Yes. My name is (inaudible). I’m from New Mexico. And I’m a shareholder. I have two questions. First, in your ’91 letter, you wrote about investors eventually repeat their mistakes. So what do you do to keep you from making the same mistake twice? And the second question is, in your ’92 letter, you wrote that you tend to deal with a problem of future earning in two ways. The first way is the business you understand. And the second is the margin of safety. And you say they are equally important. But if you — (loud noise) — but if you cannot find the happy combination of faster growth at a low key, which one do you think is more important, faster growth or low key? That’s my two questions. WARREN BUFFETT
I think we were told by — (loud noise) — we were told by some higher authority which one was more important there for a second. (Laughter) Well, they’re bound together. Obviously, if you understood a business perfectly — the future of a business — you would need very little in the way of a margin of safety. So the more volatile the business is — or possibility is — but assuming you still want invest in it, the larger the margin of safety. I think in that first edition of [Benjamin] Graham — I doubt if I’m right — was it (inaudible) and said, you know, maybe it was worth somewhere between 30 or 110, or some number. He said, “Well, that sounds — how much good does that do you to know that it’s worth between 30 and 110?” Well, it does you some good if it’s selling below 30 or above 110.” That’s — you need a large margin of safety. Well, if you’re driving a truck across a bridge that holds — it says it holds 10,000 pounds — and you’ve got a 9,800 pound vehicle, you know, if the bridge is about six inches above the crevice that it covers, you may feel OK. But if it’s, you know, over the Grand Canyon, you may feel you want a little larger margin of safety, in terms of only driving a 4,000 pound truck, or something, across. So it depends on the nature of the underlying risk. We don’t get the margin of safety now that we got in a 1973-4 period, for example. The biggest thing to do is understand the business. If you understand the business, and get into the kind of the businesses where surprises — by their nature — surprises are few. And we think we’re largely in that type of business.
The earlier part about — you know, I’ve said about learning from your mistakes, the best thing to do is learn from other guys’ mistakes, I mean, you know — It’s like, you know, [U.S. General George] Patton used to say, you know, “It’s an honor to die for your country. Make sure the other guy gets the honor,” you know and — (Laughter) So our approach is really to try and learn vicariously. But there’s a lot of mistakes that I’ve repeated, I can tell you that. The biggest one, probably — or the biggest category over time — is being reluctant to pay up a little for a business I knew was really outstanding, or to continue to buy it at higher prices when I knew it was outstanding. So the cost of that has been many, many billions. And I’ll probably keep making that mistake. There are — the mistakes are made when there are businesses you can understand and they’re attractive and you don’t do something about it. I don’t worry at all about the mistakes that come about because when I met Bill Gates, I didn’t buy Microsoft or something. That’s not my game. But the mistakes are made when you — most of our mistakes have been mistakes of omission rather than commission. Charlie? CHARLIE MUNGER
Yeah. I think most people get very few, what I call, no-brainer opportunities, where it’s just so damned obvious that this is going to work. And since they are very few and they may be separated by periods of years, I think people have to learn to have the courage and the intelligence to step up in a major way when those rare opportunities come by. WARREN BUFFETT
Yeah. You got to be willing to take a really big bite. And it’s crazy if you don’t. And it’s crazy if you dabble around at the edges, so you’re not prepared to take a big bite when the time comes.
~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.
1. Margin of Safety changes depend on the underlying risk.
2. The best thing to do is learn from other guys' mistakes.