One of the Greatest Speeches Ever | Warren Buffett

last year we bought you rockstar this year we brought you a real rockstar so what we're going to do is i'm going to ask for in a series of questions over 25 30 minutes and then we'll take your questions in the in the crowd and and let the students have a chance to ask warren about his experiences what do you think the lessons are of the last couple cycles that you've seen from an investor standpoint we've got a lot of young kids out there you've lived through multiple cycles in the 50 60 years plus you've been investing in seven years seven years manifesting that what are the lessons and what you know these are young people what should they take away the lessons are the people will continue to make the same mistakes they've made i mean it humans and whether it doesn't correlate to iq particularly i mean they when they get when they get greedy and we had this huge bubble in the most important asset the american public has housing i mean so you had a huge bubble in something you could borrow heavily against so you could run a margin account effect on a house instead of sox and and the conditions got very lax and so when that bubble popped but people came into that gradually when they get fearful it happens all at once i mean when everybody wants when people get scared they all want to leave at one time and we had them all want to leave at one time and we'll have that'll happen again it'll happen with a different set of circumstances but but uh the human animal uh will keep behaving pretty much the way it has in the past so we will have periodic uh recessions will have an occasional panic which doesn't know all recessions don't come from panics but uh uh but the good news is if you look at the 20th century in the 20th century we had two world wars we had the great depression we had the flu epidemic we had the with the cold war we had the atom bomb you name it the dow jones average went from 66 to 11 497 you know with all these terrible things happening supposedly at various times america works and uh well i when i bought my first stock when i was 11 that was in the spring of 1942 and that was a couple months after pearl harbor and we were getting clobbered in the pacific at corregidor and bataan i mean the death march of baton and in in in the european theater the blitz of england was on and but and the doll was at about 100 but just look at where we are now i mean the country really works uh the trick is i mean it seems to me the obligation of a society as prosperous as ours is to figure out how nobody gets left too far behind that was interesting because last year bono's speech was a lot about how america is a society of dreams and you can accomplish more here it was actually one of the best speeches about the optimism america could have by a person who's not american by birth so it was and i know you carry that optimism so after all this how do you how do you what makes you most optimistic for the next decade about america i mean just imagine you know 1789 just go back just a few hundred years there wasn't anything here you know i mean in this country and and you know that sir christopher around i think you know the design saint paul's cathedral is buried there and there's a there's a little plaque there and it says you know if you seek my monument look about you well i save you in in america if you if you seek america's monument look about you this this country has all come about in a few hundred years we had less than four million people you know when we became a country china had 300 million people at that time europe had about 75 million they were just as smart as we were they worked just as hard as we did they had natural resources that were similar to ours and yet we ended up with a quarter of the world gdp you know a few hundred years later that we've got something that works and we don't want to mess that up uh we want to figure out what we do with this abundance better as we go along but but you don't have to worry about the system working but you will have you will have periodic recessions and you will have an occasional panic brought on by something that who knows where it comes from you know and uh the thing to remember at that time i wrote an op-ed piece in in the new york times and in the fall of 2008 and i said you know that that the the country will come back you know it'll go through a big recession everything but it'll come back and it's coming back so don't ever worry about america it'll tell you you're in the right place so you've been famous for your investment strategy on uh basically that follows the opposite side that principles invest when the chips are down and write it up that served you well so what's your favorite your favorite uh time that you were able to accomplish that when you caught somebody down and and uh well i i i always think my favorite time's gonna be tomorrow you know but i it it's it's always been fun you know and and uh there's a company here in in washington called geico you know and i i first got exposed to that in 1950 i was i was 20 years i was 19 years old it was 51 i'm sorry i was 20 years old and i came down here and i came down on a saturday because i'd learned that my professor who i worshipped at columbia named ben graham was the chairman i got down here and the door was locked when i went to the building because it was saturday and i pounded on the door and some janitor let me in and a marvelous fellow named laura davidson uh spent four hours with me teaching me all about insurance and he he helped me so much in life you're gonna get you're gonna get help by some wonderful people in life it's it's a great thing to to remember later on when you need to be my age that you know all the help you've received from different people because uh uh nobody does it alone obama got in trouble when he said that in the campaign that you know nobody does it by themselves nobody does do it by themselves we all sit in the shade of trees that were planted by others so it's obligatory i think to plant a few trees ourselves if we've had good luck uh it's it's been a great ride but