Collection: Warren Buffett - #29 | First Question To Ask Yourself Before You Invest



[Transcript]

AUDIENCE MEMBER

Hello, my name is Peter Bevelin from Sweden.

What is the absolutely first question you ask yourself when you look at a potential investment? And do you and Mr. Munger ask yourself the same first question?

WARREN BUFFETT

Yeah. Well, I think — I don’t ask myself whether Charlie’s going to like it because — (laughter) — that will be a tough one.

No, the first question is, can I understand it? And unless it’s going to be in a business that I think I can understand, there’s no sense looking at it.

There’s no sense kidding myself into thinking that I’m going to understand some software company, or some biotech company, or something of the sort. What the hell am I going to know about it? I mean, you know, I can — so that’s the first threshold question.

And then the second question is, you know, does it look like it has good economics? Has it earned high returns on capital? You know, does it strike me as something that’s likely to do that? And then I sort of go from there.

How about you, Charlie?

CHARLIE MUNGER

Yeah. We tend to judge by the past record. By and large, if the thing has a lousy past record and a bright future, we’re going to miss the opportunity. (Laughter and applause)


(Source: https://buffett.cnbc.com/1995-berkshire-hathaway-annual-meeting/)

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

 

[YAPSS Takeaway]

First question to ask yourself before Investing:

1. Do you understand the business?

If yes, then look at the financial records.

If not, then just go to the next one.

(There are over ~630,000 stocks trading in the world.)