Warren Buffett | Lecture | University Of Florida | 1998

it's my honor as well as my privilege to welcome our lifetime's best long-term investor Mr Warren Buffett 1 million 2 million 3

million seems to be working uh I'd like to just say a few words uh preliminarily and then uh uh the Highlight for me will be getting your

questions in in in a few minutes because uh that's I want to talk about what's on your mind I urge you to throw hard balls it's it's it's more fun for me if you uh if you put a little uh put a little

speed on the pitches as they come in that you can ask about anything except last week's Texas A&M game that's off limits uh we have a couple men here from sunrust I was just up at the c meeting

uh and I sit next to Jimmy Williams there who ran Sun Trust for many years and uh uh he wanted to be sure that I wore this sunrust shirt down here I've tried to get sponsorship on the senior golf store I haven't had much luck but

now on the banker store I'm doing a little bit better and he said I got a percentage of the increase in deposits and gains though so all go out for sunrust dear old sunrust uh I would like

to talk for just one minute to the students about your about your future when you leave here because there's you're going to learn a tremendous amount about Investments uh and you'll

learn you'll learn enough to do well you you've all got the IQ to do well you've all got the initiative and energy to do well or you wouldn't be you wouldn't be

here uh and most of you will succeed in in in in in meeting your aspirations uh but in in determining whether you

succeed uh there's more to it than intellect and energy and I'd like to talk for just a second about that in fact there was a fellow that Pete kwood

in alaha used to say that he looked for three things in hiring people look for integrity intelligence and energy and he said if the the person didn't have the first two that the latter two would kill

them because if they don't have integrity you want them dumb and lazy you don't want them smart and energetic and I I really like to talk about that first one CU we we know you've got the second two and and I play

along with me in a little for just a second uh in terms of thinking about that question uh you've all been here I I guess almost all of your second year mbas and you've got to know your classmates and think for a moment that I

granted you the right to buy 10% of one of your classmates for the rest of his or her lifetime um now you can't pick one with a rich father that doesn't count I mean

you've got to uh you've got to pick them pick somebody who's going to do it on their own Merit and and I gave you an hour to think about it which one are you going to pick among all your classmates is for the one you

want to own 10% of for the rest of their lifetime uh are you going to give an IQ test pick the one with the highest IQ I doubt it are you going to pick the one with the best

grades uh I doubt it uh you're not even going to pick the most energetic one necessarily or the one that displays the most initiative but you're going to start looking for qualitative factors in addition because everybody's got enough

brain there and and enough energy and I would say that if you thought about it for an hour decided who you're going to place that bet on you'd probably pick the one who you responded the best to

because the one that was going to have the leadership qualities the one that was going to be able to get other people to carry out their interests and that would be the person who was generous and honest and who gave credit to other

people even if for their own ideas all kinds of qualities like that and you could write down those qualities that you admire in this other person whoever you admire most in the class and then I would throw in a hooker

I would say as part of 10% of this person you had to agre to go short 10% of somebody else in the class that's more fun isn't it and you think well now who do I want to go short

of and uh uh again you wouldn't pick the person with the lowest IQ or the or you you would you would start thinking about the person really who turned you off for one reason or another I mean they had

very various qualities quite apart from their academic achievement but they had various quality in the IND you should really want to be around them and other people didn't want to be around them and what were the qualities that lead to that well there'd be a whole bunch of things

you know but it's the person who's egotistic all the person who's greedy the person who slightly dishonest Cuts Corners all of these qualities and you can write those down on the right hand side of the page and when you look at

that we'll just I don't know which one I'm using can you hear me okay with this fine yeah micophone to the side back up what do I do with

it it just came loose oh it just came loose okay you can see why I avoid technology that's chewing gum is about as far as I

get uh as you looked at those qualities on the left and right hand side there's one interesting thing about them it's not the ability to throw a football 60 yards uh it's not it's not the ability to run the 100 yard dash in 93 it's not

being the best looking person in the class they're all qualities that if you really want to have the ones on the left-and side you can have them I mean they are they qualities of behavior

temperament character that that are achievable they're not forbidden to anybody in this group and if you look at the qualities on the right hand side the ones that you find turn you off in other

people there's not a there's not a quality there that you have to have if you have it you can you can you can you can get rid of it and you can get rid of a lot easier at your age than you can at

my age because uh most behavior is is Habitual and they say the chains of habit are too light to be felt until they're too heavy to be broken and there's no question about it I see people people with these

self-destructive Behavior patterns at my age or even 10 or 20 years younger and they really are entrapped by them they they go around and they do things that turn off other people uh right and left

and uh uh they don't need to be that way but by a certain point they get so they can hardly change it but at your age you can have any any any habits any any patterns of behavior that you wish it's

simply a question of which you decide and why not decide the ones that I mean if you like Ben Graham did this Ben Franklin did it before him but Ben Ben Graham and his low in his low teens

looked around and he looked at the people he admired and he said you know I want to be admired so why don't I just behave like them and he found there was nothing impossible about behaving like them and similarly he he did the same

thing on the reverse side in terms of getting rid of those qualities so I would suggest that if you write those qualities down and think about them a little while and make them habitual you will be the one that you want to buy 10% of when you get all through and the

beauty of it is you already own 100% you're stuck with it so you might as you might as well be that person as somebody else well that's that's a short little sermon so let's get on to what uh what

you're interested in and uh like I say you can you can go all over the lot so I don't know exactly how we're going to handle this but uh but uh let's start with a hand here someplace or

other where do we go with the first one yeah right here your thoughts about Japan my thoughts about Japan I I'm I'm not a macro guy now I say to myself

Burks your halfway way can borrow money for 10 years at 1% in Japan now 1% and I say to myself gee I took Graham's class 45 years ago and i' been working hard at

this thing all my life maybe I can earn more than 1% you know if I really worked hard at it 1% any doesn't seem impossible does it so I wouldn't want to get involved in currency risk so I'd have to do it in something that was Yen

denominated so I have to get I have to be in Japanese real estate or a Japanese business or something of the sort and beat and all I have to do is beat 1% that's all the money's going to cost and I can get it for 10 years uh so far I

haven't found anything that uh it's it's it's kind of interesting the the Japanese companies earn very low Returns on equity and and uh uh they have a bunch of businesses

that earn four five 6% on equity and it's very hard to earn a lot as an investor when the business you're in doesn't earn very much money now now some people do it in fact I've Got a

Friend Walter schlass who worked with graham at the same time I did and and it was the first way I went at stocks to buy stocks selling way below working capital very cheap quantitative

stocks I call it the cigar butt approach to investing is that you walk down the street and you look around for a cigar butt someplace and you finally you see one and it's soggy and kind of repulsive

but there's one puff left in it so you pick it up and the puff is free I mean it's a cigar butt stock I mean you get one free puff out of it and then you throw it away and you walk down the street try to find another

one I mean it's not elegant but it work you know if if you're looking for a free puff uh it works those are low return businesses but time

is the friend of the wonderful business it's the enemy of of the lousy business if you're in a lousy business for a long time you're going to get a lousy result even if you buy it cheap if you're in a wonderful business for a long time even if you pay a little too much going in

you're going to get a wonderful result if you stay in a long time I find very few wonderful businesses in Japan at present now that uh they may change the culture in some way so that that the

managements get more stockholder responsive over there and returns are higher but at the present time you'll find a very lot of low return businesses and that was true even when the Japanese economy was booming I mean it's it's

amazing they had a incredible Market without incredible companies uh they were incredible in terms of doing a lot of business but they weren't incredible in terms of the return on Equity that and that they achieved uh uh and that's

finally caught up with them so we have so far done nothing there but as long as money is 1% I'll keep looking I mean that yeah

yeah you were rumored to be one of the rescue buyers of long-term capital what what was the play there what did you see well there's a story in the current Fortune Magazine when it has rert Murdoch's picture on the cover that

tells the whole story of our involvement it's kind of an interesting story because I all I it's it's a long story so I won't go into all the background of it but I got the really serious call

about long-term capital uh proba what four weeks ago this Friday whenever it was it was my granddaughter I got it in midafternoon and my granddaughter was having her birthday party that evening and then I

was flying that night to Seattle to go on a 12-day trip with Gates on a to Alaska and a private train all kinds of things where I was really out of communication but I got this call on a Friday afternoon saying that things were

really getting serious there I'd had some other calls before that the article gets into a few weeks earlier I know those people most of them pretty well a lot of them were Solomon when I was

there and uh the place was imploding and the Fed was sending people up that weekend and so between that Friday and the following Wednesday when

the New York fed um in effect orchestrated a uh uh a rescue effort but without any federal money involved uh I was quite active but