it's not over you've owned when did you actually buy geico when did you get when did you invest in geico the first time well geico i bought i i met normer davidson when i was i was finishing up at columbia and then i started selling securities when i got out i went out to my aunt alice my aunt alice would have bought anything from me and so i she bought 100 shares of government voice insurance his first stock i ever sold and uh then a lot of years passed and mr davidson was very kind to me in a variety of ways but i went and i went in different directions and then in 1976 the company got in big trouble because they miscalculated their reserves and they were going broke and so i came back here and i bought a third of the company in the market in a very short period of time and then in 1995 by now our third would become a half because they'd repurchase their shares and i went out to see mr davidson who was out in bethesda he was 96 or 97 and he had a bunch of stock in geico with no cost basis because he'd held it forever and i said davey if i make an offer for this company for cash you're going to pay a big tax and of course if you die with the stock you don't have that tax you get a stepped-up basis so i'm not going to make this offer unless it's all right with you and then and he said to me he said warren he said i've hoped for this all my life and so we bought the rest of the company he was a great man i'm going to start a little bit where the president left off which is this is your hometown this is a part of your hometown so what are your best memories about being around georgetown and uh well i delivered papers at georgetown hospital uh 66 years ago and uh uh i like i developed this affinity because in the hospital people tipped my regular my regular customers the one that knew me never never tipped but the but i would go to the hospital and one of the things they would do they would give me cash tips but they also would tell me if they were a woman that had given birth to a baby that was we'll say 8 pounds 11 ounces they would whisper that number to me and the numbers racket was very big in in washington that time and they felt they were giving me this terribly valuable information the exact time in which the baby was born or something and i was supposed to bet on that number in the in the in the numbers racket that day so i i have a lot of memories of uh of uh of georgetown and uh uh i was here during world war ii which was really a fascinating time to be in in washington and uh my dad being in congress you know it was it was really a a window on an extraordinary time in in america and of course at that time we were probably more united than at any time in my lifetime about a common goal i mean that that was the time when people like bobby feller and all the athletes of the day the war broke out went down and enlisted and and people really did voluntarily in a very high percentage uh play by the rules in terms of gasoline rationing and sugar rationing and meat rationing and all that and uh we all bought savings bonds at uh at school and to help out the troops so it was it was quite a period so somewhere along there you started investing and then change the nature and i've read stories that you started investing at 13 or whether they're true or not but somewhere around that and then so 11. what created the fascination with investing it took me five years i had to save a hundred and twenty dollars every five years to get 120 to buy a stock uh three shares of city service preferred when i was uh 11. i i just my dad originally was in the investment business he really wasn't very interested in it but i would go down on saturday morning and uh and he had these books there in the office and i read all those and i went to omaha public library and i read every book on investments in the omaha public library by the time i was by the time we moved to washington and then when we got here i had the library of congress [Music] did you go through all those i i i read everything and i i i just found it fascinating and and incidentally i find it fascinating today i mean it's it's it's it's a it's an activity you know if you're you're a baseball player or something your legs may go or something well my legs are long gone but it doesn't make any difference in what i do so it's uh i have i literally have as much i always have had fun working but i have as much fun now as i've ever had in my life and i work with people i love doing what i love and it just doesn't get any better than that well the quote is that you tap tap dance to work so what what makes you do it don't ask me to demonstrate but it's incidentally it was nice to get that round of applause at the start but i've learned that crowds now applaud at the start because i'm 83 and they're not sure i'll be around at the end of the talk i've shared enough dinners with you know that you have more energy than anybody i i know so let's let's switch to a little bit on the philanthropy side so president of georgia talked about the the giving pledge how how did you come up with the idea with uh with bill and and how are you doing on it yeah well we're doing great and it was i don't know three or four years ago bill and melinda and i were out in california and talking and i'm not exactly sure how it came up we decided to call or write david rockefeller and ask if he would host a dinner in new york uh for about 16 or 18 people just to talk about philanthropy and oprah winfrey came and and mayor bloomberg was there and it was a private dinner and i started having these people talk around the table as to how they developed their philosophy of philanthropy it must have taken us two and a half hours or so to get around i mean people were really interested in it so uh bill and i were at that dinner we decided that maybe there would be a possibility of of taking this passion which these people show had shown and and and going to other people that had a great deal of money and see if we could develop something uh where people would pledge at least half their net worth and we now have about 115 people i've been i've been dialing for dollars i