Wednesday, November 30, 2005

Warren Buffett: business and the USA

Peter Lynch says when you buy stock, buy into a business that’s so good that even a dope can run it, because sooner or later one will. There’s a lot of merit to that. If you just buy businesses that your idiot nephew can run, you’re going to do all right. You don’t want a business that a genius has to run. That’s the worst kind of business in the world really. And the truth is, our country is so good that we can take a fair amount of mismanagement. We test that occasionally, but we come through too.

Warren Buffett: Telecom and tough business

There hasn’t been much of a foray in telecom to start with that. Telecom is not a business I understand very well. I have no insights into that business. It’s always struck me as a very competitive commodity-type business, capital intensive. It’s just not a game where I have any kind of any interest at all. I’d rather sell candy or something of the sort, where you can understand the competitive advantage. But I don’t like businesses that are going to change a lot. I like Gillette, you know a hundred years ago almost, they were the dumb regular blade. Like value, they sell over 70 percent of the blades to the rest of the world, in the world—70 percent. Everybody knows how to make them; they don’t have to steal the technology; they don’t have to distribute them. But here’s a company that has 70 percent overtime. So it’s a great, great business. It will dominate 10 years from now. Dominate 20 years from now. Berkley will dominate surely 10 years from now or 20 years from now. Coca-Cola will dominate, but who’s going to do what in telecom? I don’t even know what’s happened in the past very well and I have no idea in a fast-folding industry what’s going to happen. So I view the change as beneficial to society but potentially very harmful to investors. Absence of change is how you get rich in investing. If you buy something that’s very good and you don’t worry about it changing on you and there’s certain mysteries that run themselves with that, there’s certain industries that don’t. Anything with a lot of technology is something to be very wrong on in a short period of time. Now people say you can be very right on it too but I don’t know enough to know the difference. I haven’t run into very many people that do, occasionally people think they do but it’s very hard to predict.

Look at the television industry. Television changes the lives of all of us in this room. I don’t think there’s a television set being manufactured in the United States that there aren’t 20 million of them being sold that were manufactured elsewhere. Radio came along and nobody made money after a little while making radio sets. There’s just all kinds of things that are beneficial for society that involve change. Just take the computer business. If you look at the people that got into computers 30 years ago, you had people like, well I can go down the list, it was a lousy business. Wonderful for society, grew up on it. But it was like, we might use the example of the auto business. 2,000 auto companies in the United States were formed ­ 2,000. There was an Omaha Motor Company. There was a Nebraska Motor Company. There was Maytag, there was Dupont. What you’ve got left, you’ve got two companies struggling and the third sold out to the Germans. They are running the company basically for the pensioners now. It’s been a terrible business model for this country. But it’s thoroughly fascinating. It’s little niche businesses like WD-40, or something like that, that do very well. Just a little something to stick together. Auto manufacturers turn out millions of cars and hundreds of thousands of people work there and they are lousy businesses. Capitalism has had growth in that sense. You can develop a good restaurant and somebody can come along and copy it the next day and figure out something new to add to the menu or add a little more parking. People are always looking at successful models and going after them. That’s terrific for the consumer. It can be very brutal to be in those kinds of businesses. Like McDonalds sort of owned the world 20 years ago, but not now. Wendy’s is doing better. Burger King is kind of struggling. It’s tough. I don’t like tough.

Warren Buffett on economic forecasting

I pay no attention to economic forecasting. Your children are, absent of the terrorism thing, but in terms of material wealth per capita, your kids are going to live better than you and your grandchildren will live better. And again in the 20th century, real GDP per capita, real GDP, one of seven for one in this country, just think of that, seven times. You can cash that out to fewer hours of work or more product or all kinds of things. But it¡¯s a wonderful, wonderful economy and it¡¯ll get better over time. Now to make any given 20 or 30, assuming I have 20 years left, there will be a few lousy years and there will be a few so-so years and most will be pretty good years and a couple fabulous years and I don¡¯t know in what order they are going to come. But if I¡¯m a good golfer and I haven¡¯t played a course here before and I knew there would be some par 5s and some par 3s, I¡¯m going to take some more strokes on the par 5s than on the par 3s on average. The importance is that I play, that I play each hole well. In the end I will end up with a good score. I can¡¯t just go around and play the par 3s. I can¡¯t do that in business. I worry about being in good businesses with good people. That¡¯s all I focus on. Never base a decision in business, I¡¯ve never based a decision on expansion of a business or anything like that based on an economic forecast because A) it¡¯s not reliable and B) it¡¯s not important. What is important is where we are going to be in 5 or 10 or 20 years in the country and will we be better off for this. So we don¡¯t have any clear-cut economic forecasters. My partner Charlie and I never talk about it. We just talk about how can we put the money in businesses that we have owned forever, with the kind of people we can trust.

