Warren Buffett's Most Iconic Lecture EVER (MUST WATCH)

you would be better off if when you got out of school here you got a punch card with 20 punches on it and every big Financial every financial decision you made you used up a punch you'd get very rich because you'd think through very hard each one if you went to a cocktail party and somebody talked about a company he didn't even understand what they did or couldn't pronounce the name but they made some money last week and another one like it you wouldn't buy it if you only had 20 punches on that card there's

a temptation to dabble if uh particularly during B markets uh uh in stocks it's so easy you know it's easier now than ever because you can do it online you know just you click it in and maybe it goes up the point and get excited about that and you buy another one the next day and so on you can't make any money over time doing that but if you had a punch card with only 20 punches you weren't going to get another one in the rest of your life you would think a long time before

every investment decision and you would make good ones and you'd make big ones and you probably wouldn't even use all 20 punches at the in your lifetime but you wouldn't need to testing 1 million 2 million [Music] Okay I uh I came in from Nebraska today and uh you're probably all familiar with us mainly by our football team we had those fellas with the uh the big white helmets with those red ends on them I asked one of our starters the other day what's the nend stand for and he said knowledge we we uh we

make it tough on them though I mean they you don't coaster Nebraska just because you're a football player they they major an agricultural economics and there's a two question final uh for all of the players and first question is uh what did Old McDonald have and uh they were giving that to one of our potential Heisman uh Trophy winners the other day and he started to sweat finally he brightened up he said Farm Professor delighted of course you don't want to flun a Heisman candidate uh so he said now he said you're halfway home he

said just one more question how do you spell Farm now the guy really starts to sweat he looks at the ceiling and he looks around find his face bright he says e e IO so watch for that guy this year he'll be Dynamite uh I really want to talk about what's on your mind so we're going to do a qaa in a minute I uh there are a couple questions I always get asked you know I always uh people always say well who should I go to work for when I get out and I've got

a very simple answer we we may elaborate more on this as we go along but uh you know the the real thing to do is to get going and for some institution or individual that you admire I mean it's crazy to take in between jobs just because they look good on your resume or because you get a little higher starting pay I I was up at Harvard while back and very nice young guy picked me up at the airport uh Harbor business school attendee and he said look he said I went to undergrad here and

then I worked for X and Y and Z and now I've come here and he said I I thought it would really round up my resume perfectly if I went to work now for a big management consulting firm and I said well is that what you want to do and he said no but he said that's the perfect resume and I said well when are you going to start doing what you like and he said well I'll get to that someday and I I said well you I said your plan sounds to me a lot

like saving up sex for your old age you know it just doesn't make a lot of sense and I told that same group I said you know go to work for whomever you admire the most and I said you can't get a bad result you'll jump out of bed in the morning and you'll be having fun and Dean called me up a couple weeks later said what' you tell those kids he said they're all becoming self-employed so you've got to you've got to temper that advice a little bit uh uh Play One game a little

bit with me for just a minute and then we'll uh then we'll get to your questions um uh I'd like for the moment to have you uh well have you pretend I've made you a great offer and I've told you that you could pick any one of your classmates and you now know each other probably pretty well after being here for a while you can pick you'd have 24 hours to think it over and you can pick any one of your classmates and you get 10% of their earnings for the rest of their life Liv

and I ask you what goes through your mind in determining which one of those you would pick you can't pick the one with the richest father that doesn't count I mean you got to got to do this on Merit but you probably wouldn't pick the person that gets the highest grades in the class I mean that nothing wrong with getting the highest grades in the class but that that's not that isn't going to be the quality that that that sets apart uh a big winner uh from the rest of the pack think about who you

would pick and why and I think you'll find when you get through you'll pick some individual you've all got the ability you wouldn't be here otherwise and you've all got the energy I mean you've got you know the initiative is here the intelligence is here uh throughout the class but some of you are going to be bigger winners than others and uh it gets down to a bunch of qualities that uh interestingly enough are are are self-made I mean it's not how tall you are it's not whether you can kick a football 60 yards it's

not whether you can run the 100 yard dash in 10 seconds it's not whether you're the best looking person in the room it's a whole bunch of qualities that really come out of Ben Franklin or the Boy Scout Cod or or whatever it may be I mean it's it's it's Integrity it's honesty it's it's generosity it's it's being willing to do more than your share it's it's uh just all those qualities that are self- selected and then if you look on the other side of the Ledger because there's always a catch to these you know

free gifts and Genie jokes so you also have to and this is the fun part you also have to sell short one of the your classmates and pay 10% of what they do so who do you think is going to do the worst in the class this is way more fun and and think about it again and again it isn't the it isn't the person with the lowest grades or anything anything of the sort it's the person who just doesn't shape up in the Department I mean we look for three things when we hire people

we look for intelligence we look for for initiative or energy and we look for integrity and if they don't have the ladder the first two will kill you because if you're going to get somebody without Integrity you want them lazy and dumb I mean you don't want to you don't want to smart and energetic so uh it's that third quality but everything about that quality is your choice you know you you can't change the way you were wired much but you can change a lot of what you do with that wiring and it's the habits

that you generate now on those qualities or those negative qualities I mean the person the person who always you know claims credit for things they didn't do that always cuts Corners that you can't count on I mean in the end those those are habit patterns and the time to form the right habits is when you're when you're your age I mean it uh uh it doesn't do me much good to get golf lessons now if I'd gotten golf lessons when I was your age I might be a decent golfer but but it someone once said

the chains of habit are too are too light to be felt until they're too heavy to be broken and I see that all the time I see people with habit patterns that are self-destructive uh when they're 50 or 60 and they they really can't change them they're imprisoned by that but you're not imprisoned by anything so when you write down the qualities of that person that you'd like to buy 10% of look at that list and ask yourself is there anything on that list I couldn't do the there aren't there won't be and when you

look at the person you sell short and you look at those qualities that you don't like if you see any of those in yourself egotism whatever it may be selfishness you can get rid of that I mean that is not ordained and uh if you follow that and and Ben Franklin did this and my old boss Ben Graham did this at early ages in their young teens they just Ben Graham looked around and he said who do I admire you know and he wanted to be admired himself and he said you know why do I