call these billionaires up and uh sometimes they tell me how they can't do it and i decided i tell them i'm going to write a book on how to live on 500 million dollars because apparently there's this great need hey they just can't seem to figure out how to do it then they need help uh but it it's it's been very rewarding and and i i received a letter from one woman she and her husband had up over 10 billion dollars and she sent me a tie she had shoe ties and she sent me this handwritten note and said that that they hadn't really faced it it's a little like facing your own mortality to some extent making that plan and that's tough for people sometimes and uh so she and her husband had changed things and and over half of that 10 billion was going to go to philanthropy that they they do tend to postpone the decision so i tell these i tell these people i call you know the last will is what counts but i tell them you know are you if i'm talking to some 70 year old i said do you really think your decision-making ability is going to be better when you're 95 with some blonde on your lap or now so let's get on board fellas you know and i assume that that convinces him maybe a 70 year old decision is better at that point bill is not a tribute but bill has gotten people around the world because he travels more than i do but uh uh what we're hoping is people do pick up on norms i mean when i was young i read about carnegie and rockefeller and different people build it too and and you do pick up behavior from those who come before and and we've collected letters from every one of these people they're up on a website at the givingpledge.org and and i think they're worth reading they're pretty remarkable and of course what we really want to do is get the younger people like mark zuckerberg's joined us for example and and he obviously is going to appeal to a much wider group than than i would uh so we are we hope it becomes you know this gospel of wealth that andrew carnegie uh came up with a hundred years or so ago that's influenced all kinds of people well we've got better stories than that you know on these on these letters so i i just hope it moves now i don't think i want to emphasize one thing nobody in our group has given away a dollar that anyway affects how they live i mean i have the much greater admiration frankly for the person who drops five dollars or one dollar in a collection plate on sunday where it makes a difference in whether they go take their kids to a movie or whether they go eat out or something of sort they are actually giving up something that has utility to them i am giving up nothing that has utility to me i have everything in the world i want that that that can be bought by money and and uh so i have a whole bunch of stock charges because they have no utility to me and they can possibly have enormous utility to other people in vaccines or t education or all kinds of things so the people that give up something that that actually can have utility to their family and give that to some other person so it has utility them i those are the people i really think deserve the kudos but it's still nice to go where the money is i mean you know it's with the willy sutton approach and and uh so if we can get if we can work on polio or something like that and it takes big contributions then we want to go after it so i mean the unique part of what you've done is with bill and melinda and their foundation and and on the one hand how you're doing it and secondly that you've gone and said night whatever the number will be but most almost all you're watching all my berks you're right and so and so talk about the gates relationship and why you chose them as opposed to creating your own foundation or well originally my wife and i planned when we were in our 20s that when we had everything we needed we would we would use the rest for society and i thought she would outlive me uh she was younger and women live longer and then she she died in 2004 so i had to come up with a different plan and you know if you've read adam smith in the specialization of labor you know that you know that if you're if you're good at one thing you're not necessarily good at another you ought to get the person you ought to use your talents where they're most useful and get other people to give their talent so you know when my wife had babies i mean i went to an obstetrician i didn't deliver myself when i get a toothache i go to a dentist so i want to go to people who were very good at giving away money and who were younger energetic smart and had the same objectives in philanthropy that i did and and the basic principle of the yates foundation is that every human life has equal value and if you start with that as your basic assumption then a lot of things flow from that and bill and melinda as well as my children because i have foundations for each one of my three children that are of significant size they and you can read the letters i wrote them up on the berkshire hathaway website i do not direct them to do anything but i do tell them to swing for the fences i tell them if they succeeded everything they do in philanthropy they're doing the wrong things because the important things are the tough ones and you're going to fail on some of those but i have got much younger people very energetic people common objectives and they work for nothing so that's that's not a bad deal right that stretches the money a long way yeah absolutely and and the way i read it is that you require them to actually move the money out the other day they got it they got to spend it and when i die uh all of the money has to be spent within 10 years after the estate is closed because i do not think that i can pick out some little great great grandchild you have to be born you know just because he has the right name a buffeter she has the right name and they will be the best custodians i mean there'll be plenty of philanthropists 50 years after i died i take care of the problems in 50 years but i want the money to get spent promptly and then and i don't believe in trying to control things from the grave i mean i like to think i can