Warren Buffett's favorite deal

My favorite deal's going to be the next deal. It's tomorrow morning-it's going to be more fun than any day I've had a job as far as I'm concerned. And that's the way it is in what I do. We were talking about it at dinner, I mean the best kind of business to be in is something where you sell something that costs a penny and sells for a dollar and is habit forming. We haven't found that yet but we sell things a little like that. We sell candy in the West, See's Candy. Now unfortunately boxed chocolates are not big in this country, there's about 1 pound per capita. Everybody loves to eat them and get them as gifts but they don't buy them to eat themselves, it's a very interesting phenomenon. I mean there's nobody here that wouldn't like to get a box of chocolates for Christmas or when they are in the hospital or a birthday. But you don't go to a shop and buy it whereas in other parts of the world people do that, so it's a small business but it's still an important business. It's a great gift and very seasonal. I mean, we made 55 million dollars last year. We made 50 million in the three weeks before Christmas.

Our company saw what is apparently a come to Jesus moment. Can you imagine going home on Valentine's Day, you know and saying, there's my sweetheart and unwrap this box saying Happy Valentine's, Dear, I took the low bid. Price is not a determining factor. If you are selling something for five dollars a pound, you don't have to worry about somebody selling for $4.95 a pound and taking away the market like you do in a lot of things. It's what's in the mind that counts. And if you gave a box of chocolates on your first date to some girl and she kissed you, we all knew. As long as they are our chocolates. If she slapped your face, we're never going to get you back, that's not going to work. It's got to be very good chocolate obviously, but everybody in California has something in their mind about See's Chocolates. Just like everybody in the world virtually has something in their mind about Coca-Cola. They have something that I call "share of mind" and "share of market." They've got something in their mind. Now they aren't going to have 28 things in their mind. All we want with Coca-Cola are those that are associated with happiness. So we want it at Disney World, we want it at Disneyland, we want it at a baseball game. We want it everyplace people are happy. We want Coca-Cola because we want that association. Tastes terrific to drink too.

But it's going to be something in the mind about it that makes people feel good about the product. So someone else is selling something in a can for one penny less-they don't shift. And if you say RC Cola to people, it's been around for 75 years, but there's something in your mind about RC Cola. Other than that, it doesn't bring anything to mind and if you are selling a consumer product you want it to be in as many minds as possible with as favorable connotations as possible. And the truth is you can go in, this is one of the ways I look at business, I can give you a billion dollars and tell you to go to California and try and beat us in the boxed chocolate business and you'd say to yourself, how am I going to do it? Am I going to sell them for cheaper prices? Am I going to get new outputs? You can't displace it because you can't change what's in peoples' minds with a billion dollar advertising campaign or anything of the sort.

You could build a shoe factory in China that will put us out of business because in the end you may care a little bit. Remember Florhseim shoes or Big Men shoes 20 years ago, they're gone. You don't really care what shoe, you care what it looks like and if it's a name you recognize, fine. You don't pay something extra for it and you sure as hell don't look at the bottom of the sole and see if it says "Made in the USA" or not. You really need to be in something where cost is not the controlling factor. Hershey bars-you know, you go into a drug store and say, "I want a Hershey bar," and the guy says, "I've got this private label I make myself, same size as a Hershey bar and it's a nickel cheaper." You walk across the street and buy a Hershey bar some place else. That's when you have a business. It's when you walk across the street if the guy tries to sell you something, even if it is a little cheaper.

But if you sell wheat, my son lost a farm and it's a terrible business, and I told him the day someone walks into a place like this and says, "I'd like some of [name-brand] corn, please," you know you are in a good business. But when they just say "Bring me some corn," it's a lousy business. In fact, such a lousy business, they had a fella that I read about that he won the lottery and he was a farmer here in Nebraska that won 20 million dollars and the TV crew went out to him and asked him, "What are you going to do with the 20 million dollars?" He says, "I think I'll just keep farming 'til it's all gone." That's what happens when you are in the commodity business. You don't want to go near it.