admire these other people and he said if I admire them for these reasons maybe other people will admire me if I behave in a similar Manner and he and he decided what kind of a person he wanted to be and if you follow that at the end you'll be the person you want to buy 10% of I mean that's the goal in the end and it's it's something that's achievable by by everybody in this room so that's the end of the sermon now let's let's talk about what's on your mind and hey guys if you're

enjoying this warm Buffett video then I have a special treat for you you as a thank you for supporting this channel I have put together an exclusive investing checklist that summarizes the investment strategy of legendary investor waren Buffett you can get it for completely free at the link in the description and ping comment of this video I've spent hundreds of hours combing through Buffett's interviews and writings to put this checklist together for you guys if you want to continue learning how to make money in the stock market like warm Buffett make sure to get your

free copy because it summarizes Buffett's investment strategy in a clear easy to understand way again thanks for supporting the channel it means the world to me and this is my small way of repaying you now let's get back to the video you can ask anything the only thing I won't tell you is what we're buying or selling or about you know I I don't even tell myself that I mean I I write it down and then it's like the Coca-Cola formula you know there's only two people can get into the trust department and find out

what they are and I don't know who the two are so it's uh we don't talk about what we're buying you're selling but anything else is fair game personal business anything i''d like to talk about and actually the tougher the questions are the more interesting it is for me so don't don't spare my feelings I mean just throw at my head and uh and with that let's uh I guess we've got a microphone is this the only microphone or is there one on this the only microphone right here ask a question you'll need to come

down to this microphone just stand in line and and I'll be read just fil and then you can yes I have an oldfashioned belief that I can only should expect to make money in things that I understand and when I say understand I don't mean understand you know what the product does or anything like that I mean understand what the economics of the business are likely to look at look like 10 years from now or 20 years from now I know in general what the economics will say wrigly chewing gum will look like 10 years

from now the Internet isn't going to change the way people chew gum it isn't going to change which gum they chew you know if you own the chewing gum Market in a big way and you've got double Min and spearmint and Juicy Fruit those Brands will be there 10 years from now so I can't pinpoint exactly what the numbers are going to look like on regly but I'm not going to be way off if I try to look forward on something like that that evaluating that company is within what I call my circle of competence

I understand what they do I understand the economics of it I understand the competitive aspects of the [Music] business there can be all kinds of companies that have wonderful Futures but I don't know which ones they are uh I given talks in the past where I carry with me a a 70 page tightly printed list and it shows 2,000 auto companies now if at the start of the 20th century you had seen what the auto was going to do to this country the impact it would have on the lives of you then you're children and

grandchildren and so on that what it just it transformed the American landscape but of those 2,000 companies you know three basically survive and they haven't done that well uh at many times so how do you pick three winners out of 2000 I mean it's not so easy to do it's easy when you look back but it's not so easy looking forward so you could have been dead right on on the fact that the Auto industry in fact you probably couldn't have predicted how big impact it would have but you wouldn't have if if You' bought

companies across the board you wouldn't have made any money because the economic characteristics of that business were not easy to I said I I've always said the easier thing to do is figure out who loses and what you really should have done in 19 05 or so when you saw what was going to happen with the auto is you should have gone short horses there were 20 million horses in 1900 and there's about 4 million horses now so it's easy to figure out the losers you know the loser is the horse but the winner was

the auto overall but 2,000 companies just about failed a few merged out and so on uh there were three companies auto companies in the dowo Industrials in the 1920s and 30s stud Baker Nash Kelvinator and Hudson Motor now those names are all familiar to me and maybe some of them are familiar to you but they're not making any cars you know they didn't make money and yet at one time they were in the Dow 30 they were were the aristocrats of American Business and they got creamed so figuring out the economic characteristics of a the

winners in a wonderful business is not easy in North Carolina you know Orville and Wilbur took off or I guess Orville took off and Wilbur watched I'd have been Wilbur uh but if you could have seen the future of the airline business from that point forward and how that would transform things you know it would it would have blown you away and it's excited people Co incidentally ever since but if there had been a capitalist at Kitty Hawk he should have shot Orval down I mean it because it's done nothing but cost investors money there

were over 400 airplane companies in the 1920s and 30s alone there was an Omaha there was in Nebraska we were the Silicon Valley of apparently of aircraft and they all disappeared been a terrible business at the end of 1991 if You' added up the aggregate earnings from all airline companies with billion poured in since Wilbur and oral were down there they came to less than zero the number of passengers went up every year the importance of the industry was dramatically increased decade by decade and nobody made any money it uh so figuring out the economic

consequences TV I think there's I don't know 20 25 million sets a year sold in the United States I don't think there's one of them made in the United States anymore I mean you'd say TV set manufacturer what a wonderful business I mean everybody now nobody had a TV in 1950 there abouts 45 to 50 everybody has multiple sets now but nobody is in the United States has made any real money making the sets they're all out of business you know the Magna boxes the rcas all of those companies radio was the equivalent of the

20 over 500 companies making radios in the 1920s again I don't think there's a a US radio manufacturer at the present time but Coca-Cola you know what was it 188 for Jacob's Pharmacy or whatever fellow comes up with something a lot of Co copers over the years but now you've got a company that is selling roughly 1.1 billion 8 ounce servings of its product not all C bright and some others daily throughout the world 117 years later so understanding the economic characteristics of a business is different than predicting the fact that an industry is going

to do wonderfully so when I look at the internet businesses or I look at Tech businesses I say this is a marvelous thing and I love to play around on the computer and it now I order my books from Amazon and all kinds of things but I don't know who's going to win and unless I know who's going to win I'm not interested in investing I'll just play around on the computer and uh uh defining your circle of competence is the most important aspect of investing it's not how important how how large your circle is

you don't have to be an expert on everything but knowing where the perimeter of that Circle of what you know and what you don't know is and staying inside of it is all important Tom Watson senior who started IBM said in his book he said I'm no genius said but I'm smart in spots and I stay around those spots and you know that is the key uh so if I understand a few things and I stick in that Arena I'll do okay and if I don't understand something but I get all excited about because my

