Warren Buffett speaks with Florida University

that allowed us to set up the Graham Buffett concentration in security analysis at the University of Florida College of Business and were honored that mr. Buffett has agreed to come and lend his name to this concentration the Graham Buffett course sequence is important to this College because it enables us to attract students who want this perspective on investing and the managing of corporations a perspective that has been successfully employed by mr. Buffett mr. Hawkins and before then Benjamin Graham this perspective is quite simple but sometimes lost in the complexity of our University analysis the perspective is that you have to understand the underlying economics of the businesses you invest in work in you have to be clear-eyed and not be swayed by the crowds of the passing fancies of the moment and you have to learn and stick to discipline principles of business valuation in the long run this disciplined approach will more often than not bring success or perhaps just as important avoid spectacular failures hopefully here at the University of Florida we can successfully convey those principles to our students and create a program that attracts the very best people and in time the very best employers as well so we thank mr. Hawkins for his gift and for creating this environment that makes it possible for a man like Warren Buffett to come to our University and share his thoughts with us today so without any more conversation let me introduce to you Mason Hawkins thanks a lot dr. Lori I've got a prepared things to to say but before I started I wanted to just say that looking around this audience it's a huge improvement from when Dan Colin which storm and some of the rest of us were here this group's been greatly upgraded as a Florida graduate living in the state of Tennessee it's a it's been a it's been quite an experience and so I can say without without any exaggeration it's great to be back in Gator country especially after our little sojourn to the city of Knoxville not too long ago if I ever hear a Rocky Top again it's going to be one time too many these are exciting times for value investors they're very exciting times to be University of Florida graduate business student today we're extremely fortunate and grateful to have a very special guest to share is many many insights with us is someone I've admired tremendously for the last 30 years and additionally he is a person I think each of us could pattern our lives after I as a role model even if he even though he happens to be an avid Nebraska corn Husker and we've got our scars for that too it's my honor as well as my privilege to welcome our lifetimes best long-term investor mr. Warren Buffett 100 yen 3,000,000 seems to be working I'd like to just say a few words pulmonary and then the highlight for me will be getting your questions in a few minutes good said that's I want to talk about what's on your mind I urge you to throw hard balls it's more fun for me if you if you put a little a little speed on the pitches as they come in that you can ask about anything except last week's Texas A&M gave it that's off-limits we have a couple of men here from SunTrust I was just up at the Copa meeting and I sent next to Jimmy Williams there who ran SunTrust for many years and he wanted to be sure that I wore this SunTrust shirt down here I've tried to get sponsorship on the senior golf store I haven't had much luck but now in the banker store I'm doing a little bit better than that he said I got a percentage of the increase in deposits in Gainesville a sec so all go out for son trust your old sub just ah I would like to talk for just one minute up to the students about your about your future when you leave here because there's you're going to learn a tremendous amount about investments and you'll learn to learn enough to do well you you've all got the IQ to do well you've all got the initiative and energy to do well or you wouldn't be you wouldn't be here and most of you will succeed in meeting your aspirations but in in determining whether you succeed there's more to it than intellect and energy and I'd like to talk for just a second about that in fact there was a fellow that pinky within Omaha used to say to he looked with three things and hiring people look for integrity intelligence and energy and he said if that person didn't have the first two that the latter two would kill him because if they don't have integrity you want to dumb and lazy you don't want them smart and energetic and I really like to talk about that first one cuz we know you've got the second two and and I did play along with me in a little game for just a second and in terms of thinking about that question that you've all been here I guess almost all of your second year MBAs and you've gotten to know your classmates and think for a moment that I granted you the right to buy ten percent of one of your classmates for the rest of his or her lifetime now you can pick one with a rich father that doesn't count I mean you've got to you've got to pick them pick somebody who's going to do it on their own merit and and I gave you an hour to think about it which one are you to pick among all your classmates as to the way you want old 10% up for the rest of their lifetime and I got to give an IQ test pick the one with the highest IQ I doubt it I got to pick the one with the best grades I doubt it you're not even if it the most energetic one necessarily you're the one who displays the most initiative but you're going to start looking for qualitative factors in addition because everybody's got it up right none better - and I would say that if you thought about it for an hour decided who you're gonna place that bet on you'd probably pick the one who you responded the best to the one that was going to have the leadership qualities the one who's going to be able to get other people to carry out their interests and that would be the person who was generous and honest and gave credit to other people even for their own ideas all kinds of qualities like that and you could write down those qualities that you admire in this other person whoever you admire most in the class and then I would throw in a hooker I would say as part of owning 10% of this person you had to agree to go short 10% of somebody else in the class that's far far this isn't hey you think when I'm going like you're short of and again you wouldn't pick the person with the lowest IQ or the you would start thinking about the person really who turned you off for one reason or another I mean advert in various qualities quite apart from their academic achievement but they had various qualities you shouldn't really want to be around them and other people didn't want to be around them and what were the qualities that lead to that well it'd be a whole bunch of things you know but it's the person who's egotistical the person who's bringing the person who slightly dishonest cuts corners all of these qualities and you could write those down on the right-hand side of the page and when you look at it you're okay with us you have done fine yeah what do I do with it he just came though just getting loose okay you can see why avoid technology chewing gum is about as far as I get as you looked at those qualities on the left and right hand side there's a one interesting thing about them it's not the ability to throw a football 60 yards it's not not the ability to run 100-yard dash in nine three it's not being the best looking person in the class they're all qualities that if you really want to have the ones on the left hand side you can have them I mean they are their qualities of behavior temperament character that that are achievable they're not forbidden to anybody in this group and if you look at the qualities on the right hand side the ones that you find turn you off in other people there's not that there's not a quality there that you have to have if you have it you can you can you can you can get rid of it and you get rid of a lot easier your age than you can at my age because most behavior is habitual and they say the chains of habit are too light to be felt until they're too heavy to be broken and there's no question about I see people with these self-destructive behavior patterns that my age or even 10 or 20 years younger and they really are entrapped by them they go around and they do things that turn off other people right and left and they don't need to be that way but by a certain point they get so they can hardly change it but at your age you can have any any habits any any patterns of behavior that you wish it's simply a question of which you decide and when it decide the ones that I mean if you like the Ben Graham did this has been Franklin did it before him but Ben Ben Graham in his low in his level teens looked around and he looked at the people he admired and he said you know I want to be admire so why don't I just behave like them and he found there was nothing impossible about behaving like them and similarly he did the same thing on the reverse side in terms of getting rid of those qualities so I would suggest that if you write those qualities down and think about them a little while and make them habitual you will be the one that you want to buy 10% on when you get all through and the beauty of it is you already know 100% you're stuck with it so you might as well you might as well be that person somebody else well it's that's a short little sermon so let's get on to what what you're interested in and like I say you can go all over the lot so I don't know exactly how we're going to handle this but but let's start with a hand here someplace or other where do we go for the first one yeah right here my thoughts about Japan I'm not a macro guy now I say to myself but Berkshire Hathaway can borrow money for 10 years at 1% in Japan now 1% and I say to myself gee I took Graham's class 45 years ago and I've been working hard at this thing all my life maybe I can earn more than 1% and I'm hungry to work hard at it one percenter it doesn't seem impossible does it so I wouldn't want to get involved in currency risk so I'd have to do it in something that was yen denominated so I have to get it I have to be in Japanese real estate or a Japanese business or something of sort and be and all I have to do is beat 1% that's all the money's going to cost me and I can get it for 10 years so far I haven't found anything that it's kind of interesting the Japanese companies earn very low returns on equity and they have a bunch of businesses that are in for five six percent on equity and it's very hard to earn a lot as an investor when the business you're in doesn't earn very much money now some people do it in fact I've got a friend Walter Schloss who worked with Graham at the same time I did and and it was the first way I went it stocks to buy stock selling way below working capital very cheap quantitative stocks I call it the cigar butt approach to investing is that you walk down the street you look around for a cigar but someplace and you find that you see one and it's soggy and kind of repulsive but there's one puff left in it so you pick it up and the puff is free I mean it's a cigar butt stock I mean you get one free puff out and then you throw it away and you walk down the street right now no wonder I mean it's