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Million Dollars worth of financial advice
(Forwarded by a friend from India in an email. Reproduced it here
for benefit of a wider audience.)
The questions the shareholders threw at
him for 7 continuous hours ranged from finances, life, religion, career,
politics, sports and several other streams. And he answered everything
with a Zen like calm and confidence.
Q & A with Warrent Buffett
What does it take to become a successful
investor? Brilliance or Smartness?
Neither, Success in investing doesn't correlate
with I.Q. Once you have ordinary intelligence, what you need is the
temperament to control the urges that gets other people into trouble
When do you deicide to invest in a firm?
The best thing that happens to us is when
a great company gets into temporary trouble. We want to buy them when
they're on the operating table. (Mr. Buffett bought Coke when it had
its biggest fiasco after launching New Coke; he bought American Express
when it went through a loss making phase in the early 60's)
What do you look for in people when they
come to sell their firms to you?
I don't look for the usual credentials such
as an MBA, a pedigree (Harvard, Wharton), or cash reserves or market cap
of their firm. What I look for is just a passion in their eyes; I think
that's the key. A person who is hungry will always do well. I prefer it
when people even after selling stay on and work for the firm; they are
people who can't wait to get off their bed to get to work. Passion is
everything; there is no replacement for innate interest.
Mr. Buffett, you told us that Berkshire Hathaway has $ 45 Billion
in cash. Why aren't you investing?
Up until a few years back I had more ideas than money. Now I have
more money than ideas.
When do you plan to retire?
I love my job; I love it so much that I
tap dance to work. Mrs. B, the founder of Nebraska Furniture Mark worked
until she was 104, she died within 6 months of her retirement, that's
a lesson to all my managers, don't retire! I personally am going to
work 6-7 years after I die, probably that's what they mean when they
say- "Thinking out of the Box"!!
Why do stock market crashes happen?
Because of human nature for greed and insecurity.
The 1970s were unbelievable. The world wasn't going to end, but businesses
were being given away. Human nature has not changed. People will always
behave in a manic-depressive way over time. They will offer great values
What are the things that are taught wrong
in Business school and the corporate world?
I like such open ended questions, I think
Business schools should refrain from teaching their wards about profit
making and profit making alone, it gives a sense of 1 dimensional outlook
to the young students that loss is a curse. In reality, in the corporate
world, failure and loss making are inevitable. The capital market without
loss is like Christianity without hell. I think they should teach the
student on how to buy a business, how to value a business? Not just
on how to determine the price of a business. Because price is what you
pay, value is what you get.
Do you still hate Technology stocks?
With Coke I can come up with a very rational
figure for the cash it will generate in the future. But with the top
10 Internet companies, how much cash will they produce over the next
25 years? If you say you don't know, then you don't know what it is
worth and you are speculating, not investing. All I know is that I don't
know, and if I don't know, I don't invest."
How to think about Investing?
The first investment primer was written
by Aesop in 600 B.C. He said, 'A bird in the hand is worth two in the
bush.' Aesop forgot to say when you get the two in the bush and what
interest rates are; investing is simply figuring out your cash outlay
(the bird in the hand) and comparing it to how many birds are in the
bush and when you get them."
How do you feel after donating $ 40 Billion
to the Bill and Melinda Gates foundation? You are a hero to us!
I feel nothing. I haven't sacrificed anything
in life. I have had a good life. I donated after I turned 75. I think
I admire those people who sacrifice their time, share their food and
home, as the people to be emulated not me. Besides, what is money before
a man's life?
What do you think are the pitfalls in donation?
I have never donated a dime to churches or other
such organizations; I need to believe in something before I end up doing
that. I have been observing the Bill & Melinda Gates foundation for
years now and I am confident they will do a fantastic job of making use
of the money. I am a big believer in Outsourcing, others believed in me
as an Investor and gave their hard earned money to invest. I believe in
Bill Gates, he is a better donor than me.
Why do you work from Omaha and not Wall Street, New York?
Wall Street is the only place where people alight from Rolls Royce
to get advised by people who use the Public transportation system.
You seem to be so well read, tell us how it all started.
My father was a stock broker, so we had all these financial books
in our library. He introduced me to those classics and I got into them.
I am lucky that my father was not a fan of Playboy! Reading is the best
habit you can get. Well, you can learn from teachers too, and have mentors
but there are so many constraints attached- they will talk fast, talk
slow, they might talk like a pro or they might be terrible communicators.
Books are a different animal altogether, I love reading! The beauty
about reading and learning is that the more you learn the more you want
People who join Berkshire Hathaway seldom
leave. How do you get along well with all your executives?