neighbors are talking about the stocks are going up and everything they start fooling around someplace else eventually I'll get creamed and I should so now let's go over here hello Mr Buffett I got two short questions one is how do you find intrinsic value in a company well intrinsic value is what is the number that if you were all knowing about the future and could predict all the cash that a b a business would give you between now and Judgment Day discounted at the proper discount rate that number is what the intrinsic value of a

business is in other words the only reason for making investment and laying out money now is to get more money later on right that's that's what investing is all about now when you look at a stock when you look at a bond so means United States Government Bond it's very easy to tell them what you're going to get back it says it right on the bond it says when you get the interest payments it says when you get the principle so it's very easy to figure out the value of a bond it can change tomorrow

if interest rates change but you are the cash flows are printed on the bond the cash flows aren't printed on a stock certificate that's the job of the analyst is to print out change that stock certificate which represents an interest in the business and change that into a bond and say this is what I think it's going to pay out in the future when we buy you know some new machine for Shaw to make carpet that's what we're thinking about obviously and you you all learn that in business school but it's the same thing for

a big business it it if you buy Coca-Cola today the company is selling for about10 to 15 billion do in the market the question is if you had 110 or 15 billion you wouldn't be listening to me but uh I'd be listening to you incidentally uh but the question is would you lay it out today to get what the Coca-Cola company is going to deliver to you over the next two or 3 hundred years discount rate doesn't make much difference after as you get further out but and that is a question how much cash they're

going to give you it isn't a question of you know isn't a question of how many analysts are going to recommend it or what the volume in the stock is or what the chart looks like or anything it's a question of how much cash it's going to give you that's the only reason the true if you're buying a farm it's true if you're buying an apartment house any financial asset oil in the ground you're laying out cash now to get more cash back later on and the question is is how much you going to get

when are you going to get it and how sure are you and when I calcul calculate intrinsic value of a business when we buy businesses and whether we're buying all of a business or a little piece of a business I always think we're buying the whole business because that's my approach to it I look at it and say what what will come out of this business and when and what you really like of course is them to be able to use the money they earn and earn higher Returns on it as you go along I

mean Berkshire has never distributed anything to its shareholders but its ability to distribute goes up as the value of the businesses we own increases we can compound it internally but the real question is Berkshire selling for we'll say 105 or so billion now uh what can we distribute from that 100 if you're going to buy the whole company for 105 billion now can we distribute enough cash to you soon enough to make it sensible at present interest rates to lay out that cash now and that's that's what it gets down to and if the if

you can't answer that question you can't buy the stock you know you can you can gamble in the stock if you want to or your neighbors can buy it but if you don't answer that question and I I can't answer that for for internet companies for example there a lot of companies that all kinds of companies I can't answer it for but I just stay away from those number two so you got formulas involved in finding intrinsic values on certain companies I you've got a mathematical system set up just kind of present value of future

cash yeah second short question is why haven't you um written down your set of formulas or your strategies in written form so you can share with everyone else well I think I actually have written about that if you read the annual reports over the recent years in fact the most recent annual report I I I use what I've just been talking about I use the illustration of ESOP because here ESOP was in 600 BC smart man wasn't smart enough to know was 600 BC though I mean would take a little foresight uh but ESOP you

know in between tortoises and hairs and all these other things he found time to about you know birds and he said a bird in the hand is worth to in the bush now that isn't quite Complete because the question is how sure are you that there are two in the bush and how long do you have to wait to get them out now he probably knew that but he just didn't have time because he had all these other Proverbs to write uh and had to get on with it so but he was halfway there in

600 BC that's all there is to investing is how many birds are in the bush when are you going to get them out and how sure are you now if interest rates are 15% roughly you've got to get two birds out of the bush in five years to equal the bird in the hand but if interest rates are 3% and you can get two birds out in 20 years it still makes sense to give up the bird in the hand because it's all gets back to discounting against an interest an interest rate problem is often

you don't know you know not only how many birds are in the bush but in the case of the internet companies there weren't any birds in the bush but but they still take the bird that you give them in the hand but it's but I I I actually have written about this sort of thing and uh stealing heavily from ESOP who wrote it some 2600 years ago but I've been behind on my reading yeah good morning um I know you're famed for your success but I was curious if there were any particular moments in your

life that or mistakes or failures that you've made that were particularly memorable what you may have learned from them and if you had any particular advice for the students here and dealing with uh with uh discouraging circumstances I well I made I've made a lot of mistakes biggest mistake well not the biggest necessarily the biggest but but buying Burkshire haway itself was a mistake because Berkshire was a lousy textile business and I bought it very cheap I'd been taught by Ben Graham to buy things on a quantitative basis look around for things that are cheap

and that I was taught that we'll say in 194 9 or 50 made a big impression on me so I went around looking for what I call you cigar butts of stocks and the cigar butt approach to buying stocks is that you walk down the street and you're looking around for cigar butts and you find this on thisly this terrible looking soggy ugly looking cigar one puff left in it but you pick it up and you get your one puff disgusting you throw it away but it's free I mean it's cheap and then you look

around for another soggy you know one puff cigarette well well that's what I did for years it's a mistake uh although you can make money doing it but you can't make it with big money it's so much easier just to to buy wonderful businesses so now I rather buy a wonderful business at a fair price than a fair business at a wonderful price but in those days I was buying cheap stocks and birkshire was selling below its working capital per share you got the plants for nothing you got the machinery for nothing you got the

inventory and receivables at a discount it was cheap so I bought it and 20 years later I was still running a lousy business and that money did not compound you really want to be in a wonderful business cuz the time is the friend of the wonderful business you keep compounding it keeps doing more business and you keep making more money time is the enemy of the lousy business I could have sold Berkshire perhaps liquidated it and made a quick little profit you know one puff but staying with those kind of businesses is is is a

big mistake so you might say I learned something out of that mistake and I would have been way better off taking what I did with Burkshire is I kept buying better businesses I started Insurance business Seas candy the Buffalo all all kinds of things I would have been way better doing that with a with a brand new little entity that I'd set up rather than using Burkshire as the platform now I've had a lot of fun out of it I mean everything in life seems to turn out for the better so I I I don't

have any complaints about that but it was a dumb thing to do I went into US Air I bought a preferred stock in 1989 uh as soon as my check cleared the company went into the red and never got out I mean it was a really dumb I mean it uh I've got an 800 number I call now whenever I think about buying an air airline stock I call them up any hour that fortunately I can call them at 3: in the morning and I just dial and I say my name's Warren I'm an AOH

holic you know and I'm thinking about buying this thing and then they talk me down I mean takes takes takes hours sometimes but it's worth it believe me uh if you ever think about that air buying an airline stock call me and I'll give you the 800 number cuz you you don't want to do it uh but we got lucky in terms of how we eventually came out on it but it was a dumb dumb decision all mine uh and I've done biggest biggest uh in terms of EV in terms of opportunity cost eventual costs