think outside the box but thinking outside of that particular bargain that may take a lot of three to figure out but um recently i read a article about east lake and tom cousins so this week that as many people know that pga finishes up his tournament at east lake which is a golf course in atlanta and and the story i read about the development is that you've now helped tom cousins in in the development work he does with communities talk a little about that because that's a little different than this type of thing yeah but it's the same theory of loving the back people who are putting their own time and energy and who are successful in into a project that's worthwhile tom cousins is a remarkable man who lives in atlanta uh just extraordinary and uh he took this terrible terrible neighborhood called east lake in atlanta and against a lot of community opposition everything was it was it was crime ridden and nobody did it well in school and everything else and he decided you had to apply to apply a holistic approach to it and then and you couldn't just attack this thing or that thing and so he he worked for probably 10 years to develop this entirely new community out of this total disaster and then tom and i talked about it and i said tom you know everybody's going to say that that's only it can only be done because you're tom cousins and you live in atlanta and you've done this so uh he and i on a phone and julian robertson but primarily tom uh decided to see if we could replicate this in other communities and it seemed to me that and and tom that new orleans was a great one to do it i mean they've been wrapped by the katrina and everything so so uh we've taken it to the we've taken it to to new orleans where we've got hundreds of people and these it's it's mixed income type uh a community i mean we do we do not want to have it with everybody being subsidized we we want to create a new kind of community that where people of different races different economic conditions work together play together and it's been successful in new orleans we went to indianapolis it's been successful there and we've got about 11 more towns we're working on now and so uh tom cousins has really really come up with something he had an op-ed in the wall street journal about a week ago describing this but he's a fantastic human being and when you get a chance to to join forces with somebody that as as high quality as that and energetic and smart and putting his own funds in it you know you just got to jump at the chance let's uh we'll switch the economy now what's going on and move from philanthropy to the economy um that you create your wealth off of that you can do these wonderful great things with so what do you see in the economy and what you're seeing your companies are operating companies and from an investors well our company businesses come back very well from five years ago when the panic hit and it was a panic like nobody's ever seen i mean whatever you think about it it was worse uh uh i i'm dead serious about that we were right on the edge of the cliff uh and fortunately i give enormous credit to uh uh both ben bernanke uh and hank paulson and and tim geithner and and frankly even though i didn't vote for him never voted for him president bush uh you know i don't know how many of you have studied economics but in adam smith they talk about comparative advantage and and and you know keynes talked about animal spirits and all those people but president bush really came out with a great economic insight of all times and he did it in ten words in september of 2008 he went out there from the white house and he said if money doesn't loosen up this sucker could go down and i mean that that goes right up there tear down those plaques of adam smith and and he backed up he backed up those fellows and and so it we've come back from it but businesses come back you know a lot of companies are having record profits including many of ours and the american populace as a whole has not come back i mean the inequality is getting wider the forbes 400 which just came out showed aggregate wealth for the forbes 400 of 2 trillion you go back 20 years and that was 300 billion so it's up six or seven for one it's different people to some extent but this is the top 300 billion to 2 trillion and if you read the paper today you'd have seen that the median income you know is the same place it was in terms of real purchasing power uh from 1989 it hasn't changed so it's the inequality is getting wider uh the rich are doing extremely well extraordinarily well uh and uh business is doing well business profit margins are terrific compared to the record historically business returns on tangible equity are terrific uh but most you know a great many people in our country if you take the bottom 20 of households that's 20 24 million households or something like that housing you know close to six about 60 million people you know it's the top level is twenty two thousand dollars and i'm i don't wanna try to live on twenty two thousand dollars with a couple of kids so i we've got we've got an economy that is delivering 50 000 of gdp per capita and we've got an awful lot of people that aren't living well so we we have learned how to turn on lots of goods and services but we haven't learned as well how to have everybody share in the in the bounty that we have so how do you think is that that we just got to grow out of it to provide we're growing we're growing i mean if you take even two percent a year if you think about it people feel very unhappy with two percent a year but the population grows one percent a year so that means one percent per capita real growth that means in 20 years a generation there's a 20 gain in in in gdp per capita that's not bad in the generation and but the question is how it gets distributed but this country will grow this system works you know in my lifetime i was born in 1930 i was conceived in 1929 because my dad was a stock salesman and and after the crash he didn't have anything to do there so i i look back with great fondness on the 1929 crash but since night since 1930 since i was born in 1930 