Buffett_On_Business_Life_And_Luck
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It's not about stocks; it's about character.
Distilled Wisdom from Warren Buffett's 1998 Talk at the University of Florida
The Oracle's Framework: A Masterclass in Business & Life
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leadership qualities, the generosity, the honesty, the person who gives credit to others?
?The
qualitative factors
Or would you look for
energy?
?The most
grades
? The best
IQ
the highest
Would you pick the one with
why?
would you choose,
and
Who
You can't pick the one with a rich father; you must pick them on their own merit.
Imagine I granted you the right to buy 10% of one of your classmates for the rest of their lifetime.
The Ultimate Investment: A Thought Experiment
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The chains of habit are too light to be felt until they're too heavy to be broken.
The interesting thing is, the qualities on the left are achievable. They are choices. And the qualities on the right are not required. You can get rid of them, and it's much easier at your age than at my age.
Cuts corners
Gives credit to others
Dishonest
Honesty
Greedy
Generosity
Egotistical
Leadership
SHORT
BUY
The experiment has a twist: "You also have to go short 10% of one classmate. Who do you pick now?"
The Two Lists: The Qualities You Choose to Own
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Represents:
Owning high-quality companies that compound value over decades.
"Time is the friend of the wonderful business; it's the enemy of the lousy business. If you're in a wonderful business for a long time, even if you pay a little too much, you're going to get a wonderful result."
The Wonderful Business
Buying very cheap, low-return businesses for a one-time profit.
Represents:
You walk down the street and find a cigar butt. It's soggy and repulsive, but there's one free puff left in it. You pick it up, take the puff, and throw it away. It works, but it's not elegant.
The Cigar Butt Approach
Two Paths in Investing: From 'Cigar Butts' to Lasting Value
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30 years ago, Kodak's moat was just as wide... But they let that moat narrow. They let Fuji get into the Olymplcs and, in people's minds, become more on a parity.
NARROWING
Patents or Location
Narrowing (Kodak)
A Tale of Two Moats
Strong Brand/ "Share of Mind" (Coca-Cola, Wrigley's)
Great Economics
Honest & Hard-working Duke
Coke's moat is wider now than it was 30 years ago. Every time infrastructure is bullt in a new country, the moat is widening a littie bit.
WIDENING
A Tale of Two Moats Widening (Coca-Cola)
Low-Cost Production (Geico)
"I want a business with a moat around it. I want a very valuable castle in the middle... Then I want a big moat around the castle."
The Anatomy of a Wonderful Business: The Castle and the Moat
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"I don't want to buy any stock where if they close the New York Stock Exchange tomorrow for five years, I won't be happy owning it."
You're not buying a stock; you're buying part ownership in a business. You will do well if the business does well, provided you don't pay a totally silly price."
Foundational Lessons
Foundational Lessons
'There's no one here that can't understand the Coca-Cola company.I would say there's no one here that can understand some new internet company."
"If I were teaching a clas.... I would pass out the information on an internet company and ask each student to value it. Anybody that gave me an answer
"Everybody's got a different circle. The important thing is not how big the circle is, the important thing is staying inside the circle."
"I like businesses I can understand. That narrows it down about 90%."
The First Rule of Method: Stay Inside Your Circle of Competence
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Company Song: "What a friend we have
See's Candy -> Getting Kissed
"Every person in California had something in their mind about See's Candy, and overwhelmingly it was favorable. They had taken a box ona Valentine's Day and given it to some girl, and she kissed him."
"My partner Charlie and I decided there was untapped pricing power... they had 'share of mind' in California."
The Insight: Untapped Insight: Untapped Pricing Power
~30 million pounds $2.00 $60 million "Still doesn't take any capital."
Candy Sold: Profit per Pound: Pre-Tax Profit: Capital Required:
$25 million 16 million pounds $1.95 $0.25 $4 million
Purchase Price: Candy Sold: Price per Pound: Profit per Pound: Pre-Tax Profit:
The Result (1998)
The Acquisition (1972)
Case Study: The Sweet Economics of See's Candy
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"That makes it a wonderful business. How would you create a brand to compete with Disney around the world? It's not gonna happen."
"Let's say there's one for $16.95 and the Disney is there for $17.95. You know if you take the Disney video, you're okay. So you buy it. You don't have to make a quality decision."
"You've got a couple of young kids... Are you going to watch 10 different videos to decide which one your kids should watch?"
The Power of Brand as a Heuristic
"Can you imagine going home on Valentine's Day... and See's Candy is now 11 bucks a pound, and let's say there's candy available at six dollars a pound. You walk in and say 'Honey, this year I took the low bid.' It just isn't gonna work."