I bought half interest in a Sinclair Filling Station when I was about 20 with a guy I was in the National Guard with and I had about $10,000 then and I put $2,000 in and I lost it all so that was 20% and that means that the opportunity cost is now $6 billion dollar of that of that uh filling station which is big price to pay for you know getting to wipe a few windows and a few windshields and things like that so actually I like it when Berkshire goes down because it reduced the cost

of that mistake on an opportunity uh but the biggest mistakes we've made by far I've made not we've made biggest mistakes I've made by far are mistakes of omission and not commission I mean it's the things I knew enough to do they were within my circle of competence and I was sucking my thumb and that is really those are the ones that hurt they don't show up any place I probably cost Burkshire at least $5 billion for example by sucking my thumb 20 years ago or close to it when Fanny May was was having some

troubles and we could have bought the whole company for practically nothing and I don't worry about that if it's Microsoft because I don't know it Microsoft isn't in my circle of competence and so I I I I I don't have any reason to think I'm entitled to make money out of Microsoft or out of cocoa beans or whatever but I did know enough to understand Fanny May and I blew it and that never shows up under conventional accounting but the co I know the cost of it I know I know you know I I passed

it up and those are the big big mistakes and uh I've had plenty of them at and you unless I tell you about them in the annual report and I resist the temptation sometimes unless I tell you about them in the annual report you're not going to know it because it doesn't show up under conventional accounting but om mission is way bigger than Co Mission there's big opportunities in life have to be seized uh we don't do very many things but when we get the chance to do something that's right and big we've got to

do it and even to do it in a small scale is just as big a mistake almost is not doing it at all I mean if really got to you got to grab them when they come because they you're not going to get 500 great opportunities you would be better off if when you got out of school here you got a punch card with 20 punches on it and every big Financial every financial decision you made you used up a punch you'd get very rich because you'd think through very hard each one of them you

went to a cocktail party and somebody talked about a company you didn't even understand what they did or couldn't pronounce the name but they made some money last week and another one like it you wouldn't buy it if you only had 20 punches on that card there's a temptation to dabble if uh particularly during bull markets uh uh in stocks is so easy you know it's easier now than ever because you can do it online you know just you click it in and maybe it goes up a point and get excited about that and you

buy another one the next day and so on you can't make any money over time doing that but if you had a punch card with only 20 punches you weren't going to get another one in the rest of your life you would think a long time before every investment decision and you would make good ones and you'd make big ones and you probably wouldn't even use all 20 punches at the in your lifetime but you wouldn't need to yep Mr Buffett good morning um in your comments about making mistakes and errors like that you talk

a little bit about your sell discipline when you're in a position and you you feel like it's no longer good you know what criteria to you use to when you just finally abandon it yeah when I started out the self situation has changed over the years cuz when I started out I had way more ideas than money I mean I would go through Moody's manual I went through it Page by Page and then I went through it again again Page by page and I found stocks in there that I could understand that we selling at

like two times earnings even one times earnings well when you only have 10,000 bucks that can get a little frustrating and and if you don't like to borrow money which I never like to borrow money so I was always coming up with more ideas than I had money so I had to sell whatever I liked least to buy something new that just was compelling to me and for a long time I was in that mode and now our problem is we have more money than ideas uh so we're if you look at our annual report

which is on the uh internet under at our homepage Berkshire out.com you'll see something in the back called the economic principles of birkshire and you will see which I believe in setting out for my my partners they are my partners I don't look at them as shareholders I look at them as partners they're going to be my partners for life so I want to tell them how I think and if they don't agree with the way I think that's fine but I don't want them to I don't want to be disappointed in me you know

so I lay out there and I say in terms of our wholly owned businesses we're not going to sell no matter how much anybody offers this form I mean if somebody offers us three times what something is worth se's candy the Buffalo News Bor shimes whatever it may be we're not going to sell it I may be wrong in having that approach I know I'm not wrong if I owned 100% a birer because that's the way I want to live my life I've got all the money I could possibly need you know it just amounts

to a a change in the newspaper story on my obituary and the amount of money that the foundation has and to break off relationships with people I like and people that have join me because they think it's a permanent home to do that simply because somebody waves a big check at me would be like selling one of my children because somebody weighed a big check so I won't do that and I want to tell my partners I won't do it so that they're not disappointed me more and more with certain stocks we've got that approach

now if we were chronically short of funds and had all kinds of opportunities coming we might have a somewhat different approach but our inclination is not to sell things unless we get really discouraged perhaps with the management or we think the economic characteristics of the business change in a big way I mean and that happens so but we're not going to sell simply because it looks too high in in all likelihood I mean that you can't make that 100% but it's it's uh that's that's that's the principle under which we're operating we're generating right now

five billion of cash a year at least so it's 100 million bucks every week and you know just that we've been talking here half an hour and I haven't done a damn thing uh so uh it's you know the real question is how do you put it out intelligently and and if we were selling things it'd be just that much more so there may there there may come a time when that would change but but we want to and I have Partners shareholders Partners who would say if you can get three times what se's candy

is worth why don't you sell it and that's why I want to be sure before they come in they know how I think on that I mean they're they're entitled to know that uh you really want think for a minute you know if you're going to get married and you want a marriage that's going to last not necessarily the happiest marriage you know or one that that uh Martha Stewart will talk about or anything but you want a marriage that's going to last what quality do you look for on a spouse one quality do you