I was having this terrible time because we were sailing up through these U through these Canyons which held no interest for me whatsoever in Alaska and and the captain would say you know if we just steer over here we might see some

bear in Wales and I said steer where you got a good satellite connection cuz I so so it was uh in fact there's a picture of for where I've got my Old Faithful is going off behind me and I've got my back to it I'm on the phone which

was the people the group thought was kind of funny the way I was working the phone but we put in a bit on on on Wednesday morning I was by then I was in uh bowan

Montana and I talked to uh Bill mcdonal the head of the New York fed about uh about 10:00 they were having an eve bankers at 10:00 that morning in in New

York and I caught him right we actually delivered a message to him he called me out there in Wyoming a little bit before1 New York time and we made a bid it was a it was uh because it was being

done at a long distance and everything it was really the outline of a bid but uh in the end uh it was a bid for 250 million essentially for the net assets of uh but

we would have put in three and 3/4 billion on top of that and it would have been three billion from birkshire halfway 700 million from AIG and 300 million from Goldman Sachs and we

submitted that but we put a very short time fuse on it because when you're bidding out100 billion doar worth of Securities that are moving around you don't want to leave a fixed price bid out there very long plus we were worried

about it getting shopped uh in the end they the bankers made the deal and uh uh but it was an it was an interesting period the whole long-term Capital Management and I hope most of you are

familiar with it but the whole story is really fascinating because if you take joh Merryweather and Eric Rosenfeld

Larry Helen brand Greg Hawkins Victor agani the two Nobel Prize winners Merton scholes if you take the 16 of them that they probably have as high an

average IQ as any 16 people working together in one business in the country including at Microsoft or or wherever you want to name so that incredible amount of intellect in that room now you

combine that with the fact that those 16 had had extensive experience in the field they were operating I mean this these this were was not a bunch of guys who had made their money you know selling men's clothing and then all of a

sudden went into the Securities business or anything they had had they they' had in aggregate the 16 had probably had 350 or 400 years of experience doing exactly what they were doing and then you throw

in the third factor that most of them had virtually all of their very substantial net worths in the business so they had their own money up hundreds and hundreds of millions of dollars of their own money up so super high

intellect working in a field they knew and essentially they went broke and that to me is absolutely fascinating I mean I I if I ever write a book it's going to be called why smart

people do dumb things my partner says it should be autobiographical but I but but this might be an interesting illustration and these are perfectly decent guys I you know I I I I respect

them and they helped me out when I was had problems with Solomon and so they they they are not bad people at all but to make money they didn't have and

didn't need they risked what they did have and did need and that's foolish that is just plain foolish I doesn't make any what your IQ is if you if you risk something that is important to you

for something that is unimportant to you it just does not make any sense I don't care whether the odds are 100 to one that you succeed or a thousand to one that you succeed if you hand me a gun with a th Chambers a million Chambers in

it and there's a bullet in one chamber and you said put it up your temple how much do you want to be be paid to pull it once I'm not going to pull it you know you can name any sum you want but it doesn't do anything for me on the

upside and I think the downside is fairly clear so I'm not interested in that kind of a game and yet people do it financially and without thinking about

it very much uh there was a great book it wasn't a great book it was a great title there was a lousy book written once with a great title uh by Walter Gutman the title was you only have to

get rich once now that seems pretty fundamental doesn't it what is what difference if you've got $100 million at the start of the year and you're you're going to make 10% if you're unleveraged and 20% if you're leveraged 99 times out

of 100 what difference does it make at the end of the year whether you got 110 million or 120 million makes no difference at all I mean if you if you die at the end of the year you know the guy that writes up the story may make a typo and he may say 110 even if he had

120 so you g nothing at all you know what it can't it makes absolutely no difference makes no difference to your family makes no difference to anything and yet the downside

particularly managing other people's money is not only losing all your money but it's it's disgrace and humiliation and and facing friends whose money

you've lost and everything I I just I just can't imagine an equation that that makes sense for and yet 16 guys with very high IQs who are very decent people

entered into that game and you know I think it's Madness and it's it's it's produced by an overreliance to some extent on things you know those guys

would tell me back when I was at Solomon you know that a Six Sigma event wouldn't you know wouldn't wouldn't touch us or a seven Sigma EV but they were wrong I mean that there history does not tell

you the probabilities of future Financial things happening and they had a great Reliance on mathematics and they felt that that the baate of the stock told you something about the risk of a

stock it doesn't tell you a damn thing about the risk of a stock in my view and uh uh and and do not tell you about the risk of going broke in in my view uh and

maybe in their view now too uh but but I you know I I don't I don't like to even use them as an example because they are I mean the same thing in a different way could happen to any of us probably where

we where we really have a blind spot about something that's crucial because we know a whole lot about something else it's like Henry Kaufman said the other day that the people that are going broke

in this situation are just two of two types the ones who knew nothing and the ones that knew everything and uh it's it's it's it's sad in a way I urge you in anything we never

basically borrow money I mean we we got float through our insurance business and to do things but I never borrowed money I never borrowed money when I had 10,000 bucks basically because what difference did it make I was having fun as I went along and it didn't make any difference

whether I had $10,000 or a million dollar or $10 million uh you know except if I had a medical emergency or something had come along like that but I was going to I was going to do the same things when I had a

lot of money is when I had very little money you know if you think about the difference between me and you in terms of how we live you know we wear the we wear the same clothes basically Sun

Trust gives me mine but you what we so we wear the same clothes we we we eat you know we we all have a chance to drink the juice of the Gods

here but we we all go to McDonald's or better yet Dairy Queen and uh and we we live in a house that's that's that's warm and winter and cool and summer and

and and we watch uh Nebraska Texas had am on a big screen you know you you see it the same way I see it we do everything Our Lives aren't that different you know that you'll get

decent medical care if something happens to you and I'll get decent Medical Care the only thing we do is we travel differently you know I ride around this little plane I love it and that takes money but if you leave

if you leave that aside if you leave that we travel differently but other than travel you know I would I think about it think what what can I do that you can't do now I get to work in a job

that I love but I've always worked in a job I love I loved it when I and I loved it just as much when I you know when it was a big deal if I made a thousand bucks and I urged you to work in jobs you love I mean I think you're out of

your mind if you take keep taking jobs that you don't like because you think it'll look good on your resume I was with a fellow at Harvard the other day who was taking me over to talk and he was 28 and he was telling me a lot what

he done in life and which was terrific and and then I said what are you going to do next and he said well he said after I get out my my uh MBA he said I think maybe I to go to work for a

management consulting firm because it'll look good on my resume I said what you've been 28 you've been doing all these things I mean you got a resume that's 10 times as good as anybody I've ever seen it I said if you take another

job you don't like just for I said isn't that a little like saving up sex for your old age you know I mean there comes a time when you ought to just start doing what you know you so

I I think I got the point across to him H uh but I you ought to take a job when you get out here take a job you love don't take a job that you know you think it's going to look good on your resume take take a job you love you may change it later on but you'll jump out of bed

in the morning I mean when I got out when I got out of Columbia the first thing I tried to go to work for Graham immediately I offered to go to work for him for nothing he said I was overpriced but but but I kept pestering I went out

to Al and I sold Securities for three years and I kept writing him and giving him ideas and doing all these finally I went to work for him for a couple years and and and uh it was a great experience but I

always really worked in a job I worked in a job that that I would that I you know love doing and you should really take a job that if you were independently wealthy you would take that's the that's the job to take

because that's the one that you're going to have great fun in you'll learn something you'll be excited about it and you can't miss you may go do something else later on but but uh you'll get way more out of it and I don't care what the

starting salary is or anything of the sort uh uh I don't know how I got off on that but I uh there I am uh so I I I do think that

that if you think you're going to be a lot happier if you've got 2x instead of X you're probably making a mistake I mean it uh uh you you ought to you ought

to find something you like that's that works with that and if and you'll get in trouble if if you think that making 10x or 20x is the answer to everything in life because then you will do things like borrow money when you should or or

maybe cut corners on on things that your employer wants you to cut corners on it just doesn't make any sense you won't like it when you look back on it yeah would you talk to the students

about the companies that you like I don't mean names I mean what makes the company you like I like I like businesses I can understand we'll start with that that narrows it down about 90%

