Its that time of the year again when financial wizards as well as amateurs like me make their annual piligrimage to Omaha, NE. I plan to make my second trip to the abode of Mr.B later this week and I thought it was worthwhile to dust, read and post a 12 month old writeup I wrote just after hearing to Mr. Warren Buffett last May.
The wisdom and common sense he effaced during the meeting are attributes every investor must imbibe. More so during a "Downturn" year.
===================
I had the good fortune to attend the 2008- Berkshire Hathaway Shareholders meeting at Omaha, Nebraska last week and had a once in a life time oppurtunity to speak to Mr.Buffett.
It was a wonderful experience listening to and learning from the
Master Investor himself and all I can say is that he stands alone as
the reigning deity of financial world's Mt Olympus!
Having read about him, observed him and worshipped him for a few years
now, I think it is reasonable to believe that this guy is exactly what
he seems: a plain-speaking, tee totaling man of uncrackable integrity
who works really, really hard and sticks to his investing and
management principles through boom and bust which makes him a freak of
nature since he is above normal human tendencies.
The questions the shareholders threw at him for 7 continuous hours
ranged from finances, life, religion, career, politics, sports and
several other streams. And he answered everything with a Zen like calm
and confidence.
I tried to take some notes and here are some of the best questions and
answers which came across during the conversation between we mortals
and God.
Even if you are least bothered about investments and finances, I
insist, Pl read on.
-RB
================
What does it take to become a successful investor? Brilliance or Smartness?
Neither, Success in investing doesn't correlate with I.Q. Once you
have ordinary intelligence, what you need is the temperament to
control the urges that gets other people into trouble in investing.
When do you deicide to invest in a firm?
The best thing that happens to us is when a great company gets into
temporary trouble. We want to buy them when they're on the operating
table. (Mr. Buffett bought Coke when it had its biggest fiasco after
launching New Coke; he bought American Express when it went through a
loss making phase in the early 60's)
What do you look for in people when they come to sell their firms to you?
I don't look for the usual credentials such as an MBA, a pedigree
(Harvard, Wharton), or cash reserves or market cap of their firm. What
I look for is just a passion in their eyes; I think that's the key. A
person who is hungry will always do well. I prefer it when people even
after selling stay on and work for the firm; they are people who can't
wait to get off their bed to get to work. Passion is everything; there
is no replacement for innate interest.
Mr. Buffett, you told us that Berkshire Hathaway has $ 45 Billion in
cash. Why aren't you investing?
Up until a few years back I had more ideas than money. Now I have more
money than ideas.
When do you plan to retire?
I love my job; I love it so much that I tap dance to work. Mrs. B, the
founder of Nebraska Furniture Mark worked until she was 104, she died
within 6 months of her retirement, that's a lesson to all my managers,
don't retire!
I personally am going to work 6-7 years after I die, probably that's
what they mean when they say- "Thinking out of the Box"!!
Why do stock market crashes happen?
Because of human nature for greed and insecurity. The 1970s were
unbelievable. The world wasn't going to end, but businesses were being
given away. Human nature has not changed. People will always behave in
a manic-depressive way over time. They will offer great values to
you.
What are the things that are taught wrong in Business school and the
corporate world?
I like such open ended questions, I think Business schools should
refrain from teaching their wards about profit making and profit
making alone, it gives a sense of 1 dimensional outlook to the young
students that loss is a curse. In reality, in the corporate world,
failure and loss making are inevitable. The capital market without
loss is like Christianity without hell.
I think they should teach the student on how to buy a business, how to
value a business? Not just on how to determine the price of a
business. Because price is what you pay, value is what you get.
Do you still hate Technology stocks?
With Coke I can come up with a very rational figure for the cash it
will generate in the future. But with the top 10 Internet companies,
how much cash will they produce over the next 25 years? If you say you
don't know, then you don't know what it is worth and you are
speculating, not investing. All I know is that I don't know, and if I
don't know, I don't invest."
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."
How do you feel after donating $ 40 Billion to the Bill and Melinda
Gates foundation? You are a hero to us!
I feel nothing. I haven't sacrificed anything in life. I have had a
good life. I donated only after I turned 75. I think I admire those
people who sacrifice their time, share their food and home, as the
people to be emulated not me. Besides, what is money before a man's
life?