look for brains do you look for humor do you look for character do you look for beauty no you look for low expectations that is that is the marriage that's going to last both have low expectations I mean it uh uh and I want my partners to be on the low side on expectations coming in because want the marriage to last it's a financial marriage when they join me at Berkshire and I I don't want them to think I'm going to do things that I'm I'm not going to do so that's uh that's our guiding

principle theice is all free and your marital advice everything else next good morning Mr Buffett I have a question regarding evaluation of the sness of investment in recent years it appears that the use of uh tax Sheltering incorporation is increasing and such you know companies like ups and others are involved in cold battles over uh shelters with IRS uh and as we know most of these transactions are fairly artificial but yet there is a profit there from the investor perspective do you think it's beneficial for investor that the company that they invest uh are involved

in those uh shorters and if so do you think it' be helpful is if those transac disclosed in uh statements meaning the uh notes to statements I'm not sure I got that 100% George could you I I will repeat if you think that uh involvement of corporations that you invest or anybody for that matter invest in tax shelter which is by some definition tax shelters right I've never used one you no no I'm not I'm not saying so I'm asking if you know that that Corporation is involved in uh such activity that is beneficial in

short term would you think that that helpful for investors well there's I mean there there's there perfectly legal ways to shelter taxes I mean we we did and still do but we were one of the earliest ones to go in for low-income tax housing credits in fact I met with president first President Bush about about that one and that benefits us to mild degree it it's not a big element uh of birsh I mean it's a penis in terms of berkshire's overall value but it it is a congressionally ordained uh tax benefit I wouldn't call

it exactly a shelter it's a tax benefit that Congress has decided they're willing to offer businesses and and because they think it's the best way to to uh generate uh low-income housing so we participate in something but that it's not a it's not a big factor in in in what we do and uh but I don't there's there's nothing wrong with that then if you get into tax evasion I mean that's a whole different game at that point they ought go to jail you know uh but certain businesses some insurance companies reincorporated in Bermuda and

you can save a lot of taxes you have to meet certain other tests which we wouldn't want to meet but if we were willing to meet those other tests there's nothing illegal or immoral about us moving to Bermuda we're not going to do it and uh but if if the restrictions weren't there I mean the tax code is the rule book and you follow the rule book I think some of the things people do in terms of bending that rule book get very close to fraud and sometimes cross the line in Def fraud and when

they do I think they ought to be be prosecuted uh uh but that's that's another game and inent there has been more pushing on that I would say in the last five years and certainly was my experience earlier and there are more there I think now it's diminishing the last year or twoo but a couple years ago there was some very aggressive marketing by some of the auditing firms and of of these even with share percentage shares of the gain to be paid to the a I think that those things got fairly dubious and particularly

when they shopped for legal opinions you know so that if you got caught doing these things you can say well I was relying on this legal opinion and therefore I shouldn't go to jail but just pay the back taxes so I I don't know of any anything worse associated with that has done that but I obviously if they push too far we don't want to be there y I was curious with the uh large number of people you now have with h tremendous amounts of wealth what do you think of the current state of philanthropy

well I'll be out this week uh actually I'm going to Coca-Cola meting and I'm flying out to Seattle and and and talking to the United Way group out there they Seattle United Way raises more per capita I believe in the United Way in the country and and Bill Gates will be there we're talking jointly his mother was very active in United Way but Bill uh was going to give away over a billion dollars a year a lot more later on but right now a billion and it's very interesting I mean he is very rational about

it and he's very informed in fact he got somebody I think his primary adviser in the medical field is a fellow who was with the CDC in in Atlanta and Bill reads 15 books a a month on this I mean he he he can just absorb it I I wouldn't be able to get it that fast but he just says with a billion he wants to save as many lives per year as he can so how do he that's his objective's it's just as much a metric of his of his foundation as some other metric

return on Capital might be for a business and he says I'm going to spend a billion dollars a year how many how many lives can be saved for that so he's gotten very heavily into vaccines and and uh AIDS in Africa a number of things uh it's very rational uh I personally think all of my 99 point something per of my netw worth will go to a foundation after the latter of my wife and I die I mean it's all going to go to a foundation as far as I'm concerned I got it from society

it's going to go to society I've written a letter to my trustees and I've got very few trustees if you got a whole bunch of Trustees in my view it they just homogenize themselves down to sort of the lowest common denominator because you get 30 people in a room and uh prestigious people but they'll they'll all have their particular alom Moder and they'll all have their particular hospital and it'll become a big trade golf game you know it'll be a little like Congress so uh I have very few people and I don't give them anything

specific because I tell them their judgment above ground will be better than my instructions from six feet underground so I don't like to think that but it's true so I tell them look Society are the ones that don't have an actual funding constituency you or are just damned intractable and very difficult to solve so I tell I am not going to haunt them at all if they spend big money on some terribly important problem and they fail because they're taking on tough problems when I buy businesses I'm buying easy businesses but the reason the big

problems of society are big problems is that they're damn tough to solve so they are they're swinging at bad pitches I'm swinging at easy pitches in business but they're swinging at they have to swing at bad pitches but I tell them I want them to try and do it and if they fail it doesn't bother me at all I tell them if they give a million bucks a here and a million ion bucks there and a million bucks there they're not going to sleep because I'm going to be haunting them I'm going to come back

every night you know I do not want the ey dropper approach used to philanthropy uh but I want them to use their judgment to look at important problems that do not have a natural funding constituency you know if the government's going to fund it fine you know I mean there should be funding important problems but we won't need to do it the role of priv philanthropy in my my opinion is to fund things that don't have the natural constituency and that's what Bill's doing there isn't a there aren't a bunch of people around that you

can make an emotional appeal to to make vaccines available to millions and millions of kids around the world it just it doesn't tug at anybody's heartstrings you can't name buildings after them I mean it just isn't the sort of thing that you can raise money for on an emotional basis and there's nothing wrong with raising money on an emotional basis but that is a problem that won't get solved by a funding constituent that's responding to that but Bill is responding to what in his mind is is the important thing which is saving lives and he

