating. If you take the 16 of them, they have about as high an IQ as any 16 people working together in one business in the country, including Microsoft. An incredible amount of intellect in one room. Now you combine that with the fact that those people had extensive experience in the field they were operating in. These were not a bunch of guys who had made their money selling men’s clothing and all of a sudden went into the securities business. They had in aggregate 300 or 400 years of experience doing exactly what they were doing. Then you throw in the third factor that most of them had most of their very substantial net worths in the business. Hundreds and hundreds of millions of their own money at risk. Essentially they went broke. That to me is absolutely fascinating. If I ever write a book it will be called, Why Smart People Do Dumb Things. My partner says it should be autobiographical. But this might be an interesting illustration. [15:05]
To make money they didn’t have and didn’t need, they risked what they did have and what they did need. That is just plain foolish. It doesn’t matter what your IQ is. If you risk something that is important to you for something that is unimportant to you it just doesn’t make sense. If you hand me a gun with a million chambers with one bullet in a chamber and put it up to my temple and I am paid to pull the trigger, it doesn’t matter how much I would be paid. I would not pull the trigger. You can name any sum you want, but it doesn’t do anything for me on the upside and I think the downside is fairly clear. Yet people do it financially very much without thinking. [17:30]
If you have $100 million at the beginning of the year and you will make 10% if you are unleveraged and 20% if you are leveraged, what difference if, at the end of the year, you have $110 million or $120 million? It makes no difference. If you die at the end of the year, the guy who makes up the story [obituary] may make a typo, he may have said 110 even though you had a 120. You have gained nothing at all. It makes absolutely no difference. It makes no difference to your family or anybody else. The downside, especially if you are managing other people’s money, is not only losing all your money, but it is disgrace, humiliation and facing friends whose money you have lost. [18:35]
It is like Henry Kauffman said, “The ones who are going broke in this situation are of two types, the ones who know nothing and the ones who know everything.” [20:22]
I get to work in a job that I love. I urge you to work in jobs that you love. I think you are out of your mind if you keep taking jobs that you don’t like because you think it will look good on your resume. [22:07]
I was with a fellow at Harvard the other day who was taking me over to talk. He was 28 and he was telling me all that he had done in life, which was terrific. And then I said, “What will you do next?” “Well,” he said, “Maybe after I get my MBA I will go to work for a consulting firm because it will look good on my resume.” I said, “Look, you are 28 and you have been doing all these things, you have a resume 10 times better than anybody I have ever seen. Isn’t that a little like saving up sex for your old age? There comes a time when you ought to start doing what you want. Take a job that you love. You will jump out of bed in the morning. [22:50]
You really should take a job that if you were independently wealthy that would be the job you would take. You will learn something, you will be excited, and you will jump out of bed. You can’t miss. You may try something else later on, but you will get way more out of it and I don’t care what the starting salary is. If you think you will be happier getting 2x instead of 1x, you are probably making a mistake. [23:47]
[On the type of companies he likes] I want a business with a moat around it. I want a very valuable castle in the middle and then I want the Duke who is in charge of that castle to be very honest and hardworking and able. Then I want to widen the moat around that castle. [25:38]
Our managers of the businesses we run, I have one message to them, and we want to widen the moat. [28:05]
[Think of mind share not just market share] Everyone has something in their mind about Disney. When I say Universal Pictures or 20th Century Fox, you don’t have anything special in your mind. Now if I say Disney, you have something special in your mind. . . So is a mother going to walk in and pick out a Universal Pictures video in preference to Disney? It is not going to happen. . . That is what you want to have in a business. That is the moat. You want that moat to widen. [36:10]
Define your circle of competence. Everybody has got a different circle of competence. The important thing is not how big the circle is, the important thing is staying inside the circle. [40:26]
[How Warren would study an industry] I would the “Scuttlebutt Approach.” I would go out and talk to customers, suppliers, employees, and maybe ex-employees in some cases. Everybody. Every time I was interested in an industry, say it was coal, I would go around and see every coal company. I would ask every CEO, “If you could only buy stock in one coal company that was not your own, which one would it be and why?” You piece those things together, you learn about the business after a while. [41:00]
You get very similar answers as long as you ask about competitors. If you had a silver bullet and you could put it through the head of one competitor, which competitor and why? You will find who the best guy is in the industry. [41:25]
[When buying a business] I have to decide what the price is. That is either yes or no. I don’t fool a lot around with negotiations. If they name a price that makes sense to me, I buy it. If they don’t, I was happy the day before, so I will be happy the day after without owning it. [42:30]
Coca-Cola went public in 1919; the stock sold for $40 per share. One year later it is selling for $19 per share. It had gone down 50% in one year. You might think it is some kind of disaster and you might think sugar prices increased and the bottlers were rebellious. And a whole bunch of things. You can always find reasons that weren't the ideal moment to buy it. Years later you would have seen the Great Depression, WWII, sugar rationing and thermonuclear weapons and the whole thing—there is always a reason. But in the end if you had bought one share at $40 per share and reinvested the dividends, it would be worth $5 million now ($40 compounding at 14.63% for 86 years!). That factor so overrides anything else. If you are right about the business you will make a lot of money. [47:05]
[If you make a mistake] In an area you know nothing about, you should learn something from that which is to stay with what you can figure out yourself. You really want your decision making to be by looking in the mirror. [In other words, keep improving your judgement until you can trust it.] [52:53]
What is the benefit of being an out-of-towner as opposed to being on Wall Street? The best way to think about investments is to be in a room with no one else and just think. And if that doesn’t work, nothing else is going to work. [55:15]
The disadvantage of being in any type of market environment like Wall Street is that you get over-stimulated. You think you have to do something every day. The Chandler family paid $2,000 for this company (Coke). You don’t have to do much else if you pick one of those. And the trick then is not to do anything else. So what you are looking for is to get one good idea. And then ride it to its full potential. [55:40]
The way to look at a business is this going to keep producing more and more money over time? And if the answer to that is yes, you don’t need to ask any more questions. [1:02:09]
[If you aren’t working on your best idea you are doing it wrong.] Once you are in the businesses of evaluating businesses and you decide that you are going to bring the effort and intensity and time involved to get that job done, then I think diversification is a terrible mistake to any degree. Very few people have gotten rich on their seventh best idea. But a lot of people have gotten rich with their best idea. [1:06:15]
[Advice on living a happier life] The way to do it is to do something you enjoy all your life and be associated with people you like. [1:27:16]
Full video here: Warren Buffett speaks at Florida University
Learn from founders who came before you. Every week I read a biography of a founder and tell you what I learned on Founders podcast.