real gdp per capita has increased six for one just think of that six for one i mean you went centuries when nothing happened for people and this this this country works i mean i consider the luckiest person on a probabilistic basis that ever lived is the baby that's born today in the united states i mean it is a fabulous country and the market system works all kinds of things but we we do have to in my view we have to make sure that everybody participates to a reasonable degree we don't want equality results but we also want a base level that's that's that's satisfactory for our people well let's uh let's turn it over to some student questions so they're going to put a microphone out here and uh hi i'm uh carson tavalli uh senior nes fest i was wondering if you have any stock tips for any of the students you know we're all trying to uh make make a little living i didn't think they taught that at georgetown they now they the best the best investment i ever met well i i bought a book in 1949 by a fellow named ben graham called the intelligent investor i don't remember what i paid but aside from what i paid for my two marriage licenses that was the best investment i ever made and uh it's very important to have the right framework you need you need you need to have an approach to investing that's sound and graham's approach is is simple uh but some people uh adopt to it and and and which i did immediately and and most people don't um but if you have the right philosophy you will find opportunities uh as you go through the next 20 30 40 50 years and and frankly you're most likely to find them uh when in periods like five years ago when we were having the panic i mean that uh stocks sell at silly prices from time to time most stocks at one time or another sell at very silly prices and it doesn't take a high iq to figure out that they're cheap but it does take a temperament that's willing to step up and actually act i tell people if they're going in the investment business if you've got 160 iq sell 30 points to somebody else because you won't need it i mean that it yeah i mean i figured out very early you don't have to be that smart of this business which is fortunate but you do have to have the right temperament and you have to be able to ignore what other people are saying and and simply look at the facts and decide is this stock which is selling it x worth 2x and occasionally you'll find things like that and if when you don't find them you don't do anything so that's my generalized stock tip no names i'll make it simpler just buy bank of america you'll be set now yeah it worked all right for him yeah that's right that's right next question um good afternoon my name is nicholas walker i'm a sophomore in the sfs as well um so mr buffett in the past you invested in china south korea and israel and recently you partnered with 3g capital and joshua lemon from brazil over for the heinz deal does this mean are you tempted to venture into the brazil market next i didn't get the question question you did the heinz deal the question is are you going to invest in brazil next oh uh i don't know where i'm going to invest next that's what that's what makes my job interesting i mean i'm i'm i'm not kidding i mean if you went out and played golf and every drive went in the hole you'd give up the game wouldn't be interesting i mean what what's interesting is when you get in the rough and you have to come out and a few things like that so i i love the fact that i don't know what i'm going to do next you mentioned the israel investment in 2006 in the fall i got a letter from a fellow and i never heard of him and i never heard of the company he was talking about but he said my name is aton wardheimer and i want to tell you a little about my company his car the letter was a page and a half long and he said if he sold the company the family sold the company the only company they wanted to sell it to was berkshire hathaway and if i was interested they'd be glad to come over from israel and explain it to me and it was a it just jumped off the page that this was an interesting idea so i emailed them and they came over very shortly and and we bought the business we we handed them four billion dollars for 80 of the company where i've never seen it or anything etan kept saying you got to come over to israel and see the plants and everything you won't believe how wonderful they are and i said hey tom i don't go to council bluffs iowa you know i mean i am doing fine in omaha and uh he said no you know you got to see it i said no no i don't i i said we can make a deal without seeing it he said well if you buy if you buy the company will you come and see it i said if we buy the company i'll come so we bought the company and i went over there and it's true i've never seen plants like this it was the greatest operation i've ever seen and etan said to me said you know that's why i want you to come over to see these things i said listen if i'd come and see them i'd pay more money so so it uh we we have a wonderful partnership with the people in israel but i don't know tomorrow uh our partnership with the people in brazil with george apollo lemon and his associates they are sensational people uh i got to know george apollo when i was on the port of gillette with him and the opportunity to buy into a wonderful business like heinz and to be partners and they do they'll do all the heavy lifting they run the place uh with georgie pollon associates i mean it's just it's a it's a great opportunity for us and i don't know what the opportunity will be tomorrow with george apollo is last december uh i was going out to boulder colorado where he had a group that met and he said i think i've got an idea might interest you when i get out there so i went out there and and uh and as we came back on the plane he explained what he was thinking about in terms of heinz and i said count me in and uh and i'll tell you one other thing which is quite impressive about him after i said that and went a little a little further on the thing he sent me a one-page governance description of how it would work between the two of us and he sent