I mean see I there's all kinds of things I don't understand but fortunately there's enough I do understand and you got this big wide world out there almost every company's public owned so he got he got all American Business practically

available to you now to start with doesn't make sense to go with things that you think you can understand but you can understand some things I can understand this I mean you can understand this anybody can understand this I mean this is a product that

basically hasn't been changed much they added the Cherry uh but you know since 1886 or whatever it was and it's a simple business it's it's not an easy business I don't want a business that's

easy for competitors so I want a business with a mo around it I want a very valuable castle in the middle and then I want to I want to I I I want the Duke who's in charge of that castle to

be honest and hardworking and able and then I want a big moat around the castle and that moat can be various things the moat in a business like our auto insurance business at Geico is low cost

I mean people have to buy auto insurance so everybody's going to have one auto insurance policy per per car basically per driver and and I can't sell them 20 you know but

but they have to buy one when are they going to buy it on they're going to buy it on based on service and cost most people will assume the service is fairly uh identical among companies or close enough so they're going to do it

on cost so I got to be the lowc cost producer that's my Mo to the extent my costs get further lower than the other guy I've thrown a couple of sharks into the moat you know but all the time if you've got a wonderful Castle there are

people out there going to try and attack it and take it away from you and I want a castle that I can understand but I want a castle with a motor on it 30 years ago East kodak's moat was was just

as wi as Coca-Cola's moat I mean if you were going to take a picture of your six-month-old baby and you're going to want to look at that picture 20 years from now and you're going to look at it 50 years from now and you're never going to get a chance I mean you're not a professional photographer so that you

can evaluate what's going to look good 20 or 50 years ago what is in your mind about that about that photography company is what counts because they are promising you that the picture you take today is going to be terrific to look at

20 or 30 or 50 years from now about something that's very important to you maybe your own child or whatever it may be well Kodak had that in Spades 30 years ago they owned that they had what I call share of mind forget about share

of market share of mind they had something in everybody's mind around the country around the world with a little yellow box and everything that said Kodak is the best that's priceless

they've lost some of that they haven't lost at all and and not due to George fiser runs George is doing a great job but they let that moat narrow they let Fuji come and start narrowing the moat

in various ways they let them get into the Olympics and take away that special aspect that only only Kodak was fit to photograph the Olympics so Fuji gets there and immediately in people's minds

Fuji becomes more an a parody with with Kodak you haven't seen that with Co K's mod is wider now than it was 30 years ago you can't see the moat day by day but every time you know the

infrastructure gets built in some country that isn't yet profitable for Coke but will be 20 years from now the mod is widening a little bit the things are all the time changing that mode in One Direction or another 10 years from

now you can see the difference our managers of the businesses we run i' I've got one message to them you know which is to widen the mod and we want to we want to throw crocodiles and sharks

and everything else Gators I guess into into the moat to keep away competitors and that that's comes about through service it comes about through quality of product it comes about through cost it comes about sometimes through patents

it comes about through real estate location so that's the business I'm looking for now what kind of businesses am I going to find like that well I'm going to find them I'm going to find them in simple products because I'm not

going to be able to figure out what the Mo's going to look like for Oracle or Lotus or Microsoft 10 years from now I mean I Gates is the best businessman I've ever run into and you know they've

got a hell of a position but I really don't know what that business is going to look like 10 years from now and I certainly don't know what his competitor's businesses are going to look like 10 years from now now I'll name one I don't own I know what the

chewing gum business is going to look like from 10 years from now I mean the internet is not going to change how we chew gum it's and and nothing much else is going to change that we chew gum and then are there going to be lots of new products is it really you know our

spearmint Juicy Fruit and all those going to evaporate some isn't going to happen you give me a billion dollars and tell me to go in the chewing gum business and try and make a real dent in regle I can't do it and that's the way I

think about business I say to myself give me a billion dollars and how much can I hurt the guy give me $10 billion give me $10 billion and how much can I hurt Coca-Cola around the world I can't do it well those are good businesses Now

give me some money and tell me to hurt somebody in in some other fields and I can figure out how to do it uh so I want a simple business easy to understand

great economics now honest en able management and and uh then I can see about in a general way where they're going to be 10 years from now and if I can't see where they're going to be 10

years from now I don't want to buy it basically I don't want to buy any stock where if they close the New York Stock Exchange tomorrow for 5 years I won't be happy owning it I buy a farm and I don't

get a quote on it for 5 years and I'm happy the farm does okay you know I buy an apartment house don't get a quote on it for 5 years I'm happy if the apartment house produces the returns that I expect but people buy a stock and they look at the price the next morning

and they decide whether they're doing well or not doing well it's it's crazy because they're buying a piece of a business that's what Graham the most fundamental part of what he taught me you know you're not buying a stock you're buying a you're buying a part

ownership in a business you will do well if the business does well and if you didn't pay a totally silly price and that's what it's all about and you ought to buy businesses you understand just like if you're buying Farms you ought to buy Farms you understand it it's it's

not complicated uh in in calling this gr and Buffet I mean it's just pure gram I I I was very fortunate because I I picked up

a book when I was 19 I got interest in stocks when I was about six or seven and I bought my first stock when I was 11 but I was playing around with all this stuff and I had charts and volume and

I'm making all kinds of technical calculations everything and then I picked up a little book and it just said that you're not buying some little ticker symbol that bounces around every day you're you're buying a part of the

business and soon as I started thinking about it that way everything else swed very simple so we buy businesses we think we can understand 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 and I I said at the annual meeting this year that if I were teaching a class in business school on the final exam I would pass out the

information on the internet company and ask each student to Value it and anybody that gave me an answer flunk I don't know how to do it but people do it every day I mean it's more exciting I mean if you look at

it like going to the races or something you know that's that's a different thing but if you're investing I mean investing is putting out money to be sure of getting more money back later you know at an appropriate rate and to do that you have to understand what you're doing

it in I mean you have to understand the business and you can understand some businesses but not all businesses yep Warren so you covered half of it which is trying to understand a business and buying a business but you also

alluded to getting a return on the amount of capital you invest in the business as an investor and and you know that comes back to to what are you paying for the business how do you determine you know what you think is a fair price to pay for the business it's

a tough thing to decide but it I don't want to buy into any business I'm not terribly sure of so if I'm terribly sure of it it probably doesn't it probably isn't going to offer incredible returns

I mean why should something that's is essentially a cinch to do well offer you 40% a year or something like that so we we don't have huge returns in mind but we do have in mind never losing anything

and I mean we we bought seiz candy in 1972 Seas candy was then selling 16 million pounds of candy at $1.95 a pound and it was making two bits a pound or 4

million pre-tax we paid $25 million for it took no Capital to speak of when we looked at that business basically my partner Charlie and I really to decide whether there was a little untapped

pricing power there in other words whether that $1.95 box of candy could just as easily sell for two or two and a quarter if you could sell for two and a/ qu another 30 cents a pound was was4

mil8 on 16 million pounds which on a 25 million purchase price was fine we didn't do any you know we've never hired a consultant in our lives we I mean we our idea of consulting's G and buy a box of candy you know need uh but what we

did know was there was that they had share of Mind in California I mean there was something special every person in California had something in their mind about Seas candy and overwhelmingly was favorable they had taken a box you know Valen day and give some girl she'd

kissed them if she' slapped them you know we'd have no business but but as long as she kisses them you know that's that's that's what we want in their mind seiz candy getting kissed and if we can get that in the minds of people we can

raise prices and and I bought that in I bought it 1972 we've raised every year I raise the price on December 26th I raise it the day after Christmas so that everybody because we sell a lot at Christmas in fact we'll make 60 million

this year we'll sell 30 million pounds make $2 a pound same business same formulas same everything 60 million bucks still doesn't take any capital and we'll make more money 10 years from now

but of that 60 million we make about 55 million in the three weeks before Christmas and our company song is what a friend we have in Jesus I mean it is it is a good

business but the important thing about that business is think about it a little people don't buy most people don't buy box chocolet to consume themselves they buy them as gifts you know somebody somebody's birthday more likely it's a holiday a Valentine's Day single biggest

day day of the year Christmas is the biggest season by far but women buy for Christmas and they plan ahead and buy over two or three week period men Buy on Valentine's Day they're driving home we run ads on the radio you know guilt

guilt guilt guilt you know the guys are veering off the freeway right and left and they won't dare go home without a box of candy when we get through with them on our radio ads so that Valentine's Day is the biggest day but can you imagine going home on