not elegant yeah but it work no if you're looking for a free puff it works those will all return businesses but tying is the friend of the wonderful business it's the enemy of the lousy business you're in a lousy business for a long time you're going to get a lousy result even if you buy a cheap if you're in a wonderful business for a long time even if you pay a little too much going in you're going to get a wonderful result if you stay in a long time I find very few wonderful businesses in Japan at present now they may change the culture in some way so that that the management's get more stockholder responsible where their own returns are higher but at the present time you'll find a very lot of low return businesses and that was true even when the Japanese economy was booming I mean it's amazing they had a incredible market without incredible companies they were incredible in terms of doing a lot of business but they weren't incredible in terms of the return on equity that and that they achieved and that's finally caught up with them so we have so far done nothing there but as long as money is 1% I'll keep looking I mean that's yeah yeah you were rumored to be one of the rescue buyers of long-term capital what what was the play there what did you see well there's a story and the current Fortune magazine one has Rupert Murdoch's picture on the cover that tells the whole story of our involvement it's kind of an interesting story because I it's a long story so I won't go into all the background of it but I got the really serious call about long-term capital fraud but four weeks ago this Friday whenever it was it was a granddaughter I got in mid-afternoon and my granddaughter was having her birthday party that evening and then I was flying that night to Seattle to go on a 12-day trip with gates on a to Alaska and a private ring all kinds of things where I was really out of communication but I got this call on a Friday afternoon saying that things were really getting serious there I'd had some other calls before that the article gets into a few weeks earlier I know those people most of them pretty well a lot of them weren't Salomon when I was there and the place was imploding and the Fed was sending people up that weekend and so between that Friday and the following Wednesday when the New York Fed in effect orchestrated a rescue effort but without any federal money involved I was quite active but I was having this terrible time because we were sailing up through these sort of these canyons which held no interest for me whatsoever in Alaska and and the captain would say you know if we just steer over here we might see some bears and whales and I said steer where you got a good satellite connection because I want so so it was a deck there's a picture of course where I've got my old faithfuls going off behind me and I've got my back to it I'm on the phone which was the people the group thought has got a funny the way I'm working the phonebook we put in a bit on on Wednesday morning I was by that I was in Bozeman Montana and I talked to Bill McDonough the head of the New York Fed but about 10 o'clock noon they were having a knee of the bankers at 10 o'clock that morning in New York and I caught him right we actually delivered a message to him he called me out there in Wyoming a little bit before 10:00 New York time and we made a bid it was a it was because it was being done at a long distance and everything it was really the outline of a bed but in the end I was a bid for 250 million essentially for the net assets of what we would have put in 3 and 3/4 billion on top of that and it would have been 3 billion from Berkshire Hathaway's 700 million from AIG and 300 million from Goldman Sachs and we submitted that what we put a very short time fuse on it because when you're bidding on a hundred billion dollars worth of securities that are moving around you don't want to leave a fixed price bit out there very long plus we were worried about it getting shopped in the end 8 the bankers made the deal and but it wasn't it was an interesting period the whole long-term capital management and I hope most of you are familiar with it but the whole story is really fascinating because if you take John Meriwether and Eric Rosenfeld Larry Hill and branch Greg Hawkins victory Ghani the two Nobel Prize winners are in Mertens Shoals if you take the 16 of them that they probably have as high an average IQ as any 16 people working together in one business in the country including at Microsoft or wherever you want a name so that incredible amount of intellect in that room now you combine that with the fact that those 16 had had extensive experience in the field they're operating I mean this is this one it was not a bunch of guys who have made their money you know selling men's clothing and then all of a sudden went into the securities business or anything they had they'd had in aggregate the 16 that probably had 350 or 400 years of experience doing exactly what they were doing and then you throw in the third factor that most of them had virtually all of their very substantial networks in the business so they had their own money up hundreds and hundreds of millions of dollars of their own money up super high intellect working in a field they knew and essentially they went broke and that to me is absolutely fascinating I mean I that if I ever write a book it's going to be called why smart people do dumb things my partner says it should be autobiographical but I what buddy this might be an interesting illustration and these are perfectly decent guys I know I respect them and they helped me out when I was at problems with Salomon and so they're they're not bad people at all but to make money they didn't have and didn't need they risked what they did have and did need and that's foolish that is just plain foolish I'd put my game is what your IQ is if you if you risk something that is important to you for something that is unimportant to you it just does not make any sense I don't care whether the odds are a hundred to one that you succeed or a thousand one to succeed if you hand me a gun with a thousand chambers out a million chambers in it and there's a bullet in one chamber and you said put it up your temple how much do you want to be paid to pull it once I'm not going to pull it you know 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 so I'm not interested in that kind of a game and yet people do it financially then without thinking about it very much there was a great book wasn't a great book was a great title it was a lousy book written once with a great title by Walter Guttman the title was you only have to get rich once now that seems pretty fundamental doesn't it what is what difference if you've got a hundred million dollars at the start of the year and you'll come it you're going to make ten percent if you're unleveraged and 20% of your leverage 99 times out of 100 what difference does it make the end of the year whether you got 110 million 125 makes no difference at all I mean if you if you die at the end of the year you know the guy who writes up the story may make a typo and he may say 110 even be 120 so you have nothing at all you know what it can't it makes absolutely no difference makes no difference to your family makes no difference to anything and yet the downside particularly managing other people's money is not only losing all your money but it'sit's disgrace and humiliation and and facing friends as money you've lost me I just I just can't imagine an equation that that makes sense for and yet sixteen guys with very high IQs who are very decent people entered into that game and you know I think it's madness and it's it's it's produced by an over-reliance to some extent on things you know those guys would tell me back when I was in Solomon you know that a Six Sigma event wouldn't you know wouldn't wouldn't touch us or a seven Sigma bent but they were wrong I mean that their history does not tell you the probabilities of future financial things happening and they had a great reliance on mathematics and they felt that that debate of the stock told you something about the risk of the stock it doesn't tell you damn thing about the risk of the stock in my view had and and sigmaz do not tell you but the risk of going broke in my view and maybe interview now to what but I you know I I don't I don't like to even use them as an example because they are I mean the same thing in a different way could happen to any of us probably where we where we really have a blind spot about something that's crucial because we know a whole lot about something else it's like henry kaufman said the other day said the people are going broke in this situation are just two of two types the ones who knew nothing and the ones that knew everything and it's it's it's it's sad in a way i urge you in anything we never basically borrow money i mean that we get flow through our insurance business and do kidding but i never borrowed money and i never borrowed money when i had 10,000 bucks basically because what difference did it make I was having fun as I went along and it didn't here is what I had ten thousand dollars or a million dollars or ten million dollars you know except if I had a medical emergency or something had come along like that but I was going to I was going to do the same things when I had a lot of money is when I had very little money yeah yeah if you think about the difference between me and you in terms of how we live you know we wear that we wear the same clothes basically SunTrust gives me mine but you what wait so we wear the same pose we eat you know we we all have a chance to drink the juice with the gods here yeah but with what we all go to McDonald's or better yet Dairy Queen and and we we live in a house that's warm and winter and cool in summer and and we watch Nebraska Texas A&M on a big screen you know you see it the same way I see it we do everything our lives aren't that different you know that you get decent medical care something happens to you and I'll get decent medical care the only thing we do is we travel differently yeah I write around this little plane I love it and that takes money but if you leave if you leave that aside if you leave that as we travel differently but other than travel you know I would think about it think what what can I do that you can't do now I get to work in a job that I love but I've always worked in the job I love I love it when I loved it just as much when I when it was a big deal if I made a thousand bucks and I urge you to work in jobs you love I mean I think you're out of your mind if you take keep taking jobs that you don't like because you think it'll look good on your resume I was with a fellow at Harvard the other day who was taking me over to talking he was 28 and he was Tommy oh I already done in life and which is terrific and and then I said what you do next and he said well I said after I get out my my MBA says I think maybe I'll go work for management consulting firm because it looked good on my resume I said why isn't here but 28 you been doing all these things I mean you got a resume that's 10 times as good as anybody I've ever seen in our e I said you take another job you don't like Istria is it isn't that look like saving up sex for your old age you know I mean there comes a time