AUDIENCE MEMBER 00:00
My name’s Arturo Brulenborg (PH). I’m from Washington, D.C. I’ll be graduating from Harvard College in June and beginning a career in value investing, so I sure hope we’re all right in thinking that this century will be just as good as the last for value investors.
You’ve been doing this since you were my age, if not younger. So I’m wondering what habit, or habits have contributed most to your ability to continue learning and improving your investment decisions in a changing business and financial environment?
WARREN BUFFETT 00:28
I would say that, at least in my case, I haven’t been continually learning, in terms of the basic principles. You always learn a little more about given techniques, or we learn — you know, I learn more about some industries over time, and therefore, maybe I’ve widened the universe in which I can operate, although more funds narrows it back down, unfortunately.
But I know more about businesses than I knew 20 years ago, or 40 years ago. I haven’t really changed the principles.
The last change — the basic principles are still Ben Graham. They were affected in a significant way by Charlie and Phil Fisher, in terms of looking at the better businesses. But they — but I didn’t leave any of — I didn’t leave Graham behind on that.
And I really haven’t learned any new fundamental principles. But I may have learned a little bit more about how business operates over time.
And there’s really nothing — I mean, you ought to get an investment framework that comes straight from, in my view, from “The Intelligent Investor,” and from Phil Fisher, more from “The Intelligent Investor,” actually.
And then I think you ought to learn everything you can about industries and businesses that — where you think you have the ability to get your mind around them if you work at them. And with that arsenal, you’ll do very well, and if you’ve got the temperament for the business.
CHARLIE MUNGER 01:56
Yeah, well, of course I’ve watched Warren all these decades, and he’s learned a hell of a lot, even the last 20 or 30 years. So it’s a game of continuing to learn. And he can denigrate this little frou-frou that enables him to pick the biggest oil company in China, or this or that.
But those basic principles alone, that he knew a long time ago, wouldn’t have given him the ability to make the recent investment decisions as well as he’s made them. It’s a life-long game, and it you don’t keep learning, other people will pass you by.
WARREN BUFFETT 02:38
I would say temperament, though, still is the most important, wouldn’t you, Charlie?
CHARLIE MUNGER 02:41
Yes, of course. But temperament alone won’t do it.
WARREN BUFFETT 02:44
No, temperament alone won’t do it.
CHARLIE MUNGER 02:45
You have to have the temperament, and the right basic idea. And then you have to keep at it with a lot of curiosity for a long, long time.
WARREN BUFFETT 02:54
But you don’t have to be blindingly, and have any blinding insights, or have a high IQ to look at a PetroChina for example, and —
You know, it, I mean, it’s a — when you get, you know, a company that is doing 2 1/2 million barrels a day, that’s 3 1/2 percent of the — or 3 percent — of the world’s oil production.
You know, and they’re selling based on U.S. prices using WTI — you know, as West Texas Intermediate — as a base price, and where they have a significant part of the marketing and refining in a country, the tax rate’s 30 percent.
They say they’re going to pay out 45 percent to you in dividends. Don’t have unusual amounts of leverage.
If you’re buying something like that at well under half what — or maybe a third — of what comparable oil companies are selling for, that’s not high-level stuff.
I mean, you have to read some — you have to be willing to read the reports. But I enjoy doing that. But you wouldn’t say that requires any high-level insights or anything, Charlie?
CHARLIE MUNGER 04:04
Well, when you were buying that block of stock, nobody else to speak of was buying. So —
WARREN BUFFETT 04:11
CHARLIE MUNGER 04:12
The insights can’t have been all that common.
No, I think that takes a certain amount of what an old Omaha friend used to call “uncommon sense.” He used to say, “There is no common sense. When people say common sense, they mean uncommon sense.”
Part of it, I think, is being able to tune out folly as distinguished from recognizing wisdom. And if you just got whole categories of things you just bat away, so your brain isn’t cluttered with them, then you’re better able to pick up a few sensible things to do.
WARREN BUFFETT 04:50
Yeah, we don’t consider many stupid things. You know, we get rid of them fast.
And in fact, people get irritated with us, because they’ll call us, and when they’re in the middle of the first sentence, we’ll just tell them “forget it.” You know, and we don’t — we can see it coming.
And, you know, that’s the way, actually, the mind works. There was a great article in The New Yorker magazine 30 years ago or so — little more than that. It was when the Fischer-Spassky chess matches were going on. And it got into this speculation of would the humans be able to take on computers in chess.
And, you know, here were these computers doing hundreds of thousands of calculations a second. And they said, “How can the human mind, when all you’re really looking at is the future, you know, the results from various moves in the future, how can a human mind deal with a computer that’s thinking it at speeds that are unbelievable?”
And of course, they examined the subject some. And a mind, like — well, in fact, all minds, but some much better than others — but a Fischer or Spassky, essentially, was eliminating about 99.99 percent of the possibilities without even thinking about it.
So it wasn’t that they could outthink the computer in terms of speed, but they had this ability in what you might call grouping, or exclusion, where, essentially, they just got right down to the few possibilities out of the zillions of possibilities that really had any chance of success.
And getting rid of the nonsense, I mean, just figuring that, you know, people start calling you and say, “I’ve got this great, wonderful idea.” Don’t spend 10 minutes, you know, once you know in the first sentence that it isn’t a great, wonderful idea.
Don’t be polite, go through the whole process. And Charlie and I pretty good at that. We can hang up very fast, right?
CHARLIE MUNGER 06:41
Well, there you have it. All you’ve got to do is go at it in the way that Vasily Smyslov did when he was the world champion, and — of chess — and just do the same thing in investments.
WARREN BUFFETT 06:58
OK, microphone 1. (Laughs)
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