me a very brief description of what he thought would be a fair deal for both of us i didn't have to change a word i mean those are the kind of people you like to associate with you mentioned that people will make the same mistakes in terms of the boom bus cycle and but there have been several recent financial developments such as the creation of derivatives which has since exploded recently and you once called derivatives uh weapons of mass destruction now that derivatives are a 700 trillion dollar industry do you see this as setting the stage for the next financial crisis it it's very hard to tell that you know we've been active dodd-frank and if you if you look at the what happened in september and october of 2008 there were some extraordinary things done the federal reserve poured 85 billion dollars into aig and if they hadn't our world would be very different hank paulson guaranteed money market funds at a time when 30 million americans with money market funds were panicking and when 300 billion in three days had gone out of the non-government money market funds 125 have gone back into the government 300 billion that was that was almost equal to the deposits of wells fargo or wachovia at the time which were then two separate institutions both of those authorities have essentially been they i don't think they can do that under don frank i think they i don't think that bernanke could do what he did and i don't think that paulson can do it what he did uh when there's a panic the only thing that will stop it basically is when somebody who has the ability and the will says i'm going to do whatever it takes and basically that's what bernanke and paulson and finally congress in a kind of a reluctant way but said to the american public and you could believe it if bernanke said i'm going to do whatever it takes nobody knows what section 13 3 or of the federal reserve act is and it wasn't probably meant to do what he did with it but he did it and the same way with the they call it the exchange stabilization fund of the of the treasury nobody it was enacted back in 1934 nobody dreamt it would be used to take care of money market funds but you had these strong characters who had the ability to print money in the case of bernanke and they said we're going to do whatever it takes and the president was behind him that is the way in the real panic and and i i worry actually that you know congress doesn't like to give anybody that much authority and it bothers them that the fed has all this authority or that paulson acted as he did in tarp and i tip my hat to them and i i'm not sure there will be another panic you know where it comes from who knows but when that time comes the question will be are the people who have panicked who have frozen who have caused the economic engine to stop you know will they believe and come right back and be doing something and i'm not sure whether the what's been enacted is a plus or a minus in that regard regardless the com the country will come through but we it's very hard to write regulations that will keep people from acting foolishly particularly when acting foolishly has been proven very profitable over the preceding few years it's just it's just the way it works humans you know they they all think they're cinderella with the ball you know and they think you know as the night goes along the music gets better and the drinks flow and everything and they think they go oh they all think they're gonna leave it two minutes to twelve and of course there's no clocks on the wall and they're still dancing so it'll happen again but buy when it happens next question i'll be buying hi my name is john ruff i'm from georgia so i'm familiar with the work over at east lake that's great appreciative but um you talked a little bit about income inequality but if you look at class mobility rates and if you look at um average household income for middle class families measured with inflation a lot of these rates have been trending down since the 1970s and some may argue that it's harder today for the middle class than it's been in 30 years and i was wondering if you had any more thoughts on how a rising tide can lift all boats and not just the yachts yeah well that's what's happening it's like john kennedy talked about rising tide lifting yachts and the yachts have been lifted like i say for the top 400 from 300 billion to 2 trillion just in the last 20 years there is a very i think structural problem as a market system gets more and more specialized if you go back to an agrarian society like we had a couple hundred years ago with most people working on a farm most people felt fit most job requirements i mean it was that as the world has become more and more specialized uh i think we keep moving away from that so a market system will not pay well for a significant percentage of society they they aren't needed to keep gdp itself going up and and people at the top and i think government has to address that that uh i think it's i i sometimes toss out to students this proposition imagine that it's [Music] 24 hours before you're born and you're sitting there johnny or joni we don't know yet and you're in the womb and the genie comes and the genie says john or joni you strike me as a remarkable potential human being and i'm going to give you an enormous responsibility i'm going to let you decide the world how the world is going to work into which you're going to emerge you can decide on the economic system the social system the political system you design it and whatever you design that's going to be the system in which you live your children live grandchildren live and you being wise beyond your minus 24 hours of age say and all about you genies what's the catch and the genie says there's one catch just before you emerge having designed the system put it in cement you're going to go over that barrel over there that has seven billion slips in it one for every human being in the world and you're going to pull out a slip it may say male it may say female it may say white it may say black it may say infirm it may it may say strong it may say bright it may say it may say uh