What do you think are the pitfalls in donation?
I have never donated a dime to churches or other such organizations;
I need to believe in something before I end up doing that. I have been
observing the Bill & Melinda Gates foundation for years now and Iam
confident they will do a fantastic job of making use of the money.
Iam a big believer in Outsourcing, others believed in me as an
Investor and gave their hard earned money to invest. I believe in Bill
Gates, he is a better donor than me.
Why do you work from Omaha and not Wall Street, New York?
Wall Street is the only place where people alight from Rolls Royce to
get advised by people who use the Public transportation system. Besides, I have worked in Wall St for a few years and I felt it is a place where hyper-activity is expected and valued but personally I believe to do well with your investments you have to practice inactivity.
You seem to be so well read, tell us how it all started.
My father was a stock broker, so we had all these financial books in
our library. He introduced me to those classics and I got into them.
Iam lucky that my father was not a fan of Playboy!
Reading is the best habit you can get. Well, you can learn from
teachers too, and have mentors but there are so many constraints
attached- they will talk fast, talk slow, they might talk like a pro
or they might be terrible communicators. Books are a different animal
altogether, I love reading!
The beauty about reading and learning is that the more you learn the
more you want to learn.
People who join Berkshire Hathaway seldom leave. How do you get along
well with all your executives?
I try to get quality people. I always say - Hire someone in your
organization who is better than you are. If you do that, you build a
company of giants. If you get people worse than yourself, you build a
company of dwarfs. And do not try to do everything yourself. Delegate
the jobs and look out of the window. The results will come. That's how
you build institutions. It happens only when you empower others,
believe in others. Iam an investor, Iam very secured at that, I have
no clue how to make Coca-Cola or how to dole out credit cards (Mr.
Buffett owns 8% of Coca-Cola and 13 % of American Express).
I understand the wisdom of the aphorism that you cannot please all the
people all the time.
Of Course, you will always find qualities that you don't like in
people around you, but if you observe carefully the love of the work
unites you both. There is no point in being obsessive about a bad
quality in a person, whom you otherwise respect.
Iam a small time businessman from Dallas, Texas, what do I need to do
to hit big time?
Be patient, Achieving your financial goals and dreams will not happen
overnight. As much as we would all really love to accomplish our goals
in a few years, this is an ongoing process. Defining your financial
goals is not a one-time task; you need to keep adding new plans at
different stages in your life.
We all admire the skills of Olympic ice skaters, pro golfers, and
concert pianists. But do we remember that they didn't acquire their
skills overnight? They had to practice hours on end for years to
achieve their dreams. The key to success is to continue learning
throughout your life with a voracious appetite.
I think it is marvelous that you have had a golden run with investing,
how did you do that?
My rule is to be fearful when others are greedy, and be greedy when
others are fearful.
Besides, I call investing the greatest job in the world because you
never have to swing. You stand at the plate; the pitcher throws you
General Motors at 47! U.S. Steel at 39! And nobody calls a strike on
you. There's no penalty except opportunity lost. All day you wait for
the pitch you like; then when the fielders are asleep, you step up and
hit it.
Stay dispassionate and be patient. You're dealing with a lot of silly
people in the marketplace; it's like a great big casino and everyone
else is boozing. If you can stick with drinking Coke, you should be
OK. First the crowd is boozy on optimism and buying every new issue in
sight. The next moment it is boozy on pessimism, buying gold bars and
predicting another Great Depression, most people get interested in
stocks when everyone else is. The time to get interested is when no
one else is. You can't buy what is popular and do well.
Mr. Buffett you have seen so many crashes and recessions, your take on
facing recessions and stock market crashes?
If past history was all there was to the game, the richest people
would be librarians. Every scenario is different. But always remember,
Tough times do not last. Tough people do.
What is the 1 biggest advice you would impart to a young investor like me?
Think for a moment that you are given a car and told this is the only
car you would get for the rest of your life.
Then you would make sure that you car is taken care of well, it is
oiled and detailed every now and then. You would make sure that it
never gets rusted, and you would garage it.
Think of yourself as that car. You just get 1 body, 1 mind and 1 soul.
