Warren Buffett: A Great Industry Does NOT Mean a Great Investment | Berkshire 2021

[Transcript]

WARREN BUFFETT: Secondly, people get enormously attracted to various industries. I mean, they think if — they think if you know — if a company says it’s in the XYZ industry and that’s a popular one, you can sell IPOs, you can sell SPACs, you can — people disregard sales numbers, earnings numbers — that just, you know, it’s the place to be.

So, Berkshire Hathaway — where was the place to be in 1903 when my — my dad was born in 1903, but that wasn’t really that big of news — but it was big news that actually Henry Ford was starting the Ford Motor Company. He'd failed a couple of times before. But he was about to change the world. I mean, the auto — when you think about everything — we’ve got a great auto insurance company. (Laughs) But if there weren’t any autos, we wouldn’t have GEICO, the — But it’s transformed the country. And Henry Ford brought in the $5 daily wage, and that was a huge thing. Assembly lines — I mean, everything autos came along.

So, let’s just assume that you had seen a quick glance back in 1903 of all the interstate highways, 290 million vehicles on the road in the United States. You know, everything about it. And you said, “Well, this is pretty easy. It’s going to be cars. It’s going to be autos.”

Well, Berkshire, by accident — well, we own a company called Marmon. We bought it from the Pritzker family some years ago. The Pritzkers had built this business from many, many, many companies that they’d acquired. And the name of their company was Marmon. And I don’t know exactly why Jay and Bob decided to name it Marmon. But they did own a company called Marmon. They owned this company Marmon, which, in 1911 had been the company whose car won the first Indianapolis 500. And maybe that’s why they called it Marmon. They were proud of the fact that the company in 1911 named the — won the first Indianapolis 500. It also was the company that invented the rearview mirror.

I’m not sure whether that was a big contribution to society. Certainly, around your household — (Laughs) — a rearview mirror, you don’t want to emphasize too much. But they — the car that was entered in the Indianapolis 500, the guy who normally sat next to the driver and looked backwards to tell what the competitors were doing, he was sick, so they invented the rearview mirror.

So, let's just assume that you had decided that autos were this incredible thing. And someday, there’d be an Indianapolis 500. And someday, they’d have rearview mirrors on cars. And someday, 290 million cars would be buzzing around the United States — or autos — they’re counting trucks there.

And so, I decided to look at the history. And I thought I’d put up the list of auto companies from over the years. And I was originally going to put up just the ones that were the M’s, so I could get them on one slide. But when I went to the M’s, it went on and on and on. So, I just decided to put up the ones that started with M-A. And as you can see, there were almost 40 companies that went into the auto business — just starting with M-A — including our little — our Marmon there in the middle column, which lasted for a while, quite a while. But it was selling cars in the 1930s (that) were really quite special.

But in any event, there were at least 2,000 companies that entered the auto business, because they clearly had this incredible future. And, of course, you remember, that in 2009, there were three left. Two of which went bankrupt.

So, there’s a lot more to picking stocks than figuring out, you know, what’s going to be a wonderful industry in the future. The Maytag Company put out a car. Allstate put out a car. DuPont put out a car. I mean, there was a Nebraska Motor Company. Everybody started car companies, just like everybody’s starting something now that can be — where you can get money from people. But there were very, very, very few people that picked the winner, got the opportunity.

At Ford Motor, Henry Ford had a few partners, and he didn’t like them, so he figured a way to buy them out. That was sort of the — that was one — is sort of the beginning of the auto finance. That's a long story, but we won’t get into that. But you couldn’t buy into Ford Motor. And, of course, General Motors became the dominant company, finally, when Henry Ford did not really make the shift from the Model T to the Model A very — it did not work very well.

So, I just want to tell you, it’s not as easy as it sounds.

Source: https://buffett.cnbc.com/2021-berkshire-hathaway-annual-meeting/

 

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