below average uh it may say united states it may say bangladesh now not knowing which ticket you're going to pull out what kind of a world you want to design well you certainly want to design a world that produces lots of goods and services and keeps producing more and more you want a lot of stuff around it could be the world's fairest society but if it's on a barren desert island isn't going to do anybody so you really want something that works in terms of output but once you have something that works in kind of in terms about but you know you certainly want something that eliminates fear from everybody's life now that doesn't just mean a lot of cops it means fear of old age fear of health all of those problems and you certainly want a system not knowing what tickets you're going to get that takes care of the people that don't survive so well in that market system which mark which maximizes the amount of output your first goal and i think we've done a wonderful job at the first stage we have learned how to turn out lots of stuff we have not thought as much although we've thought a fair amount i mean when social security came in and all that i mean this country has developed in terms of thinking about how a rich family should behave but we have not i think we are in the stage where we need to focus more on making sure that the people who get the bad tickets do better than they are and you know we said that blacks were three-fifths or slaves or three-fifths of a person back when we started and said you know we said all men are created equal in 1776 and in 1789 we said blacks are three fists of a person you know we said we not only said all men are created equal but the gettysburg address you know lincoln repeated it it was 1920 before we passed the 19th amendment for for women so we just we we treated women as a essentially different class for all those years so i think we've got i think we've gone in significantly in the right direction in terms of behaving better as a society and i think we've gone terrifically in the right direction in terms of turning out lots of stuff but i think we have to address the question of how do you treat the people that are left behind in a system that maximizes the output of goods and services and that can only come through government good evening my name is james fischbach i'm the school of foreign service first year it's no doubt that you're an outspoken fan of ben bernanke but no he's going to be stepping down in january of next year whoever takes over the position do you think that they should contin continue the fed's controversial buy-back program and if so for how long well it i think i think they should take bernanke's approach which he says he's going to keep doing it until he sees more improvement in the economy and i think he's been mildly disappointed uh in in not hugely disappointed but mildly disappointed in the rate of improvement uh in the economy uh in the last few years and therefore just the other day he said he's gonna you know extend it further until he sees it so he's he's not prejudging exactly when it's going to happen he's telling you the conditions under which he'll he'll change and the economy is getting better we are in an experiment which hasn't really been tried before i mean we you know we have a fed has a three and a half trillion dollar balance sheet and and uh uh buying securities is usually easier than selling securities sometimes people find out so we don't know how this game plays out uh and just the announcement whenever it was a few months ago with the hint that that tapering was going to occur you know that had some significant market reactions probably a hundred basis points or so in the tenure and what will happen when it when they actually if if they actually try to deleverage the fed i mean what has happened is the american public deleverage and and the government leveraged up through the fed when the fed if the fed deleverages that in any big way that will be that will be a new experiment and as we were talking earlier the question is when they do that the economy has to be growing faster and then the peace people don't take into account as they they're clear that they're going to stay there until the economy grows and it has no pressure on them in fact you know the fed is the greatest hedge fund in history i mean you've got a trillion one financed by currency in circulation which doesn't cost anything and they got about a trillion eight or nine for the banks at 25 basis points and i mean the fed is going to make 80 billion or something like that the fed is the fourth largest contributor to the united states government's revenues uh that there is now that wasn't the case a few years back but it's 80 or 90 billion a year probably and so and it is under no pressure there's none whatsoever to have to deleverage so it can pick its time and and if you have somebody wise there and i think bernanke's wise and i and i certainly expect his successor to be uh it can be handled but it is it is something that's never quite been done on this scale it'll be interesting to watch no it will be and we've seen the lesson in the market moving ahead and back just based on uh the last 30 days so i think we're going to take one more question and then uh for the next student my name is shelly and i'm from china i'm currently a graduate student in georgetown um my friend denis jiao and i are we are both a very big fan of you and your friend charlie and we read his book which is very interesting he had this whole system of criterias on how to evaluate a company it's all very confusing but he said that um warren and i are always staying away from the industries we don't know so you have candies railways and coca-cola but um now the world is changing and we are living in a new era the business models are changing the b2c platforms everybody is shopping online maybe in a few years everyone is going to pay with their iphones and bank of america no longer issues credit cards so non-profit is a new model and um dinosaur like making a do yeah yeah there's just so many things you don't know about he'll take out his flip phone