when you ought to just start doing what yeah yeah okay so I I think I got the point across them but I you ought to take a job when you get out here take a job you love don't take a job that you know you think is going to look good on your resume take a job you love it you may change it later on but you'll jump out of bed in the morning I mean when I got out when I got out of combi the first thing I tried to go to work for Gramm immediately I offered to go to work for him for nothing he said I was overpriced but but at but I kept pestering I went out to him on I sold securities for three years and I kept writing him and giving him ideas and we always and finally I went to work for a couple years and it was a great experience but I always really worked in a job I had worked in a job that that I would that you know loved doing and you should really take a job that if you were independently wealthy you would take that's that's the job to take because that's the one that you're going to have great fun and you'll learn something you'll be excited about it and you can't miss you may goes do something else later on but but you'll get way more out of it and I don't care what the starting salary is or any sort I don't know how I got off on that but I there I am so I I do think that that if you think you're going to be a lot happier if you've got to X instead of X you're probably making a mistake I mean it the guys in the auto you ought to find something you like that's that works with that and it and you'll get in trouble if if you think that making 10 X or 20 X is the answer to everything in life because then you will do things like borrow money when you shouldn't or or maybe cut corners on things that your boy wants you to cut corners on ER it just doesn't make any sense you won't like it when you look back on it yeah like I don't need me I mean what makes the company I like I like businesses I can understand we'll start with that that narrows it down about ninety percent CI there all kinds of things I don't understand but fortunately there's enough I do understand and you have this big wide world out there almost every company's publicly owned so you got you got all American business practically available to you now to start with it doesn't make sense to go with things that you think you can understand but you can understand something I can understand this I mean you can understand this anybody can understand this I mean this is a product that basically hasn't been changed might say that of the cherry but you know since 1886 or whatever it was and it's a simple business it's it's not an easy business I don't want a business it's easy for competitors so I wanted a business with a moat around it I want a very valuable castle in the middle and then I want to i want to i want the duke who's in charge of that castle to be honest and hardworking and able and then I want a big moat around the castle and that moat can be various things the moat in a business like our auto insurance business at Geico is low cost I mean if people have to buy auto insurance so everybody's gonna have a one auto insurance policy per per car basically or for driver and and I can't sell them 20 you know but but they have to buy one what are they going to buy on they're going to buy on based on service and cost most people will assume the service is fairly identical among companies are close enough so they're going to do on cost so I got to be the low cost producer that's my mobile the extent my costs get further lower than the other guy I've thrown a couple of sharks into the moat you know but all the time if you've got a wonderful castle there are people out there going to try and attack it and take it away from you and I want a castle that I can understand but I want to castle with a moat around it 30 years ago Eastman Kodak smote was was just as white as coca-cola smoke I mean if you were going to take a picture of your six-month-old baby and you're going to want to look at that picture 20 years from now and you're gonna look at 50 years from now and you're never going to get a chance I mean you're not a professional photographer so that you can evaluate what's going to look good 20 or 50 years ago what is in your mind about that about that photography company is what counts because they are promising you that the picture you take today is going to be terrific to look at 20 or 30 or 50 years from now about something that's very important to you maybe your own child or whatever it may be well Kodak had that in spades 30 years ago I own that they had what I call share of mine forget about share market share mine they had something and everybody's mind around the country around the world with a little yellow boxing ring that said Kodak is the best that's priceless they've lost some of that they've been lost at all and not due to George Fisher runs to George's doing a great job but they let that moat narrow they let the Fuji come and start narrowing the moat in various ways they let them get into the Olympics and take away that special aspect that only only Kodak was fit to photograph the Olympics so Fuji gets there and immediately in people's minds Fuji becomes more on a parity with with Kodak haven't seen that with coke cokes mold is wider now than it was 30 years ago you can't see the moat day by day but every time you know the infrastructure gets built in some country that isn't yet profitable for coke but will be 20 years from now the moat is widening a little bit that things are all the time changing that mode in one direction other ten years from now you can see the difference our managers are the businesses we run I've got one message to them you know which is the widening moat and we want to we want to throw crocodiles and sharks and everything of Gators I guess into the end of the moat to keep away competitors and that that comes from out through service it comes about through quality of product it comes about through cost it comes about sometimes through patents it comes about through real estate location so that's the business I'm looking for now what kind of businesses are mine going to find like that well I'm going to find them I'm going to find them in simple products because I'm not going to be able to figure out what the moats going to look like for Oracle or Lotus or Microsoft ten years you know I mean I it gets it the best business man I've ever run into and you know they've got a hell of a position but I really don't know what the business would look like ten years from now and I certainly don't know what his competitors businesses are going to look like ten years now now I'll name one I don't own I know what the chewing-gum business is going to look like from ten years from now I mean the Internet is not going to change that we chew them it's and nothing much else is going to change that we chew gum and then are there gonna be lots of new products is it really you know our spearmint usually fruit and all those going to evaporate some isn't going to happen you'll give me a billion dollars and tell me to go into in business and try and make it build them in Wrigley's I can't do it and that's the way I think about business I say to myself give me a billion dollars and how much can I hurt the guy give me ten billion dollars give me ten billion dollars and how much can I hurt coca-cola around the world I can't do it well those are good businesses now give me some money and tell me they hurt somebody in in some other fields and I can figure out how to do it so I want a simple business easy to understand great economics now honest enable management and and then I can see about in a general way where they're going to be ten years from now and if I can't see we're gonna be ten years and I don't want to buy it basically I don't want to buy any stock where if they close the New York Stock Exchange tomorrow for five years I won't be happy owning it I buy a farm and I don't get a quote on it for five years and I'm happy if the farm does okay you know I buy an apartment house don't get a quote on it for five years I'm happy if the apartment house produces the returns that I expect but people buy a stock and they look at the price the next morning and they decide whether they're doing well or not doing well that's it's crazy because they're buying a piece of a business that's what Graham the most fundamental part of what he taught me you know you're not buying a stock you're buying out you're buying a part ownership in the business you will do well if the business does well and if you didn't pay a totally selling price and that's what it's all about and you ought to buy businesses you understand just like if you're buying farms yottabyte farms you understand it's it's not complicated duh instead in calling us Graham Buffett I mean it's just pure Graham I I was very fortunate because I I picked up a book when I was 19 I got interests in stocks when I was about six or seven and I bought my first stock when I was 11 but I was playing around with all this stuff and I had charts and volume and I'm making all kinds of technical calculations everything and then I picked up a little book and it just said that you're not buying some little timber symbol that bounces around every day you're buying you're buying a part of the business and as soon as I started thinking about it that way everything else followed very simple so we buy businesses we think we can understand there's no one here they can't understand the coca-cola company I would say there's no one here that can understand the some new Internet company and I said at the annual meeting this year that if I were teaching a class in business school on the final exam I would pass out the information on an Internet company and ask each student a value and anybody that gave me an answer I'd flunk I don't know how to do that but people do it every day I mean it's more exciting I mean if you look at it like going the races or something and that's it that's a different thing but if you're investing investing is putting out money to be sure of getting more money back later you know an appropriate rate and to do that you have to understand what you're doing it in I mean you have to understand the business and you can understand some businesses but not all businesses yep Warren so you covered half of it which is trying to understand the business and buying the business but you also alluded to getting a return on the amount of capital you invest in the business as an investor and you know that comes back to what do you paying for the business how do you determine and what you think is a fair price to pay for the tough thing to decide but I don't want to buy into any business I'm not terribly sure of so if I'm terribly sure but it probably doesn't it probably is going to offer incredible returns I mean why should something that is essentially a cinch to do well offer you 40 percent a year or something like that so we don't have huge returns in mind but we do have in mind never losing anything and I mean we bought See's candy in 1972 See's candy was thin selling 16 million pounds of candy at a dollar 95 a pound and it was making 2 bits a pound or four million pre-tax we paid 25 million dollars for it took no capital to speak up when we look to that business of basically my partner Charlie and I really decide