Valentine's Day and our seeg candy is now 11 bucks a pound thanks to my Brilliance and and let's say there's there's candy available at $6 a pound

but you really want to walk in on Valentine's Day and hand I mean your wife's got all these favorable images of the Seas candy over the years and she sees you and that's the way she thinks of you during the rest of the year when

you really be got it badly and you walk in and say honey this year I took the low bid and then hand her a box of candy

I mean it just isn't going to work so in a sense it is it's a it's it there's untapped price it's price it's it's not price dependent basically think of

Disney I mean Disney is selling we'll say Home Videos for I don't know what 1695 1895 or whatever all over the world people and we'll say particularly mothers in this case have something in

their mind about Disney I mean every person in this room when you say Disney has something in their mind about it if I say Universal Pictures you don't have anything in your mind you know if I say 20th Century Fox you don't have anything special in your mind if I say Disney you got something in your mind and that's

true around the world now picture yourself with a couple young kids you know who you want to put away for a couple hours every day so you get a little piece of mind and you and you know if you get them one video they'll

watch it 20 times so you go to the video store or wherever you buy the video are you going to sit there and premere you know 10 different videos and watch them each for an hour and a half to decide which one your kid should watch no I mean let's say there's one there for

$6.95 and the Disney's there for $17.95 you know if you take the Disney video You're can to be okay so you buy it and you don't have to make a quality decision on something that you don't want to spend the time to do and so you

can get a little bit more money if you're if you're Disney and you'll sell a lot more videos makes it a wonderful business makes it very tough for the other guy how would you try to create a brand DreamWorks is trying but how would

you try to create a brand that competes with Disney around the world and to replace the concept that people have in their minds about Disney with something that says Universal Pictures you know so that the mother's going to walk in and

pick out a universal pictures uh video in preference to a Disney it's not going to happen no Coca-Cola is associated with people being happy around the world where every place they're happy where Disney World or Disneyland where at the

World Cup will be at the Olympics where every place where people are happy happiness and Coco together now you give me I don't care how much money and tell me that I'm going to do that with RC

Cola around the world and have five billion people that have a favorable image in their mind about RC Cola can't get done you know and you can f around with a you can do anything you want to do you have price discounts on weekends and everything but you're not going to

touch it and that's what you you want to have in a business that that's the moat and you want that moat to widen and if your seiz candy you want to do everything in the world to make sure

that the experience basically of giving that gift leads to a favorable reaction that means means what's in the box it means the person that sells it to you because all our business is done when we're terribly busy I mean people come

in in those weeks before Christmas or on Valentine's Day and they're long lines so at 5:00 in the afternoon some woman is selling the last person the last box of candy and that person has been

waiting in line for maybe 20 or 30 customers and if the salesperson Smiles at that last customer our mode is widened and if she snars at them our mode is narrowed we can't see it it's

going on every day but that's the key to it I mean it's the total part of the product delivery is having everything associated with with it say Seas candy

and something pleasant happening and that's what business is all about yep what purchasing a company how much qualitative analysis do you do versus quanitative analysis and

have you ever bought a company where the numbers told you not to those are the best buys the question is whether have I ever bought a company where the numbers told me not to and how much is qualitative and how much is quantitative the Best Buys have been

when the numbers almost tell you not to I mean because then you then you feel so strongly about the product and not just the fact that you're getting a used cigar butt cheep that it it it's compelling I mean I I owned a windmill

company at one time so I I you know windmills are cigar butts believe me and I bought it very cheap I bought it a third of working capital and we made money out of it but there's no repetitive money to be earned I mean

there's a one-time profit in something like that and and it it's just not it's not the thing to be doing I went through that phase I mean I bought street car companies and all kinds of things but uh

in terms of the qualitative I probably understand the qualitative the moment I get the phone call I mean almost every business we bought has taken five or 10 minutes I

mean in terms of analysis uh and we bought two businesses this year uh General ree is you know 18 billion or some deal I've never been to their home

office yeah I hope it's there there could be just a few guys and they say well what what numbers should we send Buffett this month you know I can see you know coming in once a once a month and saying well we'll just tell

him we've got 20 billion in the bank this month instead of 18 billion or something but I've never been there I've and before I bought executive jet which is fractional ownership of of of of jets and before bought it I'd never been

there I I bought my family a quarter interest in the program three years earlier and I'd seen the service and seen it develop well and I got the numbers but if you don't know enough to know

about the business instantly you won't know enough in a month or two months I mean you have to have sort of the background of of understanding and and knowing what you do understand and don't understand and that that is the key it's

it's defining what I call your circle of competence and everybody's got a different circle of competence the important thing is not how big the circle is the important thing is staying inside the circle and if that Circle has

only got 30 companies in it out of thousands on the big board as long as you know which 30 they are you're okay and you should know those businesses well enough so that you don't need to

read do lots of work now I I did a lot of work in the earlier years just in getting familiar with businesses and and the way I would do that is I would go out and use what Phil fiser called the

scuttlebut approach I'd go out I talk to customers i' talk to i' talk to to uh maybe ex employees in some cases I talk to suppliers everybody every time I'd

see somebody in an industry let's say I was interested in the coal industry I go around and see every Coal Company and I'd ask every every CEO if you could only buy stock in one coal company that wasn't your own which one would it be

and why and you piece those things together and you learn a lot about the business after a while and funny thing is you get very similar answers as long as you ask about competitors that you know I I say if you got a silver bullet

you know and you put it through the head of one competitor competitor and why you know you'll find out who the best guy in the industry is that in that case or the one that's coming up and there's so there's a lot of things you can learn

about a business I I've done that in the past uh on the businesses that I feel I could understand so I don't have to do much of that anymore it's a nice thing about investing is you don't have to learn anything very new I mean you can

do it if you want to but if you learned about regly chewing gam 40 years ago you you still understand Rish chewing gummy it's not not a lot of great insights to get or anything of the sort as you go

along so you do get a database in your head I had a guy Frank Rooney who ran Melville for many years his father-in-law died owned a company called HH Brown a shoe company and uh he put it up with Goldman Sachs but he was

playing golf with a friend of mine here in Florida and uh mentioned to this friend the guy said why don't you call warn he called me at the end of the golf match and in five minutes I basically had a deal and but I I knew Frank and I

knew the kind of business I sort of knew the basic economics of a shoe business and so I could buy it and quantitatively I got to decide what the price is uh

but uh you know that's either yes or no I mean I don't I don't fool around a lot with negotiations so if they if they name a price that makes sense to me I buy it if they don't I you know I was

happy the day before so I'll be happy the day after without owning it yeah Coca-Cola just announced dropping expectations in terms of future earnings

and in earnings and in light the fact that K has a lot of their profits coming in from outside the United States how do you think that the Asian crisis so to speak is going to affect Co for that matter question is about the Asian

crisis and how it affects a company like Co that recently announced that the earnings actually they just announced the third quarter earnings but a few weeks ago they tipped people off that they were going to be lower in the

fourth quarter Z well basically I love it but but uh because the market for Coca-Cola products is going to grow far faster over the next 20 years uh internationally than it will in the

United States it'll grow in the United States on a per capita base it's going to go fter elsewhere so the fact that it it's going to be a tough period for who knows 3 months or 3 years but it won't

be tough for 20 years I mean people are still going to they're you know they're going to work productively around the world and they're going to find that this is a a a bargain product in terms

of uh the portion of their working day that they have to give up in order to have one of these or or better yet five of them a day like I do uh it's a uh you

know this is a product in 1936 when I first bought six of those for a quarter and sold them for a nickel each and it was in a 6 and A2 ounce bottle and you paid a two 2 cent deposit

on the bottle that was a 6 and2 ounce bottle for a nickel at that time it's now a 12 ooun can which if you buy it on on weekends or if you buy in bigger quantity so so much money doesn't go to

the packaging me you essentially can buy the 12 ounces for not much more than 20 cents so you're paying not much more than twice per ounce price of 1936 and

it is a product that's gotten cheaper and cheaper and cheaper in Rel relative to people's earning power over the years and which people love in in in 200 countries you have the per capita use going up every year for a product over a