Warren Buffett on business

When you buy a company, is it a selection process, or a voter-type process?

It’s selection that pulls the culture. And the culture evolves more or less. But selection you start with. The first thing I look at when somebody wants to sell me a business before making a decision—do they love the money or do they love the company? If somebody loves painting, they may make a lot of money selling paintings, but they’re going to keep painting. If they love playing golf, they may make a ton of money, but they’ll keep playing golf. Jack Nicklaus will be out on the Senior Tour, whatever. If they love the money, they’re going to take the money, and they’ll promise me they’ll go to work for awhile; then after six months, they or their spouse will say, “Why are you jumping out of bed at 7 in the morning? You spent 40 years building this business and now you have all the money in the world and you’re still doing the same thing as before just so you can send a lot of money to Omaha.”

I think that decision is the most important question I’ve got to ask. I ask questions about the economic characteristics of the business and the price I’m paying, but I don’t have any management in Omaha. We’ve got 16 people in Omaha and we’ve got 165,000 employees. So we just don’t have anybody to send out. We don’t have any firemen. So I have to count on the people who sell me the business, they take hundreds of millions of dollars, like Rich Santulli at NetJets and they’re still going to want to get up at 5:30 in the morning and Thanksgiving weekend when everyone’s in such hurry because they all want planes at the same time. Solving those problems and the thunder storms in the east and whatever it may be. And when they get all through at the end of the day, wanna do it again the next day.

We’ve had a problem frankly, in finding those kinds of people, because three-quarters of our managers, at least, have more money than they or their kids or their grandchildren will ever need. They’ve monetized a lifetime of work or maybe their parents’ work or their grandparents’ work. But they’ve monetized that when they handed the business to us. And now they’ve got an option. And if they love the business, they can’t stop. Why do I work? I can’t tell you how much I love what I do. I would pay a lot of money (of course we don’t want the shareholders to know)—but I would pay a lot of money to have this job. I mean, I would do it under any circumstances. But the truth is I could anything in the world that I want, but this is what I like doing. It has nothing to do with how much I get paid. It just has to do with two things. It has to do with me getting to do what I like to do the way I want to do it. If somebody was telling me what I had to do every day I’d be gone tomorrow. Why in the world would I want to do that with the kind of money I have if I was being told what I had to do and how I had to do it, and whether to part my hair on the right or the left, or what to wear to the office or anything like that. I’d just say goodbye.

And secondly, I like appreciation. I like the fact that by and large our shareholders are appreciative. I’ve got an audience that I like and that’s what causes me to work when I don’t need the money. It’s probably what will cause other people to work in the businesses that we buy, assuming they love the business to start with. So we let them run their own business to an extraordinary degree. And we applaud. And if they get applause from me they’re getting it from a knowledgeable audience. I mean, I know business and I know enough about business to know when applause is due and when it isn’t. So they’re getting it from a good critic, as far as they’re concerned. And they’re getting it from our shareholders in turn, because I pass along the reasons for applause. And that’s what causes people to love it. They’ve got to love what they do. There’s just no way around it. And if they don’t, money isn’t going to keep them.

And we’ve never had, well, since 1965 I don’t know how many businesses we’ve acquired, but dozens and dozens. And we have never had a CEO leave us for another job voluntarily. We’ve had to make a couple of changes in 35 years, except this year in one company where the founder brought in a CEO to work jointly with her and the two of them, it just didn’t work. And that was over in a couple of months. But both of them feel good about Berkshire and it just doesn’t work to have two people try to run that kind of business. And it usually doesn’t work, but sometimes it works very well. We’ve had cases where it does work very well. So there’s no magic to it, but you’d better be sure that they love the business in the first place and that you let them paint their own painting. I mean, I feel like I’m on my back, and there’s the Sistine Chapel, and I’m painting away; it’s my painting, and somebody says, “Why don’t you use more red instead of blue?” Goodbye. It’s my painting. And I don’t care what they sell it for. That’s not part of it. The painting itself will never be finished. That’s one of the great things about it.