whether there was a little uncapped pricing power there in other words whether that dollar ninety five box of candy could just as easily sell for two or two and a quarter could sell for two hundred other 30 cents of pound was was four million eight on 16 million pounds which on a twenty five million purchase price was fine we didn't do any model in a way we've never hired a consultant in our lives with oh I mean we our idea of Consulting's gone buy a box of candy you know but what we did know was there was that they had share of mine in California I mean there was something special every person in California is something in their mind about See's candy and overwhelmingly was favorable they had taken a box you know Valentine's Day and giving some girl she kissed him if she'd slapped them you know we'd have no business but but if as long as she kisses him and that's that's what we wanted their mind sees candy getting kissed and if we can get that in the minds of people we can raise prices and and I bought that in half I bought it in 1972 we've raised every year I raise the price on December 26th I raise it the day after Christmas so that everybody could we sell a lot of Christmas back we'll make sixty million dollars this year we'll sell thirty million pounds make $2 a pound same business same formulas same everything 60 million but still doesn't take any capital and we'll make more money ten years from now but of that 60 million we make about 55 million in the three weeks before Christmas and our company song is what a friend we have in Jesus I mean it is a good business but the important by that business is the thing about a little people don't bite most people don't buy box chocolates to consume them so they buy them as gifts you know somebody somebody's birthday more likely it's a holiday it's a Valentine's Day single biggest day of the year Christmas is the biggest season by far but women buy for Christmas and they plan ahead and by over two or three week period men buy on Valentine's Day they're driving home we run ads on a radio you know guilt guilt guilt guilt you know the guys are gearing off the freeway right left and they won't dare go home without a box of candy when we get through with them on our radio ads so that Valentine's Day is the biggest day but can you imagine going all on Valentine's Day and our See's candy is now 11 bucks a pound thanks to my brilliance and and let's say there's there's candy available at $6 a pound but you really want to walk in on Valentine's Day and hand I mean this you I've got all these favorable images of the Seas candy over the years and she sees you and that's the way she thinks of you during the rest of your behave got a badly and you walk in and say honey this year I took a little bit and then hand her a box of candy I mean it just is no work yeah so in a sense it is it's a it's if there's what untapped price is price it's it's not price dependent basically think of Disney I mean Disney is selling will say Home Videos for I don't what 1695 1895 or whatever all over the world people and will say particularly mothers in this case have something in their mind about Disney I mean every person is room when you say doesn't have something in their mind about it I say Universal Pictures you don't have anything in your mind you know if I say 20th Century Fox you don't anything special in your mind but I say Disney you've got something in your mind and that's true around the world now picture yourself with a couple young kids you know who you want to put away for a couple hours every day a little peace of mind and you know if you get them one video they'll watch it 20 times so you go to the video store or wherever you buy the video are you going to sit there and premiere you know ten different videos and watch them each for an hour and a half to decide which one your kid should watch no I mean let's say there's one there for 1695 and the Disney there for 1795 you know if you take the Disney video you can be okay so you buy it and you don't to make a quality decision on something that you don't want to spend the time to do and so you can get a little bit more money if you're if you're Disney and you'll sell a lot more videos it makes it a wonderful business makes it very tough for the other guy how would you try to create a brand DreamWorks is trying but how would you try to create a brand it competes with Disney around the world and to replace the concept that people have in their minds about Disney with something says Universal Pictures you know so that the mother is going to walk in and pick out a universal pictures video and preference to a Disney it's not going to happen no coca-cola is associated with people being happy around the world where every place they're happy where Disney World or Disneyland what the World Cup will be at the Olympics where every place where people are happy happiness and cocoa together now you give me I don't care how much money and tell me that I'm going to do that with RC Cola around the world and have five billion people to have a favorable image in their mind about RC Cola can't get done you know and you can fool around with a full you can do anything you want to do you're not priced discounts on weekends that ever but you're not going to touch it and that's what you want to have in a business that's the moat and you want that moat to widen and if your sees candy you want to do everything in the world to make sure that the experience basically of giving that gift leads to a favorable reacts that means it means what's in the box it means the person that sells it to you because all our business is done when we're terribly busy I mean people come in and those weeks before Christmas on Valentine's Day there are long lines so five o'clock in the afternoon some woman is selling the last person the last box of candy and that person's been waiting in line for maybe 20 or 30 customers and if the salesperson smiles at that last customer our mode is widened and if she snarls at them our motors narrowed we can't see it it's going on every day but that's the key to it I mean it's the total part of the product delivery is having everything associated with with it say See's candy and something Pleasant happening and that's what business is all about yep qualitative analysis universe any other company not to those about the best buys the questions whether ever ever bought our company where the numbers told me not to and how much is qualitative and how much is quantitative the best buys have been when the numbers almost tell you not to I mean it because then you then you feel so strongly about the product and not just the fact that you're getting a used cigar but cheap that it's compelling I mean I I own the windmill company at one time so I've I you know windmills are cigar butts believe me yeah I bought a very cheap I wanted a third of working capital and we made money out of it but there's no repetitive money to be earned I mean there's a one-time profit in something like that and and it's just not it's not the thing to be doing I went through that phase I'm about streetcar companies and all kinds of thing but in terms of the qualitative I probably understand the qualitative the moment I get the phone call and in almost every business we've bought has taken five or ten minutes I mean in terms of analysis and we bought two businesses this year generally is you know eighteen billion or some deal I've never been to their home office yeah I hope it's there there could be just a few guys and say well what number should we send Buffett this month you know I can see you know coming in once a once a month yeah well we'll just tell them we've got twenty billion in the bank this month instead of eighteen billion or something but I've never been there and before I bought executive jet which is fractional ownership of jets and before I bought it I'd never been right I bought my family a quarter interest in the program three years earlier and I'd seen the service and seen the develop well and I got the numbers but if you don't know enough to know about the business instantly you won't know enough in a month or two months I mean you have to have sort of the background of understanding and and knowing what you do understand and don't understand then that that is the key it's defining what I call your circle of competence and everybody's got a different circle of competence the important thing is not how big the circle is the important thing is staying inside the circle and if that circle has only got thirty companies in it out of thousands on the big board long shell which 30 they are you're okay and you should know those businesses well enough so that you don't need to read do lots of work now I did a lot of work in the early areas just in getting familiar with businesses and and the way I would do that is I would go out and use what Phil Fisher called the scuttlebutt approach I'd go out I talk to customers I talk to I talk to come to maybe ex employees in some cases I talk to suppliers everybody every time I'd see somebody in an industry let's that was interests in the cold industry they go around see every coal company and ask every every CEO if you only buy stock in one coal company that wasn't your own which one would it be and why and you piece those things together and you learn a lot about the business after a while and finding as you get very similar answers as long as you ask about competitors that you know I would say if you got a silver bullet you know and you put it through the head of one competitor which competitor and why you know you'll find out who the best kind of industry is that in that case or the one that's coming up and there's so there's a lot of things you can learn about a business I've done that in the past on the businesses that I feel I could understand so I don't have to do much of that anymore it's a nice thing about investing is you're not before anything very new I mean you can do it if you want to but if you learn about Wrigley's chewing gum 40 years ago you still understand Wrigley's chewing gum it's not that not a lot of great insights to get anything the sword as you go on so you do get a database in print I had a guy Frank Rooney who ran Melville for many years his father-in-law died on a company called HH Brown a shoe company and he put up with goldman sachs but he's playing golf with a friend of mine here in florida and mentioned to this friend the guy said I should call Warren he called me at the end of the golf match and in five minutes I basically had a deal and but I knew Frank and I do the kind of business I sort of knew the basic economics of a shoe business and so I could buy it and quantity I decide what the price is but you know that's either yes or no I mean it I know I don't fool around a lot with negotiation soap they they name a price that makes sense to me I buy it if they don't I you know I was happy the day before so I'll be happy that they have to without only him yeah a lot of their profits come outside the United States how do you think the question is about the Asian crisis and how it affects a company like Coke that recently announced that the earnings actually they just announced a third quarter earnings but few weeks ago they tip people off that they were going to be lower than the fourth quarter well