Collection: Warren Buffett - #8 | Investing Is Simple If You Keep It Simple...



[Transcript]

AUDIENCE MEMBER

Thank you for teaching me — teaching so much to all of us about business. My name is Mike Assail (PH) from New York City. You mentioned earlier that Berkshire’s shoe business was great, but that other shoe businesses were not so good. What are the uncertainties of the global brand leaders that Berkshire seems to like? They like Coke and Gillette. The global brand leaders in the shoe business being Nike and Reebok. What are their uncertainties, in terms of long-term competitive advantage, business economics, consumer behavior, and the other risk factors that you mentioned in the annual report this year? Thank you. WARREN BUFFETT

So, you’re really asking about the future prospects of Nike and Reebok? Yeah. I don’t know that much about those businesses. We do have one person in this audience, at least, who owns a lot of Reebok. But I am not expressing a negative view in any way on that. I just — I don’t understand that — I don’t understand their competitive position and the likelihood of permanence of their competitive position over a 10 or 20 year period as well as I think I understand the position of Brown and Dexter. That doesn’t mean I think that it’s inferior. Doesn’t mean I think that we’ve got better businesses or anything. I think we’ve got very good businesses. But I — I’m not — I haven’t done the work and I’m not sure if I did the work I would understand them. I think they are harder to understand, frankly, and to develop a fix on, than our kinds. But, they may be easier for other people who just have a better insight into that kind of business.

Some businesses are a lot easier to understand than others. And Charlie and I don’t like difficult problems. I mean, we — if something is hard to figure, you know, we’d rather multiply by three than by pi. I mean it’s just easier for us. (Laughter) Charlie, you have any —? CHARLIE MUNGER

Well, that is such an obvious point. And yet so many people think if they just hire somebody with the appropriate labels they can do something very difficult. That is one of the most dangerous ideas a human being can have. All kinds of things just intrinsically create problems. The other day I was dealing with a problem and I said, this thing — it’s a new building — and I said this thing has three things I’ve learned to fear: an architect, a contractor, and a hill. (Laughter) And — if you go at life like that, I think you, at least, make fewer mistakes than people who think they can do anything by just hiring somebody with a label. WARREN BUFFETT

We don’t comment — excuse me, go ahead. CHARLIE MUNGER

You don’t have to hire out your thinking if you keep it simple.

WARREN BUFFETT

You don’t have to do — we’ve said this before — but you don’t have to do exceptional things to get exceptional results. And some people think that if you jump over a seven-foot bar that the ribbon they pin on you is going to be worth more money than if you step over a one-foot bar. And it just isn’t true in the investment world, at all. So, you can do very ordinary things. I mean, what is complicated about this? But, you know, we’re $3 billion pretax better off than we were a few years ago because of it. There’s nothing that I know about that product, or its distribution system, its finances, or anything, that, really, hundreds of thousands — or millions — of people aren’t capable of, that they don’t already know. They just don’t do anything about it. And similarly, if you get into some complicated business, you can get a report that’s a thousand pages thick and you got Ph.D.s working on it, but it doesn’t mean anything. You know, what you’ve got is a report but you don’t — it — you won’t understand that business, what it’s going to look like in 10 or 15 years. The big thing to do is avoid being wrong. (Laughter) CHARLIE MUNGER

There are some things that are so intrinsically dangerous. Another of my heroes is Mark Twain, who looked at the promoters of his day and he said, “A mine is a hole in the ground owned by a liar.” (Laughter) And that’s the way I’ve come to look at projections. I mean, basically, I can remember, Warren and I were offered $2 million worth of projections once in the course of buying a business and the book was this thick. WARREN BUFFETT

For nothing. CHARLIE MUNGER

And, if we were given it for nothing, and we wouldn’t open it. WARREN BUFFETT

We almost paid 2 million not to look at it. (Laughter) It’s ridiculous. I do not understand why any buyer of a business looks at a bunch of projections put together by a seller or — CHARLIE MUNGER

Or his agent. WARREN BUFFETT

— or his agent. I mean, it — you can almost say that it’s naive to think that that has any utility whatsoever. We just are not interested. If we don’t have some idea ourselves of what we think the future is, to sit there and listen to some other guy who’s trying to sell us the business or get a commission on it tell us what the future’s going to be — it — like I say, it’s very naïve. CHARLIE MUNGER

Yeah, and five years out. WARREN BUFFETT

Yeah. We had a line in the report one time, “Don’t ask the barber whether you need a haircut.” And — (laughter) — it’s quite applicable to projections of — by sellers — of businesses.

Zone 3.


(Source: https://buffett.cnbc.com/1994-berkshire-hathaway-annual-meeting/)

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

 

[YAPSS Takeaway]

1. Don't be fooled by the 'labels.'

  • "So many people think if they just hire somebody with the appropriate labels they can do something very difficult. That is one of the most dangerous ideas a human being can have." ~Charlie Munger


2. The key to investing is avoid being wrong.