The Scenario
The Psychology of Price: "Honey, This Year I Took the Low Bid."
...hundreds and hundreds of millions of dollars of their own money up.
In aggregate, the 16 had probably 350 or 400 years of experience doing exactly what they were doing.
The Outcome
"Super high intellect, working in a field they knew, and essentially they went broke. And that to me is absolutely fascinating."
"Most of them had virtually all of their very substantial net worths in the business..."
"This was not a bunch of guys who had made their money selling men's clothing and then went into the securities business."
Skin in the Game
Experience
"If you take the 16 of them... they probably have as high an average IQ as any 16 people working together in one business in the country, including at Microsoft."
A Cautionary Tale: The Collapse of Long-Term Capital Management
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"History does not tell you the probabilities of future financial things happening... Sigmas do not tell you about the risk of going broke in my view. And maybe in their view now, too."
"If you hand me a gun with a million chambers in it and there's a bullet in one chamber.. How much do you want to be paid to pull it once? I'm not going to pull it. You can name any sum you want..."
The Blind Spot of Genius
There was a great title, it was a lousy book... the title was You Only Have to Get Rich Once.
A Simple Truth
The Lessons
The Gun Analogy
That is just plain foolish."
And that's foolish.
did have and did need.
what they
Buffett's Core Diagnosis: "To make money they didn't have and didn't need, they risked
The Unforgivable Sin: Risking What You Need for What You Don't
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The big thing to do is stick with the businesses you understand.
"I made a mistake buying USAir preferred... I now have an 800 number I call every time I think about buying stock in an airline. I say 'I'm Warren, I'm an aeroholic' and they talk me down."
1-800-NO-AIRLINES
"We should have made a ton of money out of [healthcare stocks] when the Clinton healthcare program was proposed... I could understand it." "I should have made a ton of money out of Fannie Mae back in the mid 80s. I understood it and I didn't do it. Those are multi-billion dollar mistakes."
Mistakes of Commission
Mistakes of Omission
and for one reason or another we sat there sucking our thumbs."
"The biggest mistakes have not been mistakes of commission. They've been mistakes of omission. They're where we knew enough about the business to do something
Ghosts of Missed Opportunities
My Biggest Mistakes are the
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"Take a job you love. You'll jump out of bed in the morning... Take a job that if you were independently wealthy, you would take. That's the one you're going to have great fun in."
The student said his next step was to work for a management consulting firm "because it'll look good on my resume."
Buffett recounts a conversation with a 28-year-old Harvard MBA student with a stellar resume.
Inter
Inter
The Advice
The Flawed Plan
The Scene
66“On Your Carer: 'Isn't That a Little Like Saving Up Sex For Your Old Age?"
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"If you think that making 10X or 20X is the answer to everything... then you will do things like borrow money when you shouldn't or cut corners.'
The Danger of '10X or 20X' Thinking
The only thing we do is we travel differently.
We watch Nebraska vs. Texas A&M on a big screen; you see it the same way I see it.
We all go to McDonald's, or better yet, Dairy Queen.
We live in a house that's warm in winter and cool in summer.
We wear the same clothes.
"If you think about the difference between me and you in terms of how we live..."
A Reality Check
2X instead of X, you're probably making a mistake.'
'If you think you're going to be a lot happier if you've got
X and 2X
The Difference Between
The Myth of More:
The Myth of More: The Difference Between X and 2X
But you're also going to want a system that.. does not leave behind the person that accidentally got the wrong ball.
You're going to want a system that produces lots of goods and services.
What kind of a world would you design?
All you know is you're going to take one ball out of a barrel that's got 5.8 billion balls in it."
"You don't know whether you're going to be born black or white, rich or poor, male or female, infirm or able-bodied, bright bright or retarded.
"Let's assume it was 24 hours before you were born. A genie came to you and said, 'I've decided you get to design the world you will live in. You set the social rules, the economic rules, the governmental rules.""
The Catch
The Setup
The Ovarian Lottery: A Test of Perspective
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"The way to [have a happy life] is to play out that game.. and do something you enjoy all your life and be associated with people you like. If I could make a hundred million dollars with some guy that caused my
stomach to churn, I'd say no. That's like marrying for money... if you're already rich, it's crazy."
What you're saying is: I'm in the luckiest one percent of the world right now, sitting in this room.
Half will be below average intelligence.
Roughly 5 of those 100 balls will be American.
The Reality
random 100 other balls and you had to pick one of those, would you put your ball back in?"
here is this barrel with 5.8 billion balls... If you could put your ball back and they took out at random
The Luckiest One Percent
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