basically I love it but but because the market for coca-cola products is going to grow far faster over the next 20 years internationally than it will in the United States it'll grow in the United States on a per capita basis general faster elsewhere so the fact that it's going to be a tough period for who knows three months or three years but it will be tough for 20 years I mean people are still going to you know they're going to work productively around the world and they're going to find that this is a a bargain product in terms of the portion of their working day that they have to give up in order to have one of these or better yet five of them a day like I do it's a you know this is a product in 1936 when I first bought six of those for a quarter and sold them for a nickel each it was in a six and a half ounce bottle and you paid a two percent deposit on the bottle that was a six and a half ounce bottle for a nickel at that time it's now a 12 ounce can which if you buy it on on weekends or if you buy a bigger quantity Sosa's so much money doesn't go to the packaging you essentially can buy the twelve ounces for not much more than 20 cents so you're paying not much more than twice the per ounce price of 1936 them is a product that's gotten cheaper and cheaper and cheaper and relative to people's earning power over the years and which people love in in 200 countries you have the per capita use going up every year for products of over a hundred years old and that dominates the market I mean that is as unbelievable one thing that people don't understand is one thing that makes this product this is where tens and tens of billions of dollars is one simple fact about about really all colas but we'll call it Coca Cola to the moment happen to be named I like Cola has no taste memory you can drink one of these at nine o'clock eleven o'clock three o'clock we have new five o'clock the one at five o'clock will taste just as good to you as the one you drank early in the morning you can't do that with cream soda root beer orange grape you name it all of those things cumulate on you most foods and beverages are accumulate on you get sick of them after a while and if you if you eat I mean we get these people go to work for sissies candy and we something you need all the candy they want the first day they go crazy but after a week they're eating about the same amount that is if they're buying it because chocolate cumulates is everything accumulates on there is no taste memory to Cola and that means that you get people around the world there are heavy users that will drink five a day here diet coke maybe you know seven or eight today or something of this sort they'll never do that with with other products so you get this incredible per capita consumption the average person and in this part of the world bum maybe a little north ear drinks about sixty four ounces of liquid a day and you can have all 64 ounces of that be coke and you will not get fed up with coke if you like it to start with and the least but if you did it with almost anything else if you eat just one product all day you you loo tender you'll get a little sick of it after a while and and and it's it's a huge factor so that today over 1 billion 8 ounce servings of coca-cola products will be sold in the world and that will grow year by year it will grow in every country virtually and it will grow on a per capita basis and 20 years from now it will grow in a lot faster internationally than in the US so I really like that market market better because there is more growth there over time but it will hurt them in the is hurting him in the short term right now and but that that doesn't mean anything I mean the coca-cola publican and he was nineteen nineteen stock sold for forty dollars a share it went back before that as a candle or family and they they went back they bought it for two thousand bucks the whole business as the Cantor back in the late 1880s and a couple of purchases so now he goes public in 1919 forty dollars a share one year later selling for nineteen dollars going down 50 percent in one year now you might think that's some kind of disaster and you might think that sugar prices increased and the borrowers were rebellious and a whole bunch of things you could always find a few reasons why that wasn't the ideal moment to buy it years later you'd have seen the Great Depression then you'd have seen World War two and you've seen sugar rationing and you've seen thermonuclear weapons and the whole thing there's always a reason but in the end if you've bought one share for 40 bucks and reinvest the dividends would be worth about five million now and that factor so overrides anything else I mean if you're right about the business you'll make a lot of money and and the timing part of it is very is a very tricky thing so I don't worry about any given event if I've got a wonderful business you know whether what it does the next year something of the sort you know their price controls have been in this country at various times and that's that's followed up even the best of businesses I mean I wouldn't be able to raise the price on December 26 the See's candy if we had price controls that we've had them in this country but that doesn't make it a lousy business if that happens happen because you're not gonna have price controls forever we had them in the early the early seventies so it the wonderful business you know you can figure out what will happen you can't figure out when it will happen you don't want to focus too much on when you want to focus on what if you're right about what you don't have to worry about one very much is there an area I'm missing back there any place to make sure I'm not focusing all of my one put let me get this gentleman over here with investment the question is about my business mistakes how much time do you have well the interesting thing about the mistakes is that in investments at least for me and for my partner Charlie Munger the biggest mistakes have not been mistakes of commission they've been mistakes of omission they're where we knew enough about the business to do something and for one reason or another we sat there sucking our thumbs instead of doing something and so we we've passed up things where we could have made billions and billions of dollars from things we understood forget about things we don't understand we don't fact I could make billions out of Microsoft doesn't mean anything because I never understand Microsoft but if I can make billions out of healthcare stocks and I should make it and I didn't you know when when when the Clinton health care program was proposed and they all went in the tank we should have made a ton of money out of that because I could understand it I didn't make it I should have made a ton of money out of Fannie Mae back in the mid-80s I understood it and I didn't do it those are billion dollar mistakes or multi-billion dollar mistakes that the generally accepted accounting principles don't pick up the mistakes you see the mistakes you see we made it even we I made a mistake buying USAir preferred some years ago I mean that I had a lot of money around I make mistakes when I get cashed Charlie tells me to go to a bar instead you don't hang around the office but I hang around the office and I got money in my pocket I do something dumb and it happens every time and and so I bought this thing nobody made me buy it I now have a 800 number I call every time I think about buying stock in an airline and they talked me down they say you know I say well I'm Warren I'm an arrow holic and then the guy says no keep talking don't hang up yet Owen don't do anything rash and finally I get over but I but I I bought it you know and it looked like we were going to lose all our money in that and we came very close to losing all our money and and say we deserved to lose all our money and we bought it because it was an attractive security but it was in a not in an attractive business I did the same thing with Solomon that I bought an attractive security in a business that I wouldn't have bought the equity in so you can say that that's one form of mistake buying something because you like the terms when you don't like the business that well and I I've done that in the past and probably do it again the the bigger mistakes though were the ones of a bull mission I did back back when I when I had the 10,000 bunts that put two thousand dollars of it into a Sinclair service station which I lost so my opportunity cost us about six billion right now I'm fairly big mistake yeah it makes me feel that my brochure goes down then because the cost of my cigar station goes down to my 20% opportunity cost but I will say this you talk about learning from mistakes I really believe it's better to learn from other people's mistakes as much as possible but what we don't spend any time looking back at Berkshire I've got a partner Charlie Munger we've been pals for 40 years never had an argument away disagree on things a lot but we but we don't we don't have arguments about it and we never look back we just you know we just figure there's so much to look forward to that there's just no sense thinking about what we might it just doesn't make any difference I mean you can only live life forward and you can learn something perhaps from the mistakes but the the big thing to do is stick with the businesses you understand and so if there's a generic mistake of getting outside of your circle of competence and you know buying something to somebody tips you on it or something of the sort in an area you don't nothing about I mean that you should learn something from that which is that you stay with what you can figure out yourself I mean you really want your decision-making to be by looking in the mirror and saying yourself I'm buying a hundred shares of General Motors at 55 because and I mean it's your responsibility if you're buying it and there's got to be a reason and if you can't state the reason you shouldn't buy it if it's because somebody told you about it a cocktail party not good enough you know I mean there's just it's got to be something you know can't be because the the volume you know the short looks good on it or anything like that got to be a reason you'd buy the business and we that we stick to pretty pretty carefully that's one thing Ben Graham taught me yep economic situation our economy's still genuine right well where are we going with it the questions about what's gonna happen in frustration where we go in the world I don't think about the macro stuff and I I just important what you really want to do in investments is figure out what's important and knowable if it's unimportant or unknowable you forget about it what you talk about is important but in my view it's not knowable understanding coca-cola is no renewable or Wrigley or Eastman Kodak Tarang I mean you can understand those business that's knowable and on whether it turns out to be important depends on where your valuation region the current price and all of that but we have never either bought a business or not bought a business because of any macro feeling of any kind we don't read things about predictions about interest rates or business or anything like that because it doesn't make any difference I mean let's say in 1972 when we bought See's candy I think maybe Nixon put