100 years old and the dominates the market I mean that is it's unbelievable one thing that people don't understand is one of the things that makes this product is worth tens and tens of

billions of dollars is one simple fact about about really all colas but we'll call it Coca-Cola for the moment happen to be a name I like

uh Cola has no taste memory you can drink one of these at 9:00 11:00 3:00 the afternoon 5:00 the one at 5:00 will taste just as good to you as the one you drank early in the morning you can't do

that with cream soda root beer orange grape you name it all of those things accumulate on you most foods and and and and beverages are accumulate on you you get sick of them after a while and if

you if you eat I mean we get these people to go to work for us and sees candy and we tell them they eat all the candy they want the first day they go crazy but after a week they're eating about the same amount they EAS if if

they were buying it because chocolate accumulates on everything accumulates on there is no taste memory to Cola and that means that you get people around the world that are heavy users that'll

drink five a day or Diet coat maybe you know seven or eight a day or something of the sort they'll never do that with with other products so you get this incredible per capita consumption the average person

in in this part of the world uh well maybe a little north of here drinks about 64 ounces of liquid a day and you can have all 64 ounces of

that be Coke and you will not get fed up with Coke if you like it to start with in the least but if you do that with almost anything else if you eat just one product all day you you'll tend you'll

get a little sick of it after a while and and and uh it's it's a huge Factor so that today over 1 billion 8 ounce servings of

Coca-Cola products will be sold in the world and that will grow year by year it'll grow in every country virtually it'll grow on a per capital basis and 20

years from now it'll grow in a lot faster internationally than in the US so I really like that Market Market better because there there is more growth there over time but it it will hurt them in the in the it is hurting him in the

short term right now and but that that doesn't mean anything I mean it uh Coca-Cola went public in I think it was 1919 stock sold for $40 a

share it went back before that as was a Candler family and they they went back they bought it for 2,000 bucks the whole business uh as the Candler back in the late 1880s and a couple of purchases so

now he goes public in 1919 $40 a share one year later it's selling for $19 gone down 50% in one year now you might think that's some kind of disaster and you might think that Sugar prices in

inreased and the bottlers were rebellious and a whole bunch of things you could always find a few reasons why that wasn't the ideal moment to buy it years later you'd have seen the Great Depression and you'd have seen World War II and you've seen sugar rationing and

you've seen thermonuclear weapons and the whole thing there's always a reason but in the end if you bought one share for 40 bucks and reinvest the dividends it' be worth about 5 million now and that factor so

overrides anything else I if you're right about the business you'll make a lot of money and and the timing part of it is is very is is a very tricky thing

so I don't worry about any given event if I've got a wonderful business uh you know whether what it does to next year something of the sort uh um you know

their price controls have been in this country at various times and that's that's followed up even the best of businesses I mean I wouldn't be able to raise the price on December 26th of seas candy if we had price controls and we've had them in this country but that

doesn't make it a lousy business if that happens to happen because you're not going to have price controls forever we had them in the early in the early '70s so it it the wonderful business you know

you can figure out what will happen you can't figure out when it will happen you don't want to focus too much on when you want to focus on what if you're right about what you don't have to worry about one very much is there an area I'm missing back there any place just want

to make sure I'm not focusing all of them on one place let me get this gentleman over here most St the most successful learn less from

what investment mistes you made and the question is about my business mistakes how much time do you

have well the interesting thing about the mistakes is that in Investments at least for me and for my partner Charlie merer the biggest mistakes have not been mistakes of of commission they've been

mistakes of omission there where we knew enough about the business to do something and for one reason or another we sat there sucking our thumbs instead of doing something and so we we've passed up things where we could have

made billions and billions of dollars from things we understood forget about things we don't understand we don't fact I can make billions out of Microsoft doesn't mean anything because I never understand Microsoft but if I can make billions out of healthcare stocks you I

shouldn't make it and I didn't you know when when when the Clinton Health Care Program was proposed and they all went in the tank um we should have made a ton of money out of that uh because I could understand it I didn't make it I should

have made a ton money out of Fanny May back in the mid 80s cuz I understood it and I didn't do it those are billion dollar mistakes or multi-billion dollar mistakes that that generally accepted accounting principles don't pick up uh

the mistakes you see the mistakes you see we we made a isn't we I made a mistake uh buying U US Air preferred some years ago I mean that I had a lot of money around I make

mistakes when I get cash Charlie tells me to go to a bar instead you don't hang around the office but I I hang around the office and I got money in my pocket I do something dumb and it happens every time and and uh so I I bought this thing

nobody made me buy it I now have a 800 number I call every time I think I buying stock in an airline and they talked me down they say you know I say I'm worn I'm an aholic and then the guy says you know keep talking don't hang up

you know don't do anything rash and finally I get over it uh but I but I I I bought it you know and uh it looked like we were going to lose all our money in that and we came very close to losing

all our money and and you can say we deserve to lose all our money and we bought it because of it was an attractive security but it was in not in an attractive business I did the same thing with Solomon that I bought an

attractive Security in in a business that I wouldn't have bought the equity in so you can say that that's one form of mistake buying something because you like the terms when you don't like the

business that well and i' I've done that in the past I'll probably do it again uh the the bigger mistakes though are the ones of all Mission U I did back back

when I when I had the 10,000 bucks I put $2,000 of it into a Sinclair service station which I lost so my opportunity cost that's about 6 billion right now

i' fairly big mistake yeah it makes me feel good when Berkshire goes down then because the cost of my Singler station goes down too my 20% opportunity cost

but I will say this you talk about learning from mistakes I really believe it's better to learn from other people's mistakes as much as possible but uh but we don't spend any time looking back at

Berkshire uh I've got a partner Charlie muger we've been Pals for 40 years we never had an argument we disagree on things a lot but but we but we don't we don't have arguments about it and we never look back we just you know we just

figure there's so much to look forward to that there's just no sense thinking about what we might it just doesn't make any difference I mean you you can only live life forward and you can learn

something perhaps from the mistakes but the the big thing to do is stick with the businesses you understand and so if there's a generic mistake of of getting outside of your circle of competence and

you know buying something because somebody tips you on it or something of the sort in in an area you don't know about I mean that you should learn something from that which is that you stay with what you can figure out

yourself I mean you really want your decision making to be by looking in the mirror and uh saying to yourself I buying 100 shares of General Motors at 55 because and I mean it's your

responsibility if you're buying it and there's got to be a reason and if you can't State the reason you should buy it if it's because somebody told you about at a cocktail party not good enough you know I mean there's just it's got to be

something you know can't be because the the volume you know the chart looks good on it or anything like that it's got it's got to be a reason you'd buy the business and we that we stick to pretty pretty carefully that's one of the things Ben

Graham taught me yeah the current genous economic situation in the world Although our economy seems to be still jagging along

quite well where are we what's going to happen with rates the question about what's going to happen interest rates where we going in the world I don't think about the macro stuff you know I I just um the important

what you really want to do in Investments is figure out what's important and knowable if it's unimportant or unknowable you you forget about it what you talk about is important but in my view it's not

knowable understanding Coca-Cola is knowable or Wrigley or Eastman Kodak or anything I mean you can understand those business that's knowable and whether it turns out to be important

depends on where your valuation leads you and the current price and all of that but we have never either bought a business or not bought a business because of Any macro feeling of any kind

we don't read things about predictions about interest rates or business or anything like that because it doesn't make any difference I mean let's say in 1972 when we bought Seas candy I think maybe Nixon put on the price controls a

little bit later let's say we'd seen that but so what we have missed a chance to buy something for 25 million that's 60 million pre-tax now I we we don't want to pass up the chance to do something intelligent because of some

prediction about something that we're no good on it anyway so we just don't we don't read or listen to or do anything in relation to to macro factors at all zero and the typical investment counseling organization goes out and

they give you they bring out their Economist they Trot them out and he gives you this big macro picture and then they start working from there on down in our view that's nonsense that uh uh and if if you know if Allen Greenspan was on one side of me Bob ruin on the

other side they're both whispering in my ear exactly what they're going to do the next 12 months wouldn't make any difference to me and what I pay for executive jet or general reinsurance or anything else I do yeah what's the of being

out well what's the benefit of being an out of towerer uh as opposed to being in Wall Street I I worked in Wall Street for a couple of years and uh and I like