Take care of it well. Invest in yourself that would be my advice.
You personally know many of the Financial executives who are engineers
of the current turmoil in the financial world, surprisingly even after
record losses, those executives receive astronomical salaries and
bonuses and arrogantly declare that they deserve it, why dint you
advice them from making such decisions and what's your view on their
justification for their pay?
I like sharing my ideas but don't like imposing my ideas on anybody.
It doesn't make sense and is a waste of time. If somebody has decided
that they know everything that is there to know, nobody can help them.
The best way to learn and succeed is to know that we know nothing.
There is an entire universe out there and still some of us think we
can know everything.
In the world of investing a few people after making some money tend to
imagine they are invincible and great. This is the worst thing that
could happen to any investor, because it surely means that the
investor will end up taking unnecessary risks and end up losing
everything – arrogance, ego and overconfidence are very lethal.
Personally I don't feel too comfortable with too much extravagance,
because I always think like an investor. My thought process doesn't
see a lot of value in a fancy car or a designer suit. Thinking like an
investor always is very important to bring in a sense of discipline
and focus. Before reading balance sheets and investing you need to
make sure your outlook and mindset is that of an investor.
Never let ego, arrogance and over-confidence control you - not just as
an investor but also as a human being. You will never have internal
peace if you are unable to look at everybody around you with love,
compassion and understanding. Irrespective of who the person is, he or
she can teach you something you don't know. I have learnt so much from
people all around me and I wouldn't have been able to learn all these
wonderful things if I had not spoken to them with a smile.
To quote Sir Isaac Newton- If I have seen farther than others, it is
because I have stood on the shoulders of giants.
How do you make the Government eat out of your hands? How do you make
them agree to everything you do?
If the strategy of a private enterprise matches the policy of the
government, the government will be compelled to support you even if
they don't like you.
============
It was a 7 hour conversation and I could just capture some of the best
questions and answers.
As 37,000+ dazed, amazed and grateful shareholders trooped out of the
stadium after the meeting, I found myself recalling one of my favorite
quotes of former President Ronald Reagan-
"A man has to learn that he cannot command things, but that he can
command himself; that he cannot coerce the wills of others, but that
he can mold and master his own will: and things serve him who serves
Truth; people seek guidance of him who is master of himself".
The wisdom and common sense he effaced during the meeting are attributes every investor must imbibe. More so during a "Downturn" year.
===================
I had the good fortune to attend the 2008- Berkshire Hathaway Shareholders meeting at Omaha, Nebraska last week and had a once in a life time oppurtunity to speak to Mr.Buffett.
It was a wonderful experience listening to and learning from the
Master Investor himself and all I can say is that he stands alone as
the reigning deity of financial world's Mt Olympus!
Having read about him, observed him and worshipped him for a few years
now, I think it is reasonable to believe that this guy is exactly what
he seems: a plain-speaking, tee totaling man of uncrackable integrity
who works really, really hard and sticks to his investing and
management principles through boom and bust which makes him a freak of
nature since he is above normal human tendencies.
The questions the shareholders threw at him for 7 continuous hours
ranged from finances, life, religion, career, politics, sports and
several other streams. And he answered everything with a Zen like calm
and confidence.
I tried to take some notes and here are some of the best questions and
answers which came across during the conversation between we mortals
and God.
Even if you are least bothered about investments and finances, I
insist, Pl read on.
-RB
================
What does it take to become a successful investor? Brilliance or Smartness?
Neither, Success in investing doesn't correlate with I.Q. Once you
have ordinary intelligence, what you need is the temperament to
control the urges that gets other people into trouble in investing.
When do you deicide to invest in a firm?
The best thing that happens to us is when a great company gets into
temporary trouble. We want to buy them when they're on the operating
table. (Mr. Buffett bought Coke when it had its biggest fiasco after
launching New Coke; he bought American Express when it went through a
loss making phase in the early 60's)
What do you look for in people when they come to sell their firms to you?
I don't look for the usual credentials such as an MBA, a pedigree
(Harvard, Wharton), or cash reserves or market cap of their firm. What
I look for is just a passion in their eyes; I think that's the key. A
person who is hungry will always do well. I prefer it when people even
after selling stay on and work for the firm; they are people who can't
wait to get off their bed to get to work. Passion is everything; there
is no replacement for innate interest.
