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Collection: Warren Buffett - #210 'Wouldn't Buy a Company That Lies To Itself'


Video Link: https://youtu.be/dzTYSQ3Cwi0


In this episode, Warren Buffett was asked to comment on how you raise the intellectual honesty in an organization?


In this episode, you’ll learn:

  • Warren Buffett's criteria when he's buying a company.

  • Why intellectual honesty is important in organizations?

To check out all Collection: Warren Buffett <click here>

[Transcript]

(Source: https://buffett.cnbc.com/2000-berkshire-hathaway-annual-meeting/)

~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.

AUDIENCE MEMBER 00:08

My name is Paul Tomasik from Chicago. My question is about intellectual honesty and your incredible ability of rising intellectual honesty in organizations.


In particular, you look at General Re, a large, well-managed, publically-traded firm. And if you think about it, if you raise the intellectual honesty in an organization like that, initially, you’re going to have an aberration, as you called it.


In particular, Berkshire Hathaway was the first company to write-down the Uni — Unicover write-down, whereas Aon pushed it on into the year 2000.


Can you comment, give us some hints, on how you raise the intellectual honesty in an organization?


And somebody whispered in my ear, they wanted to know Charlie’s reading list. I guess they finished “Guns, Germs, and Steel.” Thank you.


WARREN BUFFETT 01:02

We really don’t want to buy into any organization that we felt would be lacking that quality, in the first place. Because we really don’t believe in buying into organizations to change them.


We may, you know, we may change the comp system a little or something of the sort.


But, I’m not going to name names, but there are a whole lot of organizations that, if we bought into them, we wouldn’t move their needle one point in terms of how they operate. And we wouldn’t be comfortable with how they operated.


So, we try to buy into organizations that we think are very much like ours, at bedrock. And General Re would’ve recognized that Unicover loss just as quickly if we hadn’t owned it, as we had.


Now, that was not true of some other people. But they didn’t need any prodding from us in order to realize something like that.


We want people joining us who already are the type that face reality and that tell us, basically, tell us the truth but tell themselves the truth, which is even more important.


And once you get an organization that lies to itself, and there are plenty that do, I just think you get into all kinds of problems.


And people know it throughout the organization. And they adopt the norms of what they think is happening up above them.


And particularly in a financial organization — really in any organization — but particularly in a financial organization, you know, that is death over time. And we wouldn’t buy into something that we felt had that problem, with the idea that we would correct it. Because we wouldn’t.


You know, it — Charlie and I have had a little experience with some organizations that have had that sort of problem. And it’s not correctable, at least, you know, based on the lifespan of humans. It’s too much to commit to.


Charlie?


CHARLIE MUNGER 03:05

Well, I think you’re totally right about General Re. We didn’t improve behavior at General Re. They already had a behavior just like ours.


And regarding a reading list, by the mischances of life, I didn’t read one book last year that I thought was a lollapalooza. Therefore, I didn’t make any recommendations to that bookstore at the airport.


WARREN BUFFETT 03:38

Charlie, how many books do you think you’ve read, though? He reads a lot.


CHARLIE MUNGER 03:42

Well, I don’t count. And some of them, I skim through pretty fast. But there was no lollapalooza. A book like “Guns, Germs, and Steel” doesn’t come along every year.


WARREN BUFFETT 03:58

OK —


CHARLIE MUNGER 03:58

And by the way, that guy was a little nuts in one way.


WARREN BUFFETT 04:02

It’s hard to get an A from Charlie. (Laughter) OK, is it 6 we’re going to?

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