on the price controls a little bit later let's say we'd seen it but so what we the missed a chance to buy something for 25 million that's earning 60 million pre-tax now and with we don't want to pass up the chance to do something intelligent because of some prediction about something that we're no good on anyway so but we just don't we don't read or listen to or do anything in relation to the macro factors at all zero and the typical investment counseling organization goes out and they give you they bring out their economists they trot him out and he gives you this big macro picture and then they start working from there on down in our view that's nonsense at and if you know Alan Greenspan was on one side of me and Bob Rubin on their side they're both whispering in my ear exactly what they're going to do the next 12 months would make any difference to me and what I pay for executive jet or general reinsurance or anything else they do yep well what's the benefit of being an out-of-towner as opposed to being in wall street I worked in Wall Street for a couple of years and and I like I've got I've got my best friends actually in and I'm on both coasts and I like seeing them and I get ideas when I go there but the best way to get 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 and the disadvantage of being in any kind of a market type environment and Wall Street would be the extreme is that you get over stimulated you think you have to do something every day I mean the Canberra family paid two thousand bucks for this company and you don't have to do much else if you pick one of those and the trick then is not to do anything else even not to sell it in 1919 which the family did later on it so what you're looking for is some way to get one good idea a year you know and then and then write it to its full potential and that's very hard to do in an environment where people are shouting prices back and forth every five minutes and shoving reports under your nose and all that Wall Street makes its money on activity you make your money on inactivity you know if everybody in this room trades their portfolio around every day with every other person you know you're all going to end up broke and and and the intermediary is going to end up with all the money on the other end if you're all owned stock in a in a group of average businesses and just sit here for the next 50 years you'll end up with a fair amount of money and your broker will be broke so his act his activity is he's like a doctor who gets paid on how often he gets you to change pills I mean basically I mean he gives you one pill and it cures you the rest of your life and he's got one sale one transaction and and that's it but if he can convince you that changing pills every day is the way the great health it'll be great for him and the prescription 'san dand you'll be out a lot of money and you'll be any healthier a lot worse off than actually so that you want to stay away from any environment that stimulates activity and Wall Street would have the effective of doing that I would I used one as one oh my go back about once every six months and I'd go back a whole list of things I want to check out one way or another companies I wanted to see and and I would I would get my money's worth out of those trips but then I go back to home on think about it yep yeah well the question but Berkshire Hathaway because was about evaluating Berkshire one doesn't pay any difference and and it won't pay any dividends either it's a promise I can keep the all you get with Berkshire you stick it in your safe deposit box and then every year you get on a fonder look you know you take it out in the economy then you put it back and I mean there's an enormous psychic reward in that you don't underestimate it but the real question is whether we can keep retaining dollar bills and turning them into more than a dollar at a decent rate and and that's what we try to do and and and Charlie Munger and I have our money in it to do that that's all we'll get paid for doing we won't take any options we won't think any salaries to speak of or anything we're right around in the plate but the that's what we're trying to do it gets harder all the time the more money we manage the harder it is to do that and we would do way better percentage-wise with Berkshire if it with 1/100 the present size but it is it is run for its owners but it isn't run to give them dividends because so far every dollar that we've earned and could have paid out we have turned into more than $1 this worth more than $1 to keep it and therefore be silly to pay it out even if everybody was tax-free that owned it it would have been a mistake to pay dividends at Berkshire because so far the dollar bills retained it turned into more than $1 but there's no guarantee that that happens in the future and at some point the game runs out on that but it is the goal I mean that is what the business is about we're not nothing else about the business do we judge ourselves by we don't judge you by the size of its home office building or you know anything of the number of people working around it we've got 12 people at headquarters we got 45,000 employees at Berkshire and 12 people at headquarters 3500 square feet and they won't change it so it we will judge ourselves by the performance of the come and that's the only way we'll get paid but believe me it's a lot harder than than it used to be anything way in the back is I want to make sure I'm not missing people back there that haven't called them okay then we'll go to the well how about way over there on the aisle yeah and this is what made me decide to invest what estimate one of your investments has reached its full potential as you said earlier that you will I missed the last part Oh rich its full potential well ideally you buy in businesses where you feel that will never happen in terms of I mean I I don't think I don't buy coke with the idea that it's going to be out of gas in ten years you know or fifteen years it I mean there could be something happen but I I would think the chances that are almost nil so what we really want to do is buy businesses that we would be happy to own forever it's the same way I feel about people by Berkshire I want people to buy Berkshire that plan to hold it forever they may not for one reason or another but I want them at the time they buy it to think they are buying a business that they're going to own forever and I don't say that's the only way to buy things it's just that that's the group I want to have join me because I don't want to have a changing group all the time I measure Berkshire by how little activity there isn't it if I if I had a church and I was the preacher and half the congregation left every Sunday I wouldn't say oh this is marvelous could have all this liquidity among my members you know this terrific turnover you know I would I would I would rather get a church where all the seats are filled you know every Sunday by the same people well that's the way we look at the businesses we buy we want to buy something that we're really happy to own virtually forever and we can't find a lot of those and back when I started I had way more ideas than money so I was just constantly having to sell what I thought was the least attractive stock in order to buy something that I just discovered that looked even cheaper but that's not our problem really now and so we hope we're buying businesses that were just as happy with five years from now as now and if we ever found some huge acquisition you know then we'd have to sell something maybe to make that acquisition but that would that would be a very pleasant doesn't problem to have we never buy something with a price target in my I mean we never buy something at 30 saying if it goes to 40 we'll sell it or 50 or 60 or 100 we just don't do it that way any more than when we buy a private business like See's candy for 25 million we don't say it ourselves if ever if we ever got an offer a 50 million for this business we'd sell it that that's just not the way to look at a business wait look at the businesses is this going to keep producing more and more and more money over time and if the answer to that is yes you don't need to ask any more questions there's a yeah way back there well Solomon like I said I was I went into that because it was a nine percent security in 1987 September 1987 we the Dow was up 35% that year we sold a lot of stuff and I had a lot of money around I'd looked at me like we were never getting a chance to do anything so I took an attractive security form in a business I would never buy the common stock of and I went in because of that and I think that's generally a mistake it worked out okay finally on that but but it it's not what I should have been doing I should I either should have waited in which case I could have bought more coca-cola year later there about sir I should have even bought coke at the prices that was selling at then even though it was selling at a pretty good price at the time so that was a mistake I'm long term capital that's we have learned other businesses that are associated with securities over the years and on the one of them is arbitrage iíve done arbitrage for 45 years and gram deferred probably 30 years before that and that's a business unfortunately have to be near a phone for and I have to I have to really run out of them or the office myself because it it requires being more sort of market attuned and I don't want to do that anymore so I really unless a really big arbitrage situation came along that I understood I won't be doing much of that but we I probably been in 300 arbitrage situations at least in my life maybe more and it's been it was a good business perfectly good business long-term capital has a bunch of positions they got tons of positions but the top 10 are probably 90% of the money that's at risk and I know something about those 10 positions I don't know everything about them by a long shot but I know enough where I would feel okay at a big discount going in and we would have a staying power to to to hold it out we might lose money on something like that but the odds are with us that's a game that I understand is it there's a few other positions we have that aren't that big because they can't get that big but they involve they could involve yield curve relationships or or on the run off the run governments or things like that that are just things you learn over time if you're around securities markets they're not the base of our business probably on average they've accounted for a half a percentage point of our return a year in our 3/4 of a percentage point a year of our return good little pluses that you get for actually having just been around a long time and learning a little bit about first arbitrage not the first arbitrage I did but one of the first arbitrage as they did involve the company where you they were offering cocoa beans in exchange for their stock that was in 1955 and I bought the stock turned in the stock got warehouse certificates for cocoa beans and and they happen to be a different type that were trading the era coke exchange but there was a basis differential my favor and I sold them I mean that's just something that I was around at the time so I learned about hasn't that cocoa bean deal since yeah 40 odd years I've been