Mr. Buffett, you told us that Berkshire Hathaway has $ 45 Billion in
cash. Why aren't you investing?
Up until a few years back I had more ideas than money. Now I have more
money than ideas.
When do you plan to retire?
I love my job; I love it so much that I tap dance to work. Mrs. B, the
founder of Nebraska Furniture Mark worked until she was 104, she died
within 6 months of her retirement, that's a lesson to all my managers,
don't retire!
I personally am going to work 6-7 years after I die, probably that's
what they mean when they say- "Thinking out of the Box"!!
Why do stock market crashes happen?
Because of human nature for greed and insecurity. The 1970s were
unbelievable. The world wasn't going to end, but businesses were being
given away. Human nature has not changed. People will always behave in
a manic-depressive way over time. They will offer great values to
you.
What are the things that are taught wrong in Business school and the
corporate world?
I like such open ended questions, I think Business schools should
refrain from teaching their wards about profit making and profit
making alone, it gives a sense of 1 dimensional outlook to the young
students that loss is a curse. In reality, in the corporate world,
failure and loss making are inevitable. The capital market without
loss is like Christianity without hell.
I think they should teach the student on how to buy a business, how to
value a business? Not just on how to determine the price of a
business. Because price is what you pay, value is what you get.
Do you still hate Technology stocks?
With Coke I can come up with a very rational figure for the cash it
will generate in the future. But with the top 10 Internet companies,
how much cash will they produce over the next 25 years? If you say you
don't know, then you don't know what it is worth and you are
speculating, not investing. All I know is that I don't know, and if I
don't know, I don't invest."
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."
How do you feel after donating $ 40 Billion to the Bill and Melinda
Gates foundation? You are a hero to us!
I feel nothing. I haven't sacrificed anything in life. I have had a
good life. I donated only after I turned 75. I think I admire those
people who sacrifice their time, share their food and home, as the
people to be emulated not me. Besides, what is money before a man's
life?
What do you think are the pitfalls in donation?
I have never donated a dime to churches or other such organizations;
I need to believe in something before I end up doing that. I have been
observing the Bill & Melinda Gates foundation for years now and Iam
confident they will do a fantastic job of making use of the money.
Iam a big believer in Outsourcing, others believed in me as an
Investor and gave their hard earned money to invest. I believe in Bill
Gates, he is a better donor than me.
Why do you work from Omaha and not Wall Street, New York?
Wall Street is the only place where people alight from Rolls Royce to
get advised by people who use the Public transportation system. Besides, I have worked in Wall St for a few years and I felt it is a place where hyper-activity is expected and valued but personally I believe to do well with your investments you have to practice inactivity.
You seem to be so well read, tell us how it all started.
My father was a stock broker, so we had all these financial books in
our library. He introduced me to those classics and I got into them.
Iam lucky that my father was not a fan of Playboy!
Reading is the best habit you can get. Well, you can learn from
teachers too, and have mentors but there are so many constraints
attached- they will talk fast, talk slow, they might talk like a pro
or they might be terrible communicators. Books are a different animal
altogether, I love reading!
The beauty about reading and learning is that the more you learn the
more you want to learn.
People who join Berkshire Hathaway seldom leave. How do you get along
well with all your executives?
I try to get quality people. I always say - Hire someone in your
organization who is better than you are. If you do that, you build a
company of giants. If you get people worse than yourself, you build a
company of dwarfs. And do not try to do everything yourself. Delegate
the jobs and look out of the window. The results will come. That's how
you build institutions. It happens only when you empower others,
believe in others. Iam an investor, Iam very secured at that, I have
no clue how to make Coca-Cola or how to dole out credit cards (Mr.
Buffett owns 8% of Coca-Cola and 13 % of American Express).
I understand the wisdom of the aphorism that you cannot please all the
people all the time.
Of Course, you will always find qualities that you don't like in
people around you, but if you observe carefully the love of the work
unites you both. There is no point in being obsessive about a bad
quality in a person, whom you otherwise respect.
Iam a small time businessman from Dallas, Texas, what do I need to do
to hit big time?