doesn't care whether he gets his name out a building or whether anything happens or whether anybody knows about it I mean he gets publicity just because of the scale he's on but it he doesn't care about that I can promise you that so that's my philosophy is that I got this money not because I'm a superior human being not because I've done more for society than other people I was wired the right way to be dropped into the United States at this particular particular time I mean it's a huge capitalistic society and I'm wired no

credit to me but I just born that way so that I'm better at asset allocation than other people to some degree just like other people are better at all kinds of other things and I was with two teachers out at Sun Valley that are doing more for society than I am and they don't this market system does nothing for them market system does all kinds of things for me gate says if I'd been born 5,000 years ago you know I'd have been some animals lunch you know cuz I can't run very fast and can't climb

trees I mean you know what those and I could I could tell that animal was chasing me in a wait till see how I can allocate assets you know it wouldn't have made any difference so here I am you know I'm born now you know I just very very lucky and the odds when I was born in 1930 the odds were 50 to1 against me being born in the United States that's a terrible set of odds to face and yet I was dropped down here you know and if I'd been dropped down in Peru or

someplace or or China I mean I wouldn't have had a chance so Society is what does it for you and and uh it should go back in my view it should go back to society if you've been lucky enough to be dropped into a society where your particular wiring pays off big you know it that uh that's just luck and and uh you know there's nothing wrong with being lucky I don't feel guilty about or anything else but I also don't feel that I feel I have a lot of fun doing what I do but

I feel the money should go back into society and it should go back as intelligently as it can and best way to do do it intelligently is to have highgrade and intelligent people administering it uh at the time and you don't know the problems that are going to be out there 10 years from now or 20 years from now or 30 years from now but I do know if I've got a small number of high-grade smart people and high grade is more important I'll I'll if you gave me 20 extra points of IQ but but

cheated a little on the high grade I wouldn't take it because they got to be they got to be there's so many chances to to do things in a petty way or you know to try to I mean people get subverted in their own minds to their own interest rather than the interests of the institution so I really want super high-grade people doing it and I've got them and I think the money might do a lot of good it may do no good but it'll be operating in fields where if it does some good that

good probably wouldn't have been done otherwise yep I was just wondering um there's a lot of differences between the recent boom and bust and stock market and one in the 1920s uh but there's also a lot of similarities and those similarities are are allowing people to draw the conclusion that uh stock prices will be depressed for uh some time to come what where do you disagree and agree with that conclusion well the the whole century is quite interesting if you take the 20th century it was an unbelievable Century for the United States the GDP per

capita and that's the way to think of it as per capita sometimes they talk about our GDP versus Europe's but if their population's the same every year and ours goes up 1% you've got to you know in the end you got to you got to have a divisor as well as a numerator and so GDP per capita in the 20th century in the United States went up 610 per. actually qualitatively it went up far more than that because you can't really measure you know certain things uh in medicine or whatever it may be and improvements

but just on a quantitative basis it went up every single decade including the decade of the 30s so here you had a 100 years when basically the US citizenry was getting was improving their lot decade by decade by decade the 30s it was up 13% uh best decade was World War II the 40s was up 36% the worst decade was the first world war so you get sometimes the anal you know you can get in trouble on analogies but in any event it was it was a huge period interestingly enough there were six big periods

in there for the stock market in both directions there were three big bull market from 1900 to 1921 the Dow went from 66 to 71 less than a 10% move in 20 years less than half a percent a year you got dividends too but a half a so it didn't move from 21 to 29 as you point out it went it went from 71 to a high of 381 in September of 1929 went up 500% well obviously the the wellbeing of the country didn't go up 5 00% during that period and the well-being of the

company country went up a whole lot more than 10% during that first 21 years so he got this very uneven development then from 19 from September 1929 until the end of 1948 the Dow went from 381 to about 180 was cut in half and that was 18 long years and yet the per capita GDP was moving right up during this whole period so the economy was doing fine from 48 to 65 the Dow went again from about 180 up to close to 1,000 again 5 for one which was far out stripping it from 65 to

81 the Dow went down literally well again per capita GP and then we've had this last period where it's gone up terrifically if you take the whole hundred years it went up10 for one every ,000 became 180,000 but 43 and a quarter year 43 and 3/4 years were those three big huge bull markets and 56 and a quarter years were periods of stagnation all in an economy that was doing fine you know year after year after year 56 and a quarter years net the Dow was down a couple hundred points during that period and the

other 43 and 3/4 years made up the rest of this move from 66 to 11,000 somewh on the Dallas so you say to yourself how could it be that you could have a country that was doing better and better and better and better citizens were living every every generation was was living better than the one that preceded it but you had these huge changes big gains a few times long periods of stagnation 20 years I mean that's a long time to do nothing the answer is that investors behave in very human ways which is they

get very excited during bull markets and they look in the rearview mirror and they say I made money last year I'm going to make more money this year so this time I'll borrow you know or or the neighbor says you know I wasn't in last year when that neighbor was Dumber than I have made a lot of money so I'm going to go in this year so they're always looking in the rearview mirror and when they look in the rearview mirror and they see a lot of money having been made in the last few years

they plow in and they just push and push and push on prices and when they look in the rview mirror and they see no money having been made they just say this is a lousy place to be so they don't care what's going on in the underlying business and it's it's astounding but that's that makes for huge opportunity just huge opportunity I mean I lived through roughly half in an investing sense about half that period and I've had that long period of stagnation from 48 uh I mean from 65 uh to 82 17 years I

wrote an article for Forbes in 1979 I just said how can this be Pension funds in the in 1970 put 10 and some per of their new money in stock because they were wild about stocks then they got a lot cheaper and they put a record low in 9% of their net new money in in 1978 when stocks were way cheaper people behave very peculiarly in in in terms of the reactions because they they're human beings and they they get excited when others get excited they get greedy when others get greedy they get fearful when

others get fearful and they'll continue to do so and you will you know you will see things you won't believe in your lifetime and securities markets and the country will do very well over time but you will see these huge waves and and uh if you can stay objective throughout that if you can detach yourself tempor mentally from the crowd you get very rich and you won't have to be be very bright I mean it I'm sure you are but but you want you know it just it doesn't take brains it takes temperament it takes

the ability to sit there and look at something when I started out in 1950 I would go through and find things at two times earnings and they were perfectly decent businesses and people wanted jobs at those companies and everybody knew they were going to be around and they wouldn't buy them at two times earnings and that's when interest rates were 2 and a half% you know I went to the I started selling securities when I was 21 and a Kansas City Life Insurance Company happened to be fairly prominent company in Omaha and the policies they

sold you if you were buying life insurance from them had a buildin Assumption of 2% interest the stock of Kansas City life was selling at less than three times earnings you were getting 35% if you bought the stock no question about the soundness of the company I went to the local agent I I fig ought be able to sell him a few shares of stock I mean the guy understand I he's got his whole life invested in this company I went to local agent who' been with him for 20 years as his name was moose

