Video Link: https://youtu.be/nxG_bmj74jQ
In this episode, Warren Buffett was asked what should investors do if a management starts doing things which are far from intelligent?
In this episode, you’ll learn:
What should you do when you invested in a good business with bad management?
Why Warren Buffett thinks it's hard to change a person mind?
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~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.
AUDIENCE MEMBER 00:00
Good afternoon. My name is Pavel Begun. I am from Minsk, Belarus. And I have two questions.
And before I’ll have questions for you, I’d like to say thank you for recommending to read “Intelligent Investor.” It’s a terrific book and it reshaped me tremendously, literally, overnight. So I’d like to thank you for that.
And now the question. Say I’m an owner of the business. And the business has a durable competitive advantage and superior business model and is run by able people.
And then, you know, I start noticing that, basically, management starts doing things which are far from intelligent.
So what should I do as an owner, as an investor? Should I try to tell them how they should run the business? Or should I just sit back and do nothing because superior business model should overcome poor management? That’s the first question.
WARREN BUFFETT 00:57
On your first question, did you assume that you had control of the business, or you just owned a marketable security?
AUDIENCE MEMBER 01:02
Yes, if I own, say, 20 percent of marketable securities.
WARREN BUFFETT 01:07
All right. Well, the situation you described is not hypothetical, in the first case.
And I would say that the history that Charlie and I have had of persuading decent, intelligent people, who we thought were doing unintelligent things, to change their course of action has been poor.
Would you agree with that, Charlie, or no?
CHARLIE MUNGER 01:36
Worse than poor.
WARREN BUFFETT 01:37
So I would say that if you really think you’re in with people that have got a good business, but they’re going to keep doing dumb things with your money, you’ll probably do better to get out and get in with people who’ve got a good business and you think they’re going to do sensible things with it. I mean, you’ve got that option.
Now, you also have the option of trying to persuade them to change their mind. But it’s just very, very difficult. I mean it is, you know, that’s been something we’ve faced for 50 years.
And initially, we faced it from a position where nobody even knew who the hell we were, or anything of the sort.
So we’ve acquired a certain stature over time, perhaps in talking on the subject. And we’ve written on the subject. And we still don’t get very far. I mean, when people want to do something, they want to do something.
And they didn’t rise to become the CEO of a company to have some shareholder tell them that their most recent idea is dumb. I mean, that is just not the type that gets to the top.
So I would say that, as a matter of investment technique, and maybe as a matter of, you know, avoiding stress in your life and all of that sort of thing, that it’s — and dealing with smaller quantities of stock so it’s easier to sell and buy and all that sort of thing — I would say that it’s better to be in with a management you’re simpatico with, than simply to be in a great business with a management that’s bent on doing things that don’t make much sense to you.
CHARLIE MUNGER 03:12
Well, I certainly agree with that.