Transcription
From $10,000 to 15 million. Could anyone do the same thing you did starting today? Or, and you say you like to buy businesses, how do you know what a company is worth? Do you do this for the money? What does money mean to you?
On this show, you will meet a remarkable man, probably the greatest investor of his generation. When you say greatest investor, they measure these things with numbers, and this man didn't inherit any money but has made in the stock market more than a billion dollars—that's billion with a B.
Warren, if I had given you $10,000 when I first met you, and I devoutly wish I had, I would have millions today. If you join the partnership when we started, 1956, and when we just baned it in '69, reinvested the proceeds in Berkshire, which was somewhat of a continuation, I think you'd have a little over 15 million now.
From $10,000. From $10,000 to 15 million.
Something like that.
Yeah, that's a pretty good record.
It's okay, but that doesn't tell you anything about tomorrow.
Well, let's talk about tomorrow. Could anyone do the same thing you did starting today if they didn't try and do too much the first week?
Yeah, right.
How did Warren Buffett turn $10,000 into $15 million? The old-fashioned way. He has no computer, no Quotron screen, only common sense and a set of strict principles. We'll look at the Buffett formula for investing, and we will hear his wisdom on everything from the stock market to the evils of inherited wealth in a moment.
You know what the academics say. They say the market is efficient, and no one can beat it. But you have, and and a number of other people that followed Ben Graham's principles have.
Right. In fact, every one that I personally know that is really stuck with the Ben Graham principles over 20 years or more has done appreciably better than the market.
Well, what about all the learned business schools that say you can't beat the market?
Well, then they aren't so learned.
But you've seen some of these papers.
I've seen the papers, but uh, but uh, I've seen some other people's tax returns. Buffett believes it's very important to have patient, rational shareholders, since it's one of his tenets that Wall Street's obsession with the short term and with frantic trading are counterproductive. This is the happiest tribe of shareholders you'll meet anywhere in America.
Warren Buffett is certainly the greatest investor in the post-World War II period, and maybe the greatest investor in history. I think he's has uh tremendous integrity and a very, very uh clear way of looking at the world. Uh, the superlatives could go on and on and on, and I'm not related. Buffett has achieved all this by sticking to those fundamental principles and by keeping things simple.
Warren, you say you like to buy businesses. How do you know what a company is worth?
I look for a business where I think I know what, in a general way, is going to happen. If you buy a bond, you know exactly what's going to happen, if it's assuming it's a good bond, a US Government Bond. If it says 9% coupons, you know what the 9% coupons are going to be for maybe 30 years, if it's a 30-year bond. Now, when you buy a business, you're buying something with coupons on it too, except the only problem is they don't print in the amount, and it's my job to print in the amount on the coupon, and uh, some companies I feel capable of doing that with, and others I know I have the faintest idea.
You seem to stay away from high-tech companies.
You named 10 high-tech companies to me and asked me where they're going to be in 10 years or 10 months, and I don't have the faintest idea. So that would be exactly like buying cocoa beans or something. I just don't know what's going to happen.
Do you ever really get a big, big hit just buying these predictable stocks?
Yeah, you do, but not very often, but occasionally. Sensational businesses are given away. In the mid-70s, uh, the whole Washington Post company was selling for $80 million at a time when the properties were worth not less than $400 million, and no one would have argued with you about the properties being worth 400 million, and uh, the price was there for all to see, but people just didn't feel very enthusiastic about the world then.
You have been talking this philosophy for years.
It's no secret.
It's no secret. Why doesn't everybody do it?
Well, it requires patience, which a lot of people don't have, and people would much rather be promised that they're going to win a lottery ticket next week than that they're going to get rich slowly. At uh, Gus Levy used to say that he was, he was is long-term greedy, not short-term greedy, and if you're short-term greedy, you probably won't get a very good long-term result.
You've said they could close the New York Stock Exchange for two years and you wouldn't care. Can you explain that?
We own parts of businesses when we own stocks, and the New York Stock Exchange being open has nothing to do whether the Washington Post is getting more valuable over a five or 10-year period, and what we want to do is be right on the business. If we're right on the business, the market will take care of itself, and uh, if the the Stock Exchange closes on Saturday and Sunday, you know, and I don't break out in hives, so if it if it closes for a couple of years, uh, and the business does well, we'll will do very well.
I've noticed in your annual report you say that uh, if you're in a poker game for 30 minutes and you don't know who the patsy is, you're the patsy. You've got it. How do you apply that to the market? Well, or to investing in the market?
If you think the market knows more about what your business, in other words, if your stock goes down 10%, and that upsets you, it obviously means that you think the market knows more about the company than you do, and uh, in that case, you're the patsy. If it goes down 10%, and you want to buy more because you know the business is worth just as much as when you bought it before, or perhaps a little bit more with a passage of time, so you buy more, they're the patsy.
Where do you get these po these aphorisms that you've gotten so so well known for?
Well, I know it's just they're about the limit of my intellectual capacity, so I have to work with one.
Sent was October 19th in Abra ation, or could it happen again?
Oh, always. Anything can happen in stock markets. If you read financial history for a couple of hundred years and take the South Sea Bubble and the Tulip boom and and and some of the panics we've had in this country, we closed the stock exchange for a few months back uh, around 1914. Anything can happen, and you ought to conduct your affairs so that if the most extraordinary events happen that you're still around to play the next day.