I said Mr moose I said you know you're selling these policies with 2% you may even have a few on members of your own family and you can buy into this company whose paycheck you depend on every month and you and whose future you your your beneficiaries of these Life policies depend on and who you're selling them you know a 2% investment on and you can get 35% on your money and you know stocks aren't any good and and I couldn't I couldn't sell the you know I was a lousy salesman I mean well you

have to start with that but but uh it it just blew me away it blew me away I thought sometimes I used to wonder if I was nuts you know but those things the same thing happened I mean in 1964 the dowal closed at 8 864 at the end of 1981 17 years later later it closed at 865 it moved one point in 17 years now that's not a big move and that you you can't believe the how how discouraged people were by that by during that period but you know people were living better uh

so things can go on a long time that don't make sense and but they do come to an end I mean the internet thing I mean you had these companies selling for many billions of dollars that had no really practically no prospects of making any money that that's a that's a bubble but herbstein one time said anything that can't go on for forever will end now that seems pretty but think about that and uh particularly think about it next time you're inclined to do something just cuz the Stock's gone up a whole lot you know

and your neighbors made money or something it uh you've got to be you just have to sit and think objectively and think about would I buy this whole business it's an internet company's got 100 million shares out and selling 100 that's 10 billion do is it worth1 billion if it's worth 1010 billion it's got to be able to give you you know 7 or 800 million next year and if it doesn't give you 7 or 800 million next year it has to give you maybe 10% more than that the year after and continue to be

there aren't a lot of businesses that can do that and people just go crazy and of course it's fun I mean it's you know it's like that sign they they put in brokerage offices it says avoid hangovers stay drunk you know I mean it's it's just so much fun to keep playing but uh you got to you got to do sensible things to get to get good results yeah yeah next well we got three people standing there so let's let's do the three that are standing there okay good morning sir hi hi I was wondering

um what your opinion is of the Federal Reserve and their actions taken recently do you feel they've done enough to boost the economy yeah well I'm a I'm a fan of Allen greenspans over time I've known him for a long long time we were on a board together at cap cities and Allen is a very very smart guy he is motivated in my opinion entirely by what is good for the United States people of the United States and so you've got a you've got you couldn't have a better person in there and the problem he

may have is that that because his tenure in office has been associated with this incredible bull market that that even though he wouldn't have claimed credit for it that people might associate it because of the importance of the FED generally they might associate with him so they may if things don't work out so well they may blame him as well but I think his policy has generally been very good you have to understand one thing about the FED is that it's not as powerful as the Mystique would make it it's brake is better than its

gas pedal when the FED wants to put on the brakes we go through the windshield I mean you know the economy just yeah H they can put on the brakes Paul vuler did it he broke inflation by doing it but I mean when he put on the brakes in that period around 1980 I mean people hated he's crucified for but it was the right thing to do and he could do it he did it all by himself and he's he and and it was the only way because of the momentum that inflation was generating it

was the only thing that it was what was needed then enormously unpopular it's much harder for a green span to put on the brakes because nobody wants him to put on the brakes plus he's so visible but he's put him on sort of gradually uh but stepping on the gas pedal he does not necessarily get the same result it may help but there are thousand other variables operating and as you see in Japan you know you can get down to zero interest rates and you can't stimulate anything so it isn't like the Japanese haven't read

the same books we've read about economics I mean they've read canes and they've read the whole thing so we're not smarter than they are we don't have any secrets they don't have but they don't know how to get their economy going and uh you know there J GDP there has been gone no place you know in The Last 5 Years and there's still problems around so easy money doesn't solve everything but green span could very well get blamed for the fact that that he hasn't solved everything and it's just not in his power to solve

it uh he can help in various ways and I but I I don't think you could have anybody bu better and I think he's done the right thing to this point but the right thing may not be quite as as effective as as people may hope that it would be and economics is always you always want to ask and then what you'll read in the paper well what happens if the Japanese start selling government our government bonds or what happened if they dump the dollar they can't dump the dollar there's no way to dump dollars

you can you can at least dollar assets because if the Japanese want to sell government our government bonds they sell them to us you know they get a time deposit or a demand deposited City or they still own a dollar asset if they sell them to the French they get they may get some assets from the French but now the French have it but I mean the only way you can reduce foreign investment in the United States is to change it around so they're consuming more than from us more than we're consuming from them I

mean when when when we buy a television set from Japan if we buy more television sets from them than they buy equivalent consumables from us the exchange what balances things is we give them some investment type asset whether it's cash or US Government Bond or our stocks or our Mo Movies Studios or our real estate or different things and the only way that reverses is when we start running a trade surplus which we're miles away from so logically you know if you read classic economics that uh you would believe that our currency would have been

weak along or weaker uh over the recent years and that it would be weak now but there are other things operating and that's one of the problems about economics is there's never just one variable there's usually hundreds of variables and they operate with different impact at different times I mean it's a it's it's not like a physics formula I mean well I guess it would be if you got in the Heisenberg Principle or something like that but but the the formula has a lot of the same variables year after year but the relative importance of

those variables and how they interact with each other is is never exactly the same and that's what we find out the Japanese find out everybody finds out and and foreign currency or the Curren the value of our dollar and currency rates are defying what you would expect based on history but as somebody said if history were a perfect guide you know the fors 400 would all be Librarians you know they just go look it up in the books and they'd always know all the answers but uh it history doesn't repeat itself as Mark Twain said