and show you so he's not gonna be one this is my new one so the question is the business models are changing the world are changing they're the new technology they're changing everything there's no way you can just stay out of it and stay with the traditional now um for the private investors especially in the venture capital industry what would you think is the most important thing the key in evaluating a company it's we're not i'm not asking about doing mediocre not asking about being average but about excellent remarkable just name one thing the the most important thing is to decide is to be able to define which ones you can come to an intelligent decision on and which ones are beyond your capacity to evaluate you don't have to be right about thousands and thousands and thousands of companies you only have to be right about a company couple i met bill gates on july 5th 1991 we were at seattle and bill said you've got to have a computer and i said why and he said well he said you can do your income tax on it i said i don't have any income berkshire doesn't pay a dividend and he said well you can keep track of your portfolio and i said i only have one stock i said i mean he says it's going to change everything and i said well will it change whether people chew gum and he said well probably not and i said well we'll change what kind of gum they chew and not i said well then i'll stick to chewing gum and you stick to computers you know i don't have to understand all kinds of but there's all kinds of business i don't understand but there's thousands of opportunities there i did understand the bank of america you know and and uh and i'll be able i i'm able to do that i'm able to understand some given percentage but ted williams [Music] wrote a book called the science of hitting and in the science of hitting he's got a diagram shows him at the plate and he's got the strike zone divided into 77 squares each the size of a baseball and he says if i only swing it pitches in my sweet zone which he shows there and he has what his batting average would be which is 400. if he had to swing at low outside pitches but still in the in the strike zone his average would be 230. he said the most important thing in hitting is waiting for the right pitch now he was at a disadvantage because if the count was on two or one and two and so on even if that ball was down where he was only going about 230 he had to swing at it in investing there's no called strikes people can throw microsoft at me and you know you name it any any stock general motors and i don't have to swing and nobody's going to call me out on call strikes i only get a strike called if i swing at a pitch and miss so i can wait there and look at thousands of companies day after day and only when i see something i understand and when i like the price of which is selling then if i swing if i if i hit it fine if i miss it it's it's it's a strike but it's an enormously advantageous game and it's a terrible mistake to think you have to have an opinion on everything you only have to have an opinion on a few things in fact i've told students if when they got out of school they got a punch card with 20 punches on it and that's all the investment decisions they got to make in their entire life they would get very rich because they would think very hard about each one and you don't need 20 right decisions to get very rich you know four or five will probably do it over time so uh i don't worry too much about the things i don't understand if you understand some of these businesses that are coming along and can spot things on if you if you can spot on amazon for example i mean it's a tremendous accomplishment what jeff bezos has done and i tip my hat to him he's a wonderful businessman he's a good guy too but could i have anticipated that he would be the success and 10 others wouldn't be i'm not good enough to do that but i don't fortunately i don't have to you know i i don't have to form an opinion on on amazon and i do i did form an opinion on the bank of america and i form an opinion on coca-cola i mean coca-cola has been around since 1886. there's 1.8 billion 1.8 billion eight ounce servings of coca-cola products sold every day now if you take one penny and get one penny extra that's 18 million dollars a day and 18 million times 365 is 7 billion 3 less 730 billion or 6 billion 570 million dollars so annually 6 billion 570 million from one penny do you think coca-cola is worth a penny more than you know joe's cola i think so so uh you know and i've got about 127 years of history that would indicate it so those are the kind of decisions i like to make and you may have an entirely different field of expertise than i would have and probably much more up to date in terms of the kind of businesses that we're seeing evolve and you can get very rich if you just understand a few of them and and understand their future but fortunately i don't have to i mean if we go into heinz you know and i i look at people pouring ketchup on you know hamburgers and potatoes i don't think it's going to change you know and and the nice thing about some products travel some products don't travel candy bars don't travel well i mean if you look at the cadbury bars in england they don't sell well here and if you look at the hershey bars here they don't sell as well someplace else soft drinks travel and ketchup travels i like products that travel warren i want to thank you for your taking the time to work with the students today and i think for all the students out there just think about this as a person who with a passion he still has at 83 to make that right investment decision but importantly what we talked a lot earlier about is the ability to try to do something with all that wealth that will help a pretty near-term set of goals in society and i think you will find very few people in the world have been able to do both things so well as warren buffett has and there's a lesson to learn for all of us matt so thank you for spending time

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Id: KvJ0zBpx3LY

Length: 50min 29sec (3029 seconds)

Published: Sat Dec 04 2021