I try to get quality people. I always say
- Hire someone in your organization who is better than you are. If you
do that, you build a company of giants. If you get people worse than
yourself, you build a company of dwarfs. And do not try to do everything
yourself. Delegate the jobs and look out of the window. The results
will come. That's how you build institutions. It happens only when you
empower others, believe in others. Iam an investor, Iam very secured
at that, I have no clue how to make Coca-Cola or how to dole out credit
cards (Mr. Buffett owns 8% of Coca-Cola and 13 % of American Express).
I understand the wisdom of the aphorism that you cannot please all the
people all the time. Of Course, you will always find qualities that
you don't like in people around you, but if you observe carefully the
love of the work unites you both. There is no point in being obsessive
about a bad quality in a person, whom you otherwise respect.
I am a small time businessman from Dallas,
Texas, what do I need to do to hit big time?
Be patient, Achieving your financial goals and
dreams will not happen overnight. As much as we would all really love
to accomplish our goals in a few years, this is an ongoing process. Defining
your financial goals is not a one-time task; you need to keep adding new
plans at different stages in your life. We all admire the skills of Olympic
ice skaters, pro golfers, and concert pianists. But do we remember that
they didn't acquire their skills overnight? They had to practice hours
on end for years to achieve their dreams. The key to success is to continue
learning throughout your life with a voracious appetite.
I think it is marvelous that you have had a golden run with investing,
how did you do that?
My rule is to be fearful when others are greedy, and be greedy when
others are fearful. Besides, I call investing the greatest job in the
world because you never have to swing. You stand at the plate; the pitcher
throws you General Motors at 47! U.S. Steel at 39! And nobody calls
a strike on you. There's no penalty except opportunity lost. All day
you wait for the pitch you like; then when the fielders are asleep,
you step up and hit it. Stay dispassionate and be patient. You're dealing
with a lot of silly people in the marketplace; it's like a great big
casino and everyone else is boozing. If you can stick with drinking
Coke, you should be OK. First the crowd is boozy on optimism and buying
every new issue in sight. The next moment it is boozy on pessimism,
buying gold bars and predicting another Great Depression, most people
get interested in stocks when everyone else is. The time to get interested
is when no one else is. You can't buy what is popular and do well.
Mr. Buffett you have seen so many crashes and
recessions, your take on facing recessions and stock market crashes?
If past history was all there was to the game, the richest people
would be librarians. Every scenario is different. But always remember,
Tough times do not last. Tough people do.
What is the 1 biggest advice you would impart to a young investor
Think for a moment that you are given a
car and told this is the only car you would get for the rest of your
life. Then you would make sure that you car is taken care of well, it
is oiled and detailed every now and then. You would make sure that it
never gets rusted, and you would garage it. Think of yourself as that
car. You just get 1 body, 1 mind and 1 soul. Take care of it well. Invest
in yourself that would be my advice.
You personally know many of the Financial
executives who are engineers of the current turmoil in the financial
world, surprisingly even after record losses, those executives receive
astronomical salaries and bonuses and arrogantly declare that they deserve
it, why dint you advice them from making such decisions and what's your
view on their justification for their pay?
I like sharing my ideas but don't like imposing
my ideas on anybody. It doesn't make sense and is a waste of time. If
somebody has decided that they know everything that is there to know,
nobody can help them. The best way to learn and succeed is to know that
we know nothing. There is an entire universe out there and still some
of us think we can know everything. In the world of investing a few
people after making some money tend to imagine they are invincible and
great. This is the worst thing that could happen to any investor, because
it surely means that the investor will end up taking unnecessary risks
and end up losing everything – arrogance, ego and overconfidence are
very lethal. Personally I don't feel too comfortable with too much extravagance,
because I always think like an investor. My thought process doesn't
see a lot of value in a fancy car or a designer suit. Thinking like
an investor always is very important to bring in a sense of discipline
and focus. Before reading balance sheets and investing you need to make
sure your outlook and mindset is that of an investor. Never let ego,
arrogance and over-confidence control you - not just as an investor
but also as a human being. You will never have internal peace if you
are unable to look at everybody around you with love, compassion and
understanding. Irrespective of who the person is, he or she can teach
you something you don't know. I have learnt so much from people all
around me and I wouldn't have been able to learn all these wonderful
things if I had not spoken to them with a smile. To quote Sir Isaac
Newton- If I have seen farther than others, it is because I have stood
on the shoulders of giants.
"A man has to learn that he cannot command things, but that he can
that he cannot coerce the wills of others, but
that he can mold and master his own will:
people seek guidance of him who is master of himself".