And I like it when people say, “Gee, that’s a pretty good-looking painting.” To me, that’s what management is about. Management is getting things done through other people that you want to get done. The way you get it done through other people—is to get talented people and let them work in a way that causes them to be more excited about it than they’ve ever been before. And we get that. Flight Safety. Al Ueltschi started that in 1951 with $10,000. Here’s a guy that flew Lindbergh. He’s 85 years old now. He built his own business and he got a billion dollars worth of Berkshire stock as a matter of record. Here’s what else he does—he works seven days a week and he solved his problem when he sold the business to Berkshire some years ago. Because here he built this thing—it was his painting—and he worried about what’s going to happen when I die? I have a very simple rule. I say, look, you can sell this painting today and we’ll hang it in the Metropolitan Museum or you can sell it to some LPO operator and it will hang in a board room

Now if you want this painting you’ve spent your whole life on hanging in a board room, that’s fair enough. And maybe a few bucks is worth it. But we’ll put it in the Metropolitan Museum and we’ll name a special wing after it; and not only that, you go on and keep painting. And that’s what Al wants. And when he sold it to me, his life is better afterwards, because that’s the one thing he worries about. You worry about your children. It was too important, when he’d built this thing for 40 or 50 years. A line I used with him—I told him, look, don’t worry about it. If you die tomorrow, some 26-year-old trust officer is likely to auction the place off. And that drives him crazy. But you do want to know what happens to your family. You do want to know what happens to your business. And that filters out all kinds of other things. I mean, in the end we’ve never bought a business at an auction. It won’t happen. We’re not interested in that. They dress up the figures and do all these other things. It’s not going to happen. But we’ve got a filter so I don’t have to review a thousand to buy two or something like that. I’m probably looking at three to buy two or something of the sort because we have filters they pass through before we even think about it. And we make deals over the phone. We bought the McLain Company from Wal-Mart—22 billion in sales—but to complete the deal was 29 days. The CFO from Wal-Mart came up to Omaha. We talked for a couple of hours and we shook hands on a price. He called down there, came back and said okay. And he said, what due diligence do I realize? And I said, “I’ve just done my due diligence. I’ve asked you a few questions.” We closed it 29 days later. We’ve never had a deal that closed that fast before the one with Wal-Mart. They loved it and we loved it. We’ve got a great guy running it.

That’s what I want to do in life. I mean, I don’t want to go through buying things at auction and trying to find the MBAs that are coming out from other places. I’d rather just find four hundred diggers that want to keep playing the game.

Tuesday, November 29, 2005

Happiness and success

One young questioner asked Buffett and Munger to share their thoughts on happiness and success. Buffett replied:

"I tell college students, when you get to be my age you will be successful if the people who you hope to have love you, do love you. Charlie and I know people who have buildings named after them, receive great honors, etc., and nobody loves them -- not even the people who give them honors. Charlie and I talk about wouldn't it be great if we could buy love for $1 million. But the only way to be loved is to be lovable. You always get back more than you give away.... There's nobody I know who commands the love of others who doesn't feel like a success. And I can't imagine people who aren't loved feel very successful."

Munger added, "You don't want to be like the motion picture exec who had so many people at his funeral, but they were there just make sure he was dead. Or how about the guy who, at his funeral, the priest said, 'Won't anyone stand up and say anything nice for the deceased?' and finally someone said, 'Well, his brother was worse.'"

Exchange Rates, Interest Rates, and Other Macro Factors shouldn't affect investment decision

"I'm no good on these macro predictions. The good thing about my economic predictions is that I pay no attention to them whatsoever. We focus on what's important and knowable. Exchange rates and interest rates are not predictable. The way we pick our investments, macro conclusions never enter the discussion."

-- Warren Buffett

Not to Invest in Tech Stocks

"It's no religious thing why we don't invest in technology. It's just that we've never found a company were we think we know what the bush will look like in 10 years and how many birds will be in it. We will never buy anything we don't understand, defined as having a good idea what the business will be in 10 years."

"We understand technology, how businesses can apply it, its benefits, impact on society, etc. It's the predictability of the economics of the situation 10 years out that we don't understand. We would be skeptical that anyone can. I've spent a lot of time with Bill Gates and Andy Grove and they would say the same thing."