How should the small investor look at stock index futures and index arbitrage and all the volatility that has come into the stock market?
Well, he should hope that they cause other people to behave very silly, and then he should step in occasionally. He should ignore them as an himself, but to the extent that silly instruments occasionally cause silly prices, he can take advantage of them, and the other the rest of the time he ignores them.
Old basketball players lose their legs. Do old investors lose their legs?
I don't think so. I think that uh, they probably lose their legs, but they don't need like that much, and uh, really being a sound investor really just requires a certain control of your of your temperament and and and the ability to know what you know and know what you don't know and and and occasionally act, and I don't see any reason why that goes with age.
When you think we may I may give you an illustration another few years, but so far it it it has no effect. I mean, in a sense, you keep accumulating a little more business knowledge as you go along, and that's a plus.
There's been a lot of talk about the Silicon Valley culture. Is there a Berkshire Hathaway culture?
I guess there's a Berkshire Hathaway culture, but it would be a long way from the Silicon Valley culture.
What is the Berkshire Hathaway culture?
We like managers are in love with their business. We like them that feel like I do. I want to tap dance when I get to the office, and that's the sort of managers we have, and we have terrific luck where we buy businesses with managers that have been enormously successful over a period of time. They're usually rich after we buy the business, and they they keep on working afterwards. Uh, uh, we don't have so much luck uh with business school grads. We we find it's uh we find it's difficult to teach an old dog new tricks, and uh uh we like we like the people have been around a while.
If you had to look over the next five or 10 years, what do you think will be good businesses?
The businesses that that that have some sort of a franchise to them. What makes a business a good business is is when if I go into uh a drugstore and I want a Hershey bar, they can't sell me an unmarked bar. You know, if I'm going to pay 35 cents for the Hershey bar and they say, but wouldn't you like this wonderful unmarked chocolate bar for 30 cents, uh, I buy the Hershey bar, and uh uh if they don't have it someplace, I'll go across the street to buy it. That's that's what makes a good business. I don't feel that way about the about the carton of milk I buy. I'll take whatever carton of milk is is uh is in the grocery store's freezer or the cooler. So it's the power of the franchise. The power power of the franchise.
When Ben Graham talked about these things, he talked about tangible assets. Iron and steel above the ground, bricks and mortar, but you've expanded Ben Graham's idea to this idea of the franchise, haven't you?
I learned that subsequent to Ben. I the principles of buying value and and the margin of safety and the detachment from market I learned from Ben. You might say that I learned the proper temperamental set from Ben. Uh, the the stocks I buy are entirely different from what Ben would buy if they were alive today.
You still do your own tax returns?
Yeah, yeah. Pretty simple return, really.
Yeah, it's it's a very simple return.
Warren, you uh have spoken for years against corporate perks, but you finally bought a corporate jet.
I can't explain it. It's a it's a total it's a total blank in my mind, but I've given speeches against them for years, and I got to tell you I love it.
But you have the cheapest corporate jet of anybody in America.
Well, I don't want it's a cheapest corp jet. It it works perfectly for me, and and I got to tell you that I have an untapped potential for for for that type of life apparently because I I it's made life a lot easier the last couple years.
Warren, you created a stir with your remarks about money and children. You have three children and grandchildren. You love your children. They love you, but you've said you're not going to give them any money because that would be a bad thing to do.
I hear children of the rich or the rich themselves talk about the debilitating effect of of uh food stamps on on on welfare mothers, and they say it's terrible. You know, you hand them all these food stamps, and and it it it it it causes the cycle to perpetuate itself. But of course, when a very rich child or one who's going to inherit a lot of money is born, when they leave the womb they're handed this lifetime supply of of of food stamps, only they they and they have they have a welfare officer. He's called a trust department officer, and the food stamps are little stocks and bonds, and nobody seems to notice the debilitating effects of of that particular form of lifetime supply of food stamps. I I I think that I think by and large that if if if I'm going to be a sprinter, I will become a better sprinter in life if I sprint against everybody else leaving the starting box at the same time than if they say because I'm just own and child or something I get to start on the 50-yard line.
Well, how have your children felt about that?
I think they feel pretty good.
Yeah, yeah, yeah. You have had a lot of I'm not quite as Draconian as I sound, but I'm I'm I'm quite close to it.
Do you do this for the money? What does money mean to you?
Well, money is a byproduct of of doing something I I like to do extremely well. I think if you found an athlete that was doing well and that my guess is that that and I I'm not comparing myself but but but but a Ted Williams or an H Palmer or something after they have enough to eat, they're not doing it for the money, and my guess is that if that if uh Ted Williams was getting the highest salary in baseball and he was batting .220, he would be unhappy, and if he was getting the lowest salary in baseball and batting .400, be very happy. That's that's the way I feel about this this job.
What do you feel like when you look at this piece of paper that gives you your net worth and it says you're worth over a billion dollars?
It's a byproduct of doing things I like to do well. If I bat .400 long enough in in this business, you get you get a very big sum. That is a big sum.
What are you going to do with it?
Eventually, it's all going to go back to society uh with with very 99% plus of it's going to go to society.
Should you get the feeling he would like to be like Mrs. B and go to work 7 days a week at age 94 just because it's so much fun?
I'm Adam Smith. See you next time.