I've got I've got my best friends actually and I'm both coast and I like seeing them and I get ideas when I go there but the best way to get to think about Investments is to be in a room

with no one else and just think and if that doesn't work nothing else is going to work uh and the disadvantage of being in any kind of a market type environment in Wall Street would be the

extreme is that you get over stimulated you think you have to do something every day I mean the cber family paid 2,000 bucks for this company and that you don't have to do much else if you pick one of those and the trick then is not

to do anything else even not to sell it in 1919 which they the family did later on it uh so what you're looking for is

some way to get one good idea a year you know and then and then write it to its full potential and that's very hard to do in an environment where people are shouting prices back and forth every five minutes and shoving reports under

your nose and all that because Wall Street makes its money on activity you make your money on inactivity you know I mean if everybody in this room trades their portfolio around every day with

every other person you know you're all going to end up broke and and and and the intermediary is going to end up with all the money on the other hand if you all own stock in a in a group of average businesses and just sit here for the

next 50 years you'll end up with a fair amount of money and your broker will be broke so his act his activity is is he's like a doctor who gets paid out how often he gets you to

change pills I mean basically I mean he gives you one pill and it cures you the rest of your life and he's got one sale one trans transaction and and that's it but if he can convince you that changing

pills every day is the way to great health uh it'll be great for him and the prescription and and you'll be out a lot of money and you won't be any healthier be a lot worse off financially so it you

want to stay away from any environment that stimulates activity and Wall Street would have the effect of of doing that the uh I would I I used when as when I

went out the I'd go back about once every six months and I'd go back with a whole list of things I wanted to check out one way or another companies I wanted to see and and I would I would get my money's worth out of those trips but then i' go back to want and think

about it yeah how should an investor evaluate owning shares of B pathway or Microsoft when they don't pay dividends to invest yeah well the question with Burkshire

hathway about evaluating birkshire when it doesn't pay any dividends and it won't pay any dividends either it uh it's a promise I can keep uh the uh all you get with Burkshire you stick it in

your safe deposit box and then every year you go down and fondle it you know you take it out and you fond it then you put it back and I mean there's enormous psychic reward in that you don't underestimate it but the the real

question is whether we can keep retaining dollar bills and turning them into more than a dollar at at a decent rate and and that's what we try to do and and and Charlie Munger and I have

our our money in it to do that that's all we'll get paid for doing we won't take any options we won't take any salaries to pick up or anything we'll ride around in the plane uh but the uh that's what we're trying to do it gets

harder all the time the the more money we manage the harder it is to do that and we would do way better percentage wise with Burkshire if it was 1/1 100

the present size but it is it is run for its owners but it isn't run to give them dividends because so far every dollar that we've earned and could have paid

out we've turned into more than a dollar it's worth more than a dollar to keep it and therefore it' be silly to pay it out even everybody was taxfree that owned it it would have been a mistake to pay dividends at burshire because so far the

dollar bills retained have turned into more than a dollar but there's no guarantee that that happens in the future and at some point the game runs out on that uh uh but it is the goal of

I mean that is what the business is about we're not nothing else about the business do we judge ourselves by we don't judge it by the size of its home office building or you know anything of the nor people working around there we

got 12 people at headquarters we got 45,000 employees at Burkshire and 12 people at headquarters 3500 ft and we won't change it so it we will judge ourselves by the performance of the

company uh and that's the only way we'll get paid but believe me it's a lot harder than than it used to be there anything way in the back because I I want to make sure I'm not missing people

back there that haven't called okay then we'll go to the how about way over there on the on the a yeah what makes you decide invest Miss what made me decide to

invest what investment one of your Investments has reached the school potential as you said earlier that you uh I missed the last part

decide oh reach its full potential well ideally you buy in businesses where you feel that will never happen in terms of I mean I I don't think I don't buy coke with the idea that it's going to be out

of gas in 10 years you know or 15 years it I mean there could be something happened but I I would think that chances that are almost nil so what we really want to do is buy businesses that we would be happy to own forever it's the same way I feel about people buy

birkshire I want people to buy birkshire that plan to hold it forever they may not for one reason or another but I want them at the time they buy it to think they are buying a business that they're going to own forever and I don't say that's the only way to buy things it's

just that that's the group I want to have join me because I don't want to have a changing group all the time I measure Berkshire by how little activity there is in it if I if I had a church and I was the preacher and half the

congregation left every Sunday I wouldn't say oh this is marvelous cuz I have all this liquidity among my members you know you know this terrific turnover you know uh I would I would I would rather get a church where all the seats

are filled you know every Sunday by the same people well that's the way we look at the businesses we buy we want to buy something that we're really happy to own U virtually forever and we can't find a

lot of those and back when I started I had way more ideas than money so I was just constantly having to sell what I thought was the least attractive stock in order to buy something that I just

discovered that looked even cheaper but that's not our problem really now and so we hope we're buying businesses that we're just as happy with 5 years from now as as now and if we ever found

some huge acquisition you know then we'd have to sell something uh maybe to make that acquisition but that that would be a very pleasant pleasant problem to have uh we never buy something with a price Target in mind I mean we never buy

something at 30 saying if it goes to 40 we'll sell it or 50 or 60 or 100 we just don't do it that way any more than when we buy a private business like seize candy for 25 million we don't say to ourselves if it ever if we ever get an

offer a 50 million for this business we'd sell it that that's just not the way to look at a business way to look at a businesses is this going to keep producing more and more and more money over time and if the answer to that is

yes you don't need to ask any more questions there is yeah way back there and um similarly long-term capital and how did you come up with valuation

well Solomon like I said I was I I went into that because it was a 9% Security in 1987 September 1987 we the Dow was up 35% that year we'd sold a lot of stuff

and I had a lot of money around I it looked to me like we were never getting a chance to do anything so I took an attractive security form in a business I would never buy the common stock of and I went in because of that and I I think

that's generally a mistake it worked out okay finely on that but uh but it it it's not what I should have been doing I should have I either should have waited in which case I could have bought more Coca-Cola a year later thereabouts or I

should have even bought Coke at the prices it was selling at then even though it was selling at a pretty good price at the time so that was a mistake on long-term uh Capital

that's we have learned other businesses that are associated with Securities over the years and I mean one of them is arbitrage I I I I've done Arbitrage for

45 years and Graham did it for probably uh 30 years before that and that's a business unfortunately have to be near a phone for and I have to I have to really run out of the office

myself because it it requires being more sort of Market attuned and I don't want to do that anymore so I I unless a really big Arbitrage situation came along that I understood I won't be doing

much of that but we I probably been in 300 Arbitrage situations at least in my life maybe more and it's been it was a good business perfectly good business long-term capital has a bunch of

positions they got tons of positions but the top 10 are probably 90 % of the money that's at risk and I I know something about those 10 positions I don't know everything about them by a long shot but I know enough where I

would feel okay at a big discount going in and we would have the staying power to to to hold it out we might lose money on something like that but the odds are with us that's a game that I understand

there's a there's a few other positions we have that aren't that big because they can't get that big but they involve they could involve yield curve relationships or or on the run off the

Run governments or things like that that are just things you learn over time if you're around Securities markets they're not the base of our business probably on average they've accounted for a half a

percentage point of our return a year you know or 3/4s of a percentage point a year of our return they're little pluses that you get for for actually having just been around a long time and learning a little bit about first