"The only way we know how to make money is to buy businesses we understand."

"We are enormously risk-averse. We don't knowingly go into a business where we see significant risk of change."

Valuation Matters

"As Ben Graham said, 'In the short run, the market is a voting machine, but in the long run, it's a weighing machine.' Sooner or later, the amount of cash a business can disgorge will determine its value in the market."

"Think about a company with a market cap of $500 billion. To justify paying this price, you would have to earn $50 billion every year until perpetuity, assuming a 10% discount rate. And if the business doesn't begin this payout for a year, the figure rises to $55 billion annually, and if you wait three years, $66.5 billion. Think about how many businesses today earn $50 billion, or $40 billion, or $30 billion. It would require a rather extraordinary change in profitability to justify that price."

Buying Great Companies to Hold for a Long Time

Munger: "If you buy something because it's undervalued, then you have to think about selling it when it approaches your calculation of its intrinsic value. That's hard. But if you buy a few great companies, then you can sit on your $%@. That's a good thing." Buffett added, "We want to buy stocks to hold forever."

Sustainable Competitive Advantage

In response to a question about Harvard Business School Professor Michael Porter, Buffett said, "I've never read Porter, but know enough about him to know we think alike. He's written that durable, sustainable competitive advantages are the core of any business, and that's exactly the way we think. That is the key to investing. The best way to understand this is to study businesses that have achieved it. Ask yourself why there are no new entrants in the razor blade business. Or study Mrs. B. [the founder of the Nebraska Furniture Mart, which Berkshire Hathaway now owns]."

"We like to own castles with large moats filled with sharks and crocodiles that can fend off marauders -- the millions of people with capital that want to take our capital. We think in terms of moats that are impossible to cross, and tell our managers to widen their moat every year, even if profits do not increase every year. We think almost all of our businesses have big and widening moats."

How to Think About Investing

"The first investment primer was written by Aesop in 600 B.C. He said, 'A bird in the hand is worth two in the bush.' Aesop forgot to say when you get the two in the bush and what interest rates are; investing is simply figuring out your cash outlay (the bird in the hand) and comparing it to how many birds are in the bush and when you get them."

- Warren Buffett

Monday, November 28, 2005

Multidisciplinary education and "man with a hammer syndrome"

Over the years, Munger has always preached the importance of learning -- and then using -- all of the big disciplines, such as math, science, psychology, etc. To him, this just came naturally:
For some odd reason, I had an early and extreme multidisciplinary cast of mind. I couldn't stand reaching for a small idea in my own discipline when there was a big idea right over the fence in somebody else's discipline. So I just grabbed in all directions for the big ideas that would really work. Nobody taught me to do that; I was just born with that yen.

If one doesn't embrace all multidisciplinary thinking, Munger argues, then one is likely to fall into the trap of:

"man with a hammer syndrome." And that's taken from the folk saying: To the man with only a hammer, every problem looks pretty much like a nail. And that works marvelously to gum up all professions, and all departments of academia, and indeed most practical life. The only antidote for being an absolute klutz due to the presence of a man with a hammer syndrome is to have a full kit of tools. You don't have just a hammer. You've got all the tools. And you've got to have one more trick. You've got to use those tools checklist-style, because you'll miss a lot if you just hope that the right tool is going to pop up unaided whenever you need it.

Circle of competence

"If you have doubts whether something is in your circle of competence, it isn't. It's better to be well within the circle than tip-toeing along the edge."

"It's not terrible to have a small circle of competence. I think mine is pretty small."

Munger: "If you have competence, you know the edge. It wouldn't be a competence if you didn't know where the boundaries lie. It's a question that almost answers itself."

Keys to investment success

"I've seen nothing to improve on Graham and Fisher. Just think about stocks as a business and then evaluate that business. This requires insulating yourself from popular opinion."

Munger: "You need to have a passionate interest in why things are happening. That cast of mind, kept over long periods, gradually improves your ability to focus on reality. If you don't have the cast of mind, you're destined for failure even if you have a high IQ."

Keys to happiness and success

Munger: Just avoid things like racing trains to the crossing, doing cocaine, etc. Develop good mental habits. And avoid evil, particularly if they're attractive members of the opposite sex.