waiting for another cocoa bean deal I haven't seen it but but it's there in my memory if it ever comes along and that long-term capital is that on a big scale yep the question is about diversification and I've got to do all answer to that if you are not a professional investor if you're if your goal is not to manage money in such a ways to get a significantly better return than the world then I believe in extreme diversification I mean if so I believe 98 or 99 percent maybe more than 99 percent of people who invest should extensively diversify and not trade so that leads them to an index fund type of decision with very low cost because all they're going to do is own a part of America and they made a decision in only a part of America's worth while I don't quarrel with that at all that is the way they should approach it unless they want to bring an intensity to the game to make it a decision and start evaluating businesses but once you're in the business of evaluating businesses and and you decide that you're going to bring the effort intensity and and time involved to get that job done then I think that diversification is a terrible mistake and to any degree and I got to ask that question why is it SunTrust the other day and if you really know businesses you probably should know more than six of them I mean if you can identify six wonderful businesses that is all the diversification you need and you can make a lot of money and I will guarantee you that going into a seventh one is going to rather than putting more money in your first one it's got to be a terrible mistake very few people have gotten rich on their seventh best idea now but a lot of people got rich on their best idea yeah so I would I would say that for anybody working with normal capital who really knows the businesses they've gone into a six is funny and and I probably have half of it and what I like the best I don't diversify personally I mean and all the people I know that have done well with this episode we've mentioned Walter slasher the Walter diversifies a lot he owns a little of everything I call him Noah and I've got two of everything yep well puckering em was a good very very good strong distribution capability lots of brand names and everything but if you ask me are going to go away for 20 years to put all my family's net worth in one business but I read that Procter & Gamble coke actually pocketing a little more the more diversified among product line but I would feel sure of Copeland Procter and Gamble I wouldn't be unhappy if somebody told me I had to don't talk during gamble during that 20 year period I mean that would be in my top five percent because they they are not going to get killed you know but I would feel better about the unit growth and the pricing power of a coke over twenty or thirty years then I would about a Procter & Gamble right now the pricing power might be tough but you think a billion billion servings a day you know extra penny ten million dollars a day you know we own 8% of it that's that's eight hundred thousand dollars a day for Berkshire Hathaway get another penny of the stuff doesn't seem impossible does it I mean it it's worth another penny but it doesn't right now it'd be a mistake to try and get in most markets but over time coke will make more per serving than it does now 20 years now I guarantee they'll make more per serving I'll be selling a whole lot more servings I don't know how many I know how much more but I know that P and G's main products I don't think they have the kind of dominance and they don't have the kind of unit growth but but they're good businesses you know I would not be unhappy if you told me that I had to put my family's net worth in P&G and that was the only stock I got on I would you know I might prefer some other name but there aren't a hundred other names I would prefer yep McDonald's are the questions about McDonald's and going away for 20 years McDonald's has got a lot of things going for it and particularly abroad again I mean their position in abroad in many countries is stronger relatively than here it's a tougher business over time people do not want to eat a section to the kids when they're giving away any baggage or something people do not want to eat at McDonald's every day I mean if people are drinking coke today they drink five of them today I'll probably drink five tomorrow the the fast-food business is tougher than that at but if you had to pick one hand to have in the fast-food business which is going to be a huge business worldwide you pick McDonald's I mean it has they the strongest position it doesn't win taste tests you know with adults that I mean doesn't very well with children and it does fine with adults but it I mean it is not it is not like it's a clear winner at the end and and it's gotten into the game in recent years of being more price promotional and and you know you remember the experiment a year ago or so and so it's gotten more dependent on that rather than just selling the product by itself I like the product by itself sells I feel better about Gillette if people buy the mach3 because they like the mach3 than if they get a beanie baby with it you know I mean so I just think it's fundamentally a stronger product if that's the case and and you know it probably is we own we own a lot of Gillette in and you can sleep pretty well at night if you think of a couple billion men with their hair growing on their faces you go to you know they're good scoring all night while you sleep you know and women have two legs is even better so it's a beast counting sheep and those are kind of but if you think you know what promotion am I going to put out there gets Burger King next month well you know and what if they sign up Disney and I don't get Disney in I mean that is I like this - I like the products that standalone app absent promotion or price appeals although you can build a very good business based on that and then McDonald is a terrific business it's not as good of businesses as coke but that there really a hurt or hardly any it's a very good business and if you bet on one company that's the other side from Dairy Queen of course my belly McDonald's we bought Dairy Queen here a while back that's why plugging it shamelessly here yeah way back there what I think what collector utility industry well I've thought about that a lot because you can put big money in it and and I've even thought of buying the entire businesses there's a fellow in Omaha actually that's done a little that through Cal Energy but I don't quite understand the game in terms of how it's going to develop with the regulation I mean it's it has got it I can see how it destroys a lot of value for the high cost producer you know once they're not protected by a monopoly territory and I don't for sure see how who benefits and how much I mean obviously the guy was very low cost power some guys got hydropower you know at two cents a kilowatt or something like that there's got a huge advantage but how much of that he's going to get to keep and everything I'm extensively he can he can send that outside his natural territory I haven't been able to figure it out with a sieve so that I really think I know what the industry is going to look like in ten years but it is something I think about and if I ever develop any insights you know the call for action I'll devote you know I will act on it but it because I think I can understand the attractiveness of the product and it's all that all the aspects of certainty of user need and and and the fact it's a bargain and all of that I understand I just don't understand who's gonna make the money in a 10 years from now on and that keeps me away yep the question is large cats versus small caps and why large caps overperform I don't know the answer that we don't think we don't we don't care whether companies large cap giant cat middle cap small cap micro cap it doesn't make any difference and the only question else is can we understand the business do we like the people running it and does it sell for a price that is attractive from are my personal standpoint running Berkshire now because we've got pro forma for Gen ray or what we have maybe 75 or 80 billion dollars to invest and I only want to dust about five things so I'm really limited they're very big companies but if I were investing a hundred thousand dollars I wouldn't care whether something was large cap or small cap or anything had to did I would just look for businesses I understood now I think that unbalanced large cap companies as businesses have done extraordinarily well the last ten years and way better than people anticipated they would do I mean you really have an American business earning close to 20 percent on equity and that's something nobody dreamed of and that's being produced by very large companies in aggregate so you've had this huge revaluation upward of in because the lower interest rates and then much higher returns on capital and you know if American business is really a bond disguised bond earns 20 percent has a 20 percent coupon it's much better than as a bond with a 13 percent coupon and that's that's happened with big companies in recent years whether it's permanent or nots another question I'm skeptical of that but but I don't I I wouldn't even think about except for questions of how much money we run I wouldn't even think about the size of the business a good small See's candy was a twenty five million dollar business when we bought it and if I could find one just like it now even big as we are you know I'd love to buy it and it just it's a certainty of it but that counts yeah way over there one thing though the last five years real estate is primarily private securitisation of real estate yeah you know my British say I didn't securitization normal securitization of the debt - of a real estate - and that is one of the items right now that is really clogging up the the the capital markets I mean they the mortgage-backed securities are they're just not moving and in commercial mortgage-backed not residential mortgage-backed and that so that's but I think you're directing your question at equities probably and the equities if you leave out the corporate forum has been a lousy way to own equities I mean you've interjected a corporate income tax into something that people individually have been able to own was with a single tax and by having the normal corporate form you get a double taxation in there you really don't need with real estate and it takes away too much of the return REITs have in effect created a conduit so that you don't get the double taxation but they also generally have fairly high operating expenses and if you get real estate let's just say you can buy fairly simple types of real estate on an 8% yield or there abouts and you take away have you close to one or one and maybe even one and a half percent by the time become stock options and everything it's not a terribly attractive way don't it may be the only way a guy with a thousand bucks or five thousand bucks can own it but if you have a million-dollar ten million dollars you're better off owning the real real estate properties yourself and sticking some intermediary in between that will get a sizable piece of the return for himself so we have found very little in that field you'll see an announcement the next couple