Arbitrage not the first Arbitrage I did but one of the first arbitrages I did involved a company where you they were offering cocoa beans in exchange for their stock that was in 1950 five and I

bought the stock turned in the stock got Warehouse certificates for cocoa beans and and they happen to be a different type they were trading the a Coco exchange but there was a basis differential my favorite and I sold them I mean that's just something that I was

around at the time so I learned about hasn't been a Coco Bean deal since you 40 odd years I've been waiting for another cocoa bean deal I haven't seen it but but it's it's there in my memory

if it ever comes along and that long-term capital is that on a big scale yep the question is about diversification and I've got a dual

answer to that if you are not a professional investor if your if your goal is not to manage money in such a way as to get a significantly better return than the world uh then I believe

in extreme diversification I mean if it so I believe 98 or 99% maybe more than 99% of people who invest uh should extensively diversify and not trade so

that leads them to an index fund type of decision with very low costs cuz all they're going to do is own a part of America and they made a decision that only part of America is worthwhile I don't quarrel with that at all that is the way they should approach it unless

they want to bring an intensity to the game to make a decision and start evaluating businesses but once you're in the business of evaluating businesses and and you decide that you going to

bring the effort and intensity and uh uh and time involved to get that job done then I think that diversification is a terrible mistake and to any degree and uh I got asked that question when I was

at Sun Trust the other day and uh if you really know businesses you probably shouldn't known more than six of them I mean if you can identify six wonderful businesses that is all the diversification you need and you're going to make a lot of money and I will

guarantee you that going into a seventh one is going to rather than putting more money in your first one it's got to be a terrible mistake very few people have

gotten rich on their seventh best idea but a lot of people gotten rich on their best idea and so I I would uh I would say that for anybody working with normal Capital who really

knows the businesses they've gone into a six is plenty and uh and I probably have half of it in what I liked best I don't diversify personally I mean

and and uh uh all the people I know that have done well with exception we mentioned Waller slash earli Waller diversifies a lot he owns a little of everything I call him Noah you know he's got two of

everything yeah how do youate World from the proor gamble well Proctor gamble is a good a very very good business strong distribution capabilties lots of brand

names and everything but if you ask me we're going to go away for 20 years to put all my family's net worth in one business but I rather have Proctor and Gamble or Coke actually Pro gam a little more it' be more Diversified monk

product line but I would feel sure of C Proctor and Gamble I wouldn't be unhappy if somebody told me I had to own Proctor and Gamble during that 20- year period I mean that would be in my top 5% because

they they are not going to get killed you know but I would feel better about the unit growth and the pricing power of a Coke over 20 or 30 years than I would

about a Proctor and Gamble right now the pricing power might be tough but you think of billion billion servings a day you know an extra Penny $10 million a day you know we own 8% of it that's

that's $800,000 a day for Birch your hathway you get another Penny out of the stuff doesn't seem impossible does it I mean it's worth another Penny but uh it doesn't right now it' be a mistake to

try and get it in most markets but over time Coke will make more preserving than it does now 20 years from now I'll guarantee you they'll make more per serving they'll be selling a whole lot more servings I don't know how many I don't know how much more but I know that

uh png's main products I don't think they have the kind of dominance and they don't have the kind of unit growth but they but they're good businesses you know I I would not be unhappy uh if you told me

that I had to put my family's net worth in PNG and that was the only stock I could own I would you know there I might prefer some other names but there aren't a hundred other names I would

prefer y same about McDonald's go away 20 years come back McDonald's the question is about McDonald's and going away for 20 years McDonald's has got a

lot of things going for it and particularly abroad again I mean they they're position in abroad in many countries is stronger relatively than here it's a tougher business over time

people do not want to eat um exception to the kids when they're giving away beanie babies or something people do not want to eat at McDonald's every day I mean if people are drinking Coke today

they drink five of the day I'll probably drink five tomorrow uh the the fast food business is tougher than that it uh but if you had to pick one hand to have in

the fast food business which is going to be a huge business worldwide you pick McDonald's I mean it has the the strongest position uh it doesn't win taste tests you know with adults and I

mean does very well with children and it does fine with adults but it I mean it is not it is not like it's a clear winter and uh and it's gotten into the

game in recent years of being more price Promotional and and you know you remember the experiment a year ago or so and uh so it's gotten more dependent on that rather than just selling the

product by by itself I like a product by itself sells I I feel better about Gillette if people buy the Mach 3 because they like the Mach 3 than if they got a beanie baby with it you know I mean so I just think it's

fundamentally a stronger product if that's the case and and uh you know it probably is we own we own a lot of Gillette and and you can sleep pretty well at night

if you think of a couple billion men with their hair growing on their faces you go to you know they're it's growing all night while you sleep you know and women have two legs it's even better so

it's uh it beat counting sheep I and those are the kind of business but if you got think you know what promotion am I going to put out there against Burger King next month you know and what if they sign up Disney and I don't get

Disney and I mean that that is I I like the I like the products that Standalone absent promotional pricing appeals although you can build a very good business based on that and and McDonald's is a terrific business it's

not as good a business as as Coke but that you know there really hard hardly any uh it's a very good business and if you bet on one company in that field aside from Dairy Queen of course you

want to bet on McDonalds we bought Dairy Queen here a while back that's why plugging it shamelessly here yeah way back

there what do I think of what electric utility industry well i' i' I've thought about that a lot because you can put big money in it and and I've even thought of buying entire businesses

is there's a fellow in Omaha actually that's that's that's done a little of that uh uh through Cal energy but I don't quite understand the game in terms of how it's going to develop uh uh with

deregulation I mean it's it there's got to I can see how it destroys a lot of value uh for the high cost producer you know once they're not protected by a

monopoly territory and I don't for sure see how who benefits and how much I mean obviously the guy with very lowc cost power some guys got Hydro power you know 2 cents a kilow or something like that

it's got a huge Advantage but how much of that he's going to get to keep and everything or how extensively he can he can send that outside his natural territory I haven't been able to figure that out with a so that I really think I

know what the industry is going to look like in 10 years but it is something I think about and if I ever develop any insights you know that call for Action I'll Dev you know I will act on them but

it because I think I can understand the attractiveness of the product and it's it's all of that all the aspects of certainty of of user need and and and the fact it's a bargain and all of that

I understand I just don't understand who's going to make the money in it uh 10 years from now and and that keeps me away yeah what do you think that the market is favor the large caps chip

stocks over the small cap stock next question is large caps versus small caps and why large caps overperform I I don't know the answer to that we we don't think uh we don't we don't care whether

it's companies large cap giant Cap Middle cap small cap micro cap doesn't make any difference I mean the only question us is can we understand the business do we like the people running it and does it sell for a price that is

attractive from our my personal standpoint running birkshire now because we've got proa for Gen re I don't know what we have maybe 75 or 80 billion

dollars to invest and I only want to invest in about five things so I I'm really limited to very big companies but if I were in in $100,000 I wouldn't care whether something was large cap or small cap or

anything it I would just look for businesses I understood now I I think that on on balance large cap companies as businesses have done

extraordinarily well the last 10 years and way better than people anticipated they would do I mean you really have American Business earning close to 20% on equity and that's something nobody dreamed of and

that's being produced by very large companies in aggregate so you've had this huge revaluation upward of in because of lower interest rates and then much

higher Returns on Capital and you know if if American Business is really a bond disguised bond that earns 20% has a 20% coupon it's much better than if it's a bond with a 13% coupon and and that's

that's happened with big companies in recent years whether it's permanent or not it's another question I'm I'm skeptical of that but uh but I don't I I I I it I wouldn't even think think about

except for questions of how much money we run I wouldn't even think about the size of the the business a good small Seas candy was a $25 million business when we bought it I mean if I could find

one just like it now even as big as we are you know I'd love to buy it and uh just it's the certainty of it that that that

counts yeah way over there you mentioned earlier that in buying stock almost every company's public and one thing until the last 5 years real estate has

been primarily private we're now seeing great um securization of real estate and one is your insights into the yeah you talking about realate there been

securitization enormous securitization of of of of of the debt too of real estate and that is one of the items right now that is really clogging up uh

the the capital markets I mean the the mortgage back Securities are they're just not moving uh in in commercial mortgage back not Residential Mortgage back so that's but I think you're you're

directing your question at equities probably and and the equities if you leave out the corporate form has been a lousy way to own equities I mean you you've interjected a corporate income tax into something that

people individually have been able to own with with a single tax and by having the normal corporate form you get a double taxation in there you really don't need with real estate and

it takes away too much of the return REITs uh have in effect created a do it so that you don't get the double taxation but they also generally have fairly High operating expenses and if

you if you get real estate let's just say you can buy fairly simple types of real estate on an 8% yield or thereabouts and you take away

maybe close to one or one and maybe even one and a half% by the time you count stock options and everything it's not a terribly attractive way own it maybe the only way a guy with a th000 bucks or 5,000 bucks can own it but if you have a