Buffett: Look at the people you like to hang out with. What qualities do you like about them? Why don't you copy them? And look at the people you don't like. What don't you like about them, and can you stop doing these things?

Munger: If your new behavior gives you a little temporary unpopularity with your peer group, then the hell with them.

Buffett: This reminds me of the old lady who was asked what she liked about being 103 years old. She replied, "No peer pressure."

Don't confuse growth with sustainable competitive advantage

"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors."

-- Fortune magazine, 11/22/99

Welcome market declines

"[Many] investors who expect to be ongoing buyers of investments throughout their lifetimes... illogically become euphoric when stock prices rise and unhappy when they fall. They show no such confusion in their reaction to food prices: Knowing they are forever going to be buyers of food, they welcome falling prices and deplore price increases. (It's the seller of food who doesn't like declining prices.) Similarly, at the Buffalo News we would cheer lower prices for newsprint -- even though it would mean marking down the value of the large inventory of newsprint we always keep on hand -- because we know we are going to be perpetually buying the product.

"Identical reasoning guides our thinking about Berkshire's investments. We will be buying businesses -- or small parts of businesses, called stocks -- year in, year out as long as I live (and longer, if Berkshire's directors attend the seances I have scheduled). Given these intentions, declining prices for businesses benefit us, and rising prices hurt us.

"The most common cause of low prices is pessimism -- some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.

"None of this means, however, that a business or stock is an intelligent purchase simply because it is unpopular; a contrarian approach is just as foolish as a follow-the-crowd strategy. What's required is thinking rather than polling. Unfortunately, Bertrand Russell's observation about life in general applies with unusual force in the financial world: 'Most men would rather die than think. Many do.'"

-- 1990 Shareholder Letter

Argument for buying great businesses

"We continually search for large businesses with understandable, enduring and mouth-watering economics that are run by able and shareholder-oriented managements. This focus doesn't guarantee results: We both have to buy at a sensible price and get business performance from our companies that validates our assessment. But this investment approach -- searching for the superstars -- offers us our only chance for real success. Charlie and I are simply not smart enough to get great results by adroitly buying and selling portions of far-from-great businesses."

-- 1991 Shareholder Letter

Keep it simple!

"Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people. When these attributes exist, and when we can make purchases at sensible prices, it is hard to go wrong (a challenge we periodically manage to overcome).

"Investors should remember that their scorecard is not computed using Olympic-diving methods: Degree-of-difficulty doesn't count. If you are right about a business whose value is largely dependent on a single key factor that is both easy to understand and enduring, the payoff is the same as if you had correctly analyzed an investment alternative characterized by many constantly shifting and complex variables."

-- 1994 Shareholder Letter

Ignore macroeconomic factors

"We try to price, rather than time, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?

"We purchased National Indemnity in 1967, See's in 1972, Buffalo News in 1977, Nebraska Furniture Mart in 1983, and Scott Fetzer in 1986 because those are the years they became available and because we thought the prices they carried were acceptable. In each case, we pondered what the business was likely to do, not what the Dow, the Fed, or the economy might do. If we see this approach as making sense in the purchase of businesses in their entirety, why should we change tack when we are purchasing small pieces of wonderful businesses in the stock market?"

-- 1994 Shareholder Letter

"We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.

"But, surprise: None of these blockbuster events made the slightest dent in Ben Graham's investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak...

"A different set of major shocks is sure to occur in the next 30 years. We will neither try to predict these nor to profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results."

-- 1994 Shareholder Letter

To invest successfully.....

"To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing, or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses: How to Value a Business, and How to Think About Market Prices.

"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher 5, 10, and 20 years from now. Over time, you will find only a few companies that meet these standards -- so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value."

-- 1996 Shareholder Letter

Monday, November 21, 2005

Key To Investing

"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors."

--- Warren Buffett

Thursday, November 03, 2005


  • 传奇 从7张桌子开始 : A great story about Restaurants business in China, from small to big.
  • 顺手牵羊赚取第一桶金 : Every successful people are very good at managing their limited resouces and make the most of them.
  • 指南:小本钱如何做大的三个招数 : In fact, I think if the idea doesn't work in a small scale, most likely it will be a disaster in a large scale. It sounds like a reverse in investing: if you are not comfortable in buying that whole company with the market price if you have the money, you shouldn't buy a single stock of it.