Be patient, Achieving your financial goals and dreams will not happen
overnight. As much as we would all really love to accomplish our goals
in a few years, this is an ongoing process. Defining your financial
goals is not a one-time task; you need to keep adding new plans at
different stages in your life.
We all admire the skills of Olympic ice skaters, pro golfers, and
concert pianists. But do we remember that they didn't acquire their
skills overnight? They had to practice hours on end for years to
achieve their dreams. The key to success is to continue learning
throughout your life with a voracious appetite.
I think it is marvelous that you have had a golden run with investing,
how did you do that?
My rule is to be fearful when others are greedy, and be greedy when
others are fearful.
Besides, I call investing the greatest job in the world because you
never have to swing. You stand at the plate; the pitcher throws you
General Motors at 47! U.S. Steel at 39! And nobody calls a strike on
you. There's no penalty except opportunity lost. All day you wait for
the pitch you like; then when the fielders are asleep, you step up and
hit it.
Stay dispassionate and be patient. You're dealing with a lot of silly
people in the marketplace; it's like a great big casino and everyone
else is boozing. If you can stick with drinking Coke, you should be
OK. First the crowd is boozy on optimism and buying every new issue in
sight. The next moment it is boozy on pessimism, buying gold bars and
predicting another Great Depression, most people get interested in
stocks when everyone else is. The time to get interested is when no
one else is. You can't buy what is popular and do well.
Mr. Buffett you have seen so many crashes and recessions, your take on
facing recessions and stock market crashes?
If past history was all there was to the game, the richest people
would be librarians. Every scenario is different. But always remember,
Tough times do not last. Tough people do.
What is the 1 biggest advice you would impart to a young investor like me?
Think for a moment that you are given a car and told this is the only
car you would get for the rest of your life.
Then you would make sure that you car is taken care of well, it is
oiled and detailed every now and then. You would make sure that it
never gets rusted, and you would garage it.
Think of yourself as that car. You just get 1 body, 1 mind and 1 soul.
Take care of it well. Invest in yourself that would be my advice.
You personally know many of the Financial executives who are engineers
of the current turmoil in the financial world, surprisingly even after
record losses, those executives receive astronomical salaries and
bonuses and arrogantly declare that they deserve it, why dint you
advice them from making such decisions and what's your view on their
justification for their pay?
I like sharing my ideas but don't like imposing my ideas on anybody.
It doesn't make sense and is a waste of time. If somebody has decided
that they know everything that is there to know, nobody can help them.
The best way to learn and succeed is to know that we know nothing.
There is an entire universe out there and still some of us think we
can know everything.
In the world of investing a few people after making some money tend to
imagine they are invincible and great. This is the worst thing that
could happen to any investor, because it surely means that the
investor will end up taking unnecessary risks and end up losing
everything – arrogance, ego and overconfidence are very lethal.
Personally I don't feel too comfortable with too much extravagance,
because I always think like an investor. My thought process doesn't
see a lot of value in a fancy car or a designer suit. Thinking like an
investor always is very important to bring in a sense of discipline
and focus. Before reading balance sheets and investing you need to
make sure your outlook and mindset is that of an investor.
Never let ego, arrogance and over-confidence control you - not just as
an investor but also as a human being. You will never have internal
peace if you are unable to look at everybody around you with love,
compassion and understanding. Irrespective of who the person is, he or
she can teach you something you don't know. I have learnt so much from
people all around me and I wouldn't have been able to learn all these
wonderful things if I had not spoken to them with a smile.
To quote Sir Isaac Newton- If I have seen farther than others, it is
because I have stood on the shoulders of giants.
How do you make the Government eat out of your hands? How do you make
them agree to everything you do?
If the strategy of a private enterprise matches the policy of the
government, the government will be compelled to support you even if
they don't like you.
============
It was a 7 hour conversation and I could just capture some of the best
questions and answers.
As 37,000+ dazed, amazed and grateful shareholders trooped out of the
stadium after the meeting, I found myself recalling one of my favorite
quotes of former President Ronald Reagan-
"A man has to learn that he cannot command things, but that he can
command himself; that he cannot coerce the wills of others, but that
he can mold and master his own will: and things serve him who serves
Truth; people seek guidance of him who is master of himself".