million dollar $10 million you're better off owning the real real estate properties yourself and sticking some intermediary in between that will get a sizable piece U of of the return for himself

so we have found very little in that field uh you'll see an announcement in the next couple weeks that may be lie what I telling you here I one thing so I want I don't want you to think I was

double crossing you up here uh but generally speaking we we've seen very very little in that field that gets us excited uh

uh there people sometimes get very very confused about they'll look at uh some huge Land Company uh take I'll take one that's

that won't evoke any emotional reactions on the part of anybody like Texas Pacific Land Trust which has been around over a hundred years and got a couple million acres in Texas and they'll take the you

know they'll sell 1% of their land every year and they'll take that as applying to everything and come up with some huge value compared to the market value but that's nonsense if you really own the property I mean you you know you can't

move you can't move 50% of the properties or 20% of the properties it's it's way worse than a no liquid stock so you get these I think you get some very silly valuations placed on a lot of real

estate companies by people that don't really understand what it's like to own one and try to move large quantities of property uh it re reeks have behaved terribly in

the market this year as you know and it's not at all inconceivable they would become a class that would get so unpopular that they would sell at significant discounts uh from what you could sell

the properties for and they could they could get interesting as a class then and then the question is whether the management would fight you in that process because they would be giving up their income stream uh for managing things and their interest might run

counter to the shareholders on that I've always wondered about the reats and say you know our our assets are so wonderful and they're so cheap and then they go out and sell stock I mean that there's a there's a contradiction in that if they

say our stock at 28 is very cheap and then they sell a lot of stock at 28 lesson underwriting commission doesn't you know they either there dis there's a disconnect there and so but it's a field

we look at I mean Charlie and I can understand real estate and uh and we would be open for very big transactions periodically and if there

was a long-term Capital Management situation and translated to real estate you know we would be open to that trouble to so many other people would be too that it would be unlikely to go at a price that would that would really get

us excited way back there understanding your theory that sort of a Down Market is good for net Savers you could you sort of give us your thoughts as to

where the Market's going it's downward Trend longterm Prof longterm obious well I yeah I've got no idea where the Market's going to go I prefer it going down but I but I have you know my

preferences have nothing to do with it they the market knows nothing about my feelings uh you that's one of the first things you have to learn with a stock you know you buy 100 shares at General Motors now all of a sudden you have this feeling about General Motors I mean if

it goes down you may be mad at it you may say well if it just go up to what I paid for it you know my life will be wonderful again or if it goes up you may say how smart you were and how you and General Motors had this love affair and everything you've got all these feelings

stock doesn't know you own it stock just sits there it doesn't care what you paid it doesn't care that you owned it or anything so any feeling I have about the market is not reciprocated I mean it is the

ultimate yeah it is it is very cold shoulder we're talking about here and anybody that is going to be a net sa practically everybody in this room is more likely to be a net buyer of stocks over the next 10 years than they are a

net seller so every one of you should prefer lower prices I mean if you're going to be a net Eater of hamburger in the next 10 years you want hamburger to go down unless you're a Catt cattle producer and if you're going to be a buyer of Coca-Cola and you don't own

Coke stock you hope Coke the price of coke goes down I mean you're looking for it to be on sale this weekend at your Supermarket you want it to be down on the weekends not up on the weekends when you're going to attend the supermarket New York Stock Exchange is a big

supermarket companies and you're going to be buying stocks what do you want to have happen you want those stocks to go down way down and uh you know you will make better buys then and later on 20

years from now 30 years from now when you're in a period when you're dissaving or when you're airs dis saved for you after you're gone I mean that then you may care about higher prices but I I

find people that that was one of the there's a chapter eight in Ben Grahams intelligent investor about the attitude toward stock market fluctuations and that and the chapter 20 on the margin of safety are the two most important essays

ever ever written on investing as far as I'm concerned because when I read chapter 8 when I was 19 I I figured you know I mean what I what I just figured out what I just said but it was it's obvious I didn't figure it out myself

though it was it was explained to me I'd probably gone another hundred years if I had still thought it was good when my stocks were going up uh now we want we want things to go down but I have no

idea what the stock market's going to do I never do I never will it it not something that that I think about at all when it goes down I feel I look harder at what I might buy that day uh because

I know there's more likely to be some merchandise there that I can use my money effectively in okay um Warren we'll take one more question from the audience okay I'll let you pick who gets it then you could be

the [Laughter] guy what's the question okay right back

there uh if you you uh uh maybe again uh studing your life again then what would you like to do to uh to have a happier life yeah I would say and this is going to sound disgusting question is what

would I do if I going to live over again to have a happier life uh well I only thing I might do is select a genan pool where people live to be 120 or something I came from

but I've I've been I've been extraordinarily lucky I mean it it uh I use this example I'll take a minute or two because I think it's worth thinking about a little bit let's just

assume that it was 24 hours before you were born and a genie came to you and he said uh he said

herb uh you look very promising and I've got a big problem I've got to design the world in which you're going to live and he said I decided hell with it's too tough you design it so you got 24 hours

you figure out what the social rules should be the economic rules uh the governmental rules and you're going to live under those your kids are going to live under them your kid their kids are going to live

under and you say I can design anything and jnie says yeah you can do it and you say Well there must be a catch he says well there is a catch you don't know

whether you're going to be born black or white rich or poor male or female uh infirm or able-bodied bright or all you know is you're going to take one

ball out of a barrel that's got 5.8 billion you're going to participate in what I call the ovarian Lottery you're going to get one ball out of there and that's and that is the most important things ever going to happen to you in your life cuz that is going to control

whether you're born here or in Afghanistan or whether you're born with an IQ of 130 or an IQ of 70 uh it's going to determine a whole lot and you're going to go out of the world and you're going to have that ball what kind

of a world do you want to design well I think that's a good way to look at Social question because not knowing which ball you're going to get you're going to want a ball that you're going to want a system design a system that's

going to produce lots of goods Services because you're going to want people on balance to live well and you're going to want it that produces more and more so your kids live better than you do and your your grandchildren live better than the kids but you're also going to want a

system that if it does produce lots of goods and services does not leave behind a person that accidentally got the wrong ball and is not well-wired for this particular system see I'm I'm ideally

wired for the system I fell into here I mean I came out and I got something enables me to allocate Capital you know nothing so wonderful about that if all of us were stranded on a desert island you know we all landed there we never

going to get off of it the most valuable person would be the one that could raise the most rice you know uh over time and and you know I could say well I going to allocate Capital you how about pay

meal and you wouldn't get very excited about that so I am in the right place I mean gate says if I'd been born you know a few million years ago I'd in some animals lunch you know he says you can't run very fast you can't climb trees you

can't do anything just mean you know just been chewed up in the first day so he says you're lucky you were born today and I and I am but but the question getting back one question you can ask

yourself incidentally is here is this barrel with 5.8 billion balls everybody in the world if you could put your ball back and they gave you and then they

took out at random a hundred other balls and you had to pick one of those would you put your ball back in now those 100 Balls that you're going to get out

roughly uh five of them will be American so there 95 versus is five so you're only going to have five ball if you want to be in this country you're only going to have five balls now left you know half of them are going to be women half of them going to be men I'll let you all

decide how you vote on that one uh half of them are going to be below average intelligence half are going to be above mean do you want to put your ball back most of you I think will not want to put that ball back to get a 100 so what

you're saying is I'm in the luckiest 1% of the world right now right now sitting in this room top 1% of the world well that's the way I feel I mean I've been lucky to be born where I was to it was

50 to1 against me in in the United States when I was born lucky with parents lucky with all kinds of things then lucky to be wired in a way that in a market economy pays off like crazy for

me doesn't pay off for somebody who's absolutely as good a citizen as I am you know leading Boy Scout Troops teaching Sunday school whatever raising fine families but it just doesn't happen to

be wired in the same way I am so I've been extremely lucky so I would like to be lucky again and and if I'm lucky then the way to do it is to play out that game and and and and do

something you enjoy you know all your life and be associated with people you like I only work with people I like you know I I don't I don't if I could make aund Million by buying a business with some guy that caused my stomach to churn

I'd say no because I say that's just like marrying for money which probably isn't a very good idea in any circumstances but if you're already rich it's crazy

right I am not going to marry for money so I would do I would I would really do almost exactly uh what I've done except I don't think got a bought

the US Air thanks