Transcription
Uh, it, it seems to me that you are the very opposite of the typical internet investor today. I mean, I, I see, I have sort of images of these kids hunched over their, their computers, buying one minute, selling the next minute. That's not you.
I don't, I don't have a computer at the office. For me, I mean, there, there for other people there, but not me. You don't use a computer? I don't have a computer. I, I use it at home to play bridge, but I don't, I don't use it in the office because there, a utility. I mean, all I'm trying to do is buy a piece of a business at an attractive price, and the computer doesn't tell me how to do that.
As you look at what's happening to Wall Street today, the incredible, I mean, companies that go up 100, 200% over a week or two, and then maybe drop 50% over it. Does that make you nervous? Well, it, it, it's always, it's more exaggerated now than most of the time in the past, but we've had a lot of speculative activity and all kinds of things over the years, years in markets, and, and it frequently doesn't come to a good end. But it'll, it'll be with us 100 years from now, just as it was with us 100 years ago.
Well, it's just a lot faster than it's, it's, it's there's a lot of action and, and, and people are day trading and that sort of thing. You know, I, the one piece of advice I'd give them is, don't do it on borrowed money. That, uh, but they, many of them are, I know. I mean, they're buying on margin. Yeah. Uh, one, some of them will come to a bad end on that because I hope, well, because things don't go up forever, and a lot of the, a lot of the valuations strike me as extreme. And if, if you own them on borrowed money and they go down one day, you know, you don't get to play out your hand.
Talk for a moment about your own philosophy compared to what you see going on right now, because again, your philosophy is, as you once described it to me, you, you, you called yourself an elephant hunter. You say, "I sit there in the tall grass and I wait there with my elephant gun till I see an elephant come along." Yeah. And then I shoot it. But you may, I mean, what you really mean is that you'll sit there and you'll study a company over a period of months or even years until you're finally convinced that that's the right company for you. That is about as far from the way that a lot of trading goes on today as anything can be.
Yeah. The key, if there's one key to what I do, it's, I look at every share of stock as being a part of a business. So if I'm going to buy 100 shares of General Motors or General Electric or whatever it may be, I, I try and look at what the whole business is selling for, and then do I want to buy this tiny little piece of that business at that price? That means I think about the business. I don't think about the price action of the stock, or I don't think about what people are saying they're going to earn next quarter or anything of this order. Look at charts and just try and look at the business.
Now, what does that mean? It means I have to understand the business. A lot of businesses I can't understand. I can understand Gillette. I can understand Coca-Cola. I can understand Biggley's chewing gum. I mean, those are things that I can understand. And I kind of, when I say I can understand, it means I have a pretty good idea of what they're going to look like 10 or 15 years from now. That's, that's understanding a business.
Counting on the growth in of the of the businesses that you bought? Yeah. That's all. Yeah. I mean, we own See's Candy, for example. I, I haven't had a quote on See's Candy since we bought it in 1972, but I know the business is doing okay. I don't need a quote on it. And, you know, people manage to live through Saturday and Sunday without getting quotes on their stocks. The stock exchange closed for a year or two. It, for, for a real investor, it wouldn't make any difference.
I sometimes have the feeling is that as I look at the stock market today and investment as it is carried out today, so many millions upon millions of people that to some degree we're engaged in a bit of a pyramid scheme here. That, you know, as long as everybody keeps putting money into the market, it's going to do well. But one of these days, somebody may say, "Whoa, bad idea." Am I, am I being silly about that? No. If we had a town and there were 100 people, and we all had 100 houses, we all agreed to sell our house to each other at the end of each year up 20%. We kept doing that, we'd all feel very prosperous. And the problem would be is when somebody left town, and then we'd have 100 houses for sale and one extra house for sale, and, and, uh, we'd find out what houses were really worth at that point.
Is that, is that part of what's wrong with the market today? No. What happened is over the last 15 years, stocks have gone up terrifically. Back since 1982, there have been two very important drivers of that. One is interest rates have generally gone down, and return on equity in businesses gone up. Those are very good reasons for stocks to go up. After a while, the very active stocks going up starts drawing in other people who get excited about the fact that their neighbor made a lot of money, or maybe they made a little money over past years. And the, the action of the market itself captures the attention of more and more of the participants, as opposed to the businesses themselves. And that's when you get into dangerous periods.
Is that where we are? We're, yeah, we're into that to some degree. Sure. How, how dangerous a period is? You never know. I mean, you know, of course, you never know. But, um, you, you know that valuations are high by historic standards. You know that the level of speculation is high by any historic standard. And you know that that doesn't go on forever, but you don't know when it ends.
It's gone on for a very long time, isn't it? Yeah, but it's gathered a lot of momentum in the last few years. The last three years prior to this one, when the S&P has gone up more than 20% every year, that's, that's almost unprecedented.
A lot of amateurs in the game today? Yeah. And it's, you know, it, it attracts people. Well, sure, as long as they're making money. Yeah. Yeah. And, and those people will get flushed out very easily compared to people who really want to buy a business.