of weeks that may be lie what I'm telling you here one things I what I want you to think I was double-crossing you up your honour but generally speaking we've seen very very little in that field that gets us excited there's people sometimes get very very confused about they'll look at some huge land company take - I'll take one that's that boom evoke any emotional reactions on the part of anybody like Texas Pacific Land Trust which has been around over a hundred years and got a couple million acre in Texas and they'll take the you know those so 1% of their land every year and they'll take that as applying everything and come up with some huge value compared to the market value but that's nonsense if you really own the property I mean you you know you can't move you can't move 50% of the properties or 20% of the properties it's it's way worse than an illiquid stock so you get these I think you get some very silly valuations placed on a lot of real estate companies by people that don't really understand what it's like to own one and try to move large quantities of property it reach the behaved terribly in the market this year as you know and it's not at all inconceivable they would become a class that would get so unpopular that they would sell it significant discounts from which you could sell the properties for and they could they could get interesting as the class then and then the question is whether the management would fight you in that process because they would be giving up their income stream for managing things and their interest might run counter to the shareholders on that I've always wondered about the REITs that say you know with our assets are so wonderful and they're so cheap and then they go out and sell stock I mean there's a there's a contradiction than that if they say our stock at 28 is very cheap and then they sell a lot of stock at 28 less than underwriting commissioned it doesn't you know they're either just there's a disconnect there and so by it's a field we look at I mean Charlie and I can understand real estate and and we would be open for very big transactions periodically and if there was a long-term capital management situation and translated to real estate you know we we would be open to that trouble to so many other people would be - that would be unlikely to go to price that would that would really get us excited way back there where the down market is doing for saver sort of gives your caucus to wear the whites get along is down with red well I yeah I've got no idea where the market is going to go I I prefer going down but I but I haven't and you know my preferences have nothing to do with it the market knows nothing about my feelings yeah that's one of the first things you have to learn with the stock you know you buy a hundred shares of General Motors now all of a sudden you have this feeling about General Motors I mean if it goes down you may be mad at you may say well if it just go up to what I paid for it you know my life will be wonderful again or if it goes up you may say how smart you were and how you and General Motors have this love affair I mean you've got all these feelings stock doesn't know you own it Sakia sits there it doesn't care what you paid doesn't care that you owned it or anything so any feeling I have about the market is not reciprocated I mean it is the ultimate it is very cold shoulder we're talking about here and anybody that is going to be a necessary practically everybody in this room is more likely to be a net buyer of stocks over the next ten years and they are in that seller so every one of you should prefer lower prices I mean they're gonna be a net eater of hamburger in the next 10 years you want hamburger to go down unless you're a kettle cattle producer and if you're going to be a buyer of coca-cola and you don't own coke stock you hope coke for the price of coke goes down I mean you're looking for it to be on sale this weekend at your supermarket you want it to be down on the weekends not up on the weekends when you're going to attend the supermarket your sake seems a big supermarket of companies and you're going to be buying stocks what do you want to have happen you want those stocks to go down way down and you know you will make better buys them and later on 20 years from now 30 years now when you're in a period when you're just saving or when your airs just saved for you to hear god I mean then you may care about higher prices but I I find people that was one of the as a chapter 8 and Ben Graham's intelligent Wester about the attitude toward stock market fluctuations and that and the chapter 20 on the margin of safety the two most important essays ever ever written on investing as far as I'm concerned because when I read chapter eight when I was 19 I I figured and I mean what I just figured out what I just said but it was it's obvious I didn't figure it out myself though it was it was explained to me I probably gone another hundred years if I had still thought it was good when my stocks were going up uh that we want we want things to go down but I have no idea what this document going to do I never do never will it's not something that but I think about it all when it goes down I feel I look harder at what I might buy that day because I know there's more likely to be some merchandise there that I can use my money effectively in okay I'm warned we'll take one more question from the audience okay I'll let you pick who gets it I would say that this going to sound disgusting question is why would I do if I can live over again to have a happier life well I think I might do is select a gene pool where people live to be 120 or something I came from but I've been I've been extraordinarily lucky I mean it I used this example I'll take a minute or two because I think it's worth thinking about a little bit let's just assume that it was 24 hours before you were born and a genie came to you and they said he said herb you look very promising and I've got a big problem I've got to design the world in which you're going to live and he says I decided to hell with it it's too tough you design it so you've got 24 hours you figure out what the social rules should be the economic rules the governmental rules and you're going to live under those and your kids are going to live under and could their kids are going to live under and you say I can design anything and Jimmy said yeah you can do it and you say well there must be a catch he says well there is a catch you don't know whether you're going to be born black or white richer poor male or female infirm or able-bodied bright or all you know is you're going to take one ball out of a barrel that's got 5.8 billion you're going to participate in what I call the old variant moderator you're going to get one ball out of there and that's and that is the most important things ever gonna happen you in your life because that is going to control whether you're born here or in Afghanistan or whether you're born with IQ 130 or an IQ of 70 it's going to determine a whole lot and you're going to go out of the world and you're going to that boy what kind of a world do you want to design well I think that's a good way to look at social question because not knowing which ball you're going to hit you're going to want a ball but you're going to want a system design a system that's going to prove lots of goods and services because you're going to want people on balance to live well and you're going to want it that produces more and more so your kids live better than you do in your your grandchildren the better than the kids but you're also going to want a system that if it does produce lots of goods and services does not leave behind a person and accidentally got the wrong ball and is not well wired for this particular system see ideally wired for system I fell into here I mean I came out and I've gotten something that enables me to allocate capital you know nothing so wonderful about that if all of us were stranded on a desert island you know we all landed there we're never going to get off of it the most valuable person would be the one that could raise the most rice you know over time and you know I could say why I can allocate capital you hop up a meal and you do one get very excited about that so I am in the right place I mean but gates says if I'd been born yet a few million years ago I did some animals lunch you know he says you can't run very fast you can't climb trees you can't do anything it just mean I just been chewed up in the first day so he says you're lucky you were born today and I am I am but the question getting back that one question you can ask yourself incidentally is here is this barrel with 5.8 billion balls everybody in the world if you could put your ball back and they gave you and then they took out at random a hundred other balls and you had to pick one of those would you put your ball back in now those hundred balls that you're going to get out roughly five of them will be American so there's ninety five versus five so you only have five ball if you want to be in this country only have five balls now left you know half a many women half I'm going to be men I'll let you all decide how you vote on that one half them they're going to be below average intelligence Haffer to me above me do you want to put your ball Mac most of you I think will not want to put that ball back to get a hundred so what you're saying is I'm in the luckiest 1% of the world right now right now sitting in this room top 1% of the world well that's the way I feel I mean I've been lucky to be born where I was because it was fifty to one against me and the United States when I was born lucky with parents lucky with all kinds of things and lucky to be wired in a way that in a market economy pays off like crazy for me doesn't pay off for somebody who's absolutely as good as citizens as I am you know leading boy scout troops teaching Sunday school whatever raising fine families but it just doesn't happen to be wired in the same way I am so I've been extremely lucky so I would like to be lucky again and and if I'm lucky then the way to do it is to play out that game and and do something enjoy in all your life and be associated with people you like I only work with people I like no I I don't I don't if I could make it a hundred million dollars by flying a business with some guy that cause my summer picture and I'd say no because I say that's just like marrying for money which probably isn't a very good idea in our any circumstances but if you're already rich it's crazy right I am NOT going to marry for money so I were doing I would I would really do almost exactly what I've done except I'd only got to bought the US Air thanks

Channel: LeylandPAM

Views: 343,683

Keywords: warren buffett, sharemarket, charlie munger, ben graham, leyland, leyland private asset management, charles leyland, australian stock market, australian share market, investing, temperament, investor, successful, shares

Id: 2MHIcabnjrA

Length: 87min 36sec (5256 seconds)

Published: Tue Jul 02 2013

Reddit Comments

[u/HealthOk7603]

Why do I find him so funny.

Put all eggs in one buffet- trader man.

[u/superjess777]

🚀🚀🚀 “don’t focus on when, focus on what”

[u/DieselBalvenie]

Lol 800 # I call when I think about buying an airline.

Keep holding Warren don't hang up !