history doesn't repeat itself but it Rhymes I mean things come back but they don't quite come back in the same form and we'll understand all this perfectly in a few more years why the dollars behave the way it has but I I think it would be useful net for the us if the dollar were less strong yes Mr Buffett thanks for taking my question um my question pertains to small business and my family's been in uh the truckload sector of transportation for about 50 years and as you talked about the airline industry and all the

mergers and Acquisitions and things going on and a lot of the smaller players being uh tossed out of the market uh what do you see for people that um like in this room for students that want to start a small business and maybe they want to start in a business that is a somewhat of a commodity type business but as businesses the large corporations get larger and their efficiencies increas how can a small business compete these people yeah the the in many areas small businesses have an advantage you know and other businesses scale has a

huge advantage and I mean you don't want to be a a tiny carbon steel producer on the other hand when mini Mills came along and learned how to use scrap more effectively than than the the older methods of making steel they actually had an advantage so scale is a huge advantage in some businesses it's you know the largest Airlines haven't won Southwest Airlines has won starting with you know just a few planes flying down there between Houston and Dallas and and they have become bigger but their ambition hasn't been to be the biggest and you

know they they probably buy their fuel just as cheap as United and they probably bought it you know when they're a lot smaller Walmart is a classic example I mean who would have thought 25 years ago 30 years ago I mean here was Sears with a 100 story plus building in Chicago had access to money far cheaper than Sam Walton I mean Sam Walton's credit was not as good as Sears every supplier wanted to do business with Sears nobody had ever heard of Sam every real estate developer who was developing a new shopping center went

first to Sears you know and Sam got a short end so here's the guy starting in Bentonville Arkansas and he kills them over time just playing kills them and disadvantage in buying disadvantage in borrowing disadvantage in real estate Advantage Sam Walton and his ability to inspire in the end hundreds of thousands of people to be enthusiastic about going to work and doing all the doing the right things over time so I would be just as optimistic about small business generally now there's certain areas uh where scale just as is just plain important but but I

see no disadvantage we intentionally at birkshire we have 112,000 employes more in Georgia than in any other state of the union incidentally uh uh we employ a lot up near Dalton and we employ a lot of people in making it Geico and we intentionally with our 112,000 we probably have I don't know how many business units but lots and we only have 13.8 people at headquarters I'm not the point8 in said that I resent it when people think that I'm a full but we have one woman that works four days a week and that's all

we have at headquarters 112,000 people 105 billion of market cap but we intentionally keep our units small we think we we want them to have the nimbleness the responsiveness to the customer particularly that will turn them you know that essentially will more than offset anything that the scale of having maybe a little more purchasing power or something will develop we own a home furnishing we have Furniture Home Furnishing business in Utah run by a fellow named Bill child he was featured in Fortune about one issue ago that the the cover story was God and business

it was and it was Bill was the number one illustration Bill took that business from his father-in-law when it was doing $250,000 a year and then now was over half the business in Utah in his field about close to 400 million he built it by thinking about the customer and the truth he was competing with Sears he was competing uh with Levitz was a huge Furniture retailer in the past he was competing with everybody but all he thought about from the moment he got up in the morning was how do I take care of my

customer and that wins we have a business in Omaha some of you may have heard of it's the largest home furnishing store in the world in alaha which only has a smsa of 650,000 people it's on 72 Acres it's the $325 million in one location which happens to be $500 for every man woman and child in the smsa but it draws from Beyond that that business comes about or has resulted from an investment of $500 in 1937 by a woman who walked out of Russia in 1921 she land she walked out got on a peanut

boat landed in Seattle with a tag around her neck she couldn't speak one word of English the American Red Cross looked at the tag it said Fort Dodge Iowa they got her at Fort Dodge Iowa she couldn't pick up the language she was there two years she said she felt like a dummy so she came to Alo because there were other Russian Jews there and she'd at least have somebody to talk to her little girl started school Francis Francis would come home at night and teach her mother the words she learned in school that day

that's how this woman Rose blump can learn the English language but from her from her daughter from kindergarten on teaching her the words she brought seven siblings over from Russia one at a time 50 bucks every time she saved 50 bucks she sold used clothing and other works she got her seven siblings over her mother and father and by 1937 16 years after she got here she saved $500 she got on a train went to Chicago to the American Furniture Mart which was this huge impressive thing she had this she was smart as hell but

she thought like a peasant in a way and she saw this building and she decided to name her company the Nebraska Furniture she went and bought $500 worth of she bought about $22,000 worth of merchandise all the way back to Omaha she worried because she thought I owe $1,500 and she only had a $500 Equity so she got to Omaha she took the bed the sofa the refrigerator out of her own home to sell fast so she could get the money so she could pay on time she took that business and build it from that

start no one would sell to her she went into court four times because they tried to the carpet manufacturers tried to keep her from selling at a discount and she went into court and told the judge cuz she figured out ways to buy this stuff in various nefarious ways from other had other people buy it for and she said look it I pay $3 a yard for this carpet brand I sells it for $6.98 she says I sell it for 3.98 just tell me judge how much you want me to rob people she defended herself

papers wrote it up the judge bought carpet from her the next day I mean it was it was marvelous brandise isn't selling anymore they were the huge department store in she put everybody out of business and the punchline she worked till she was 103 she sold me the business when she was 89 and she didn't have she didn't have an audit I went out this year at one afternoon I took a check out with me and because I knew she wanted to do something and I said Mrs B here's the money I said I don't

need an audit just tell me whether you owe any money she said I've never owed any money since I owed those guys back in 1937 and she said it's all free and clear she'd never seen a balance sheet she didn't know what counting terms meant but she understood the nature of the business and I told her I said I'd rather have I'd rather have your word you know than an audit from every one of the big six or big eight or whatever they were number at the time of the top auditing firms and and she

worked till she was 103 she died at 104 she had three siblings at her funeral I mean those are some jeans her son works there now he's 82 or three and the three sisters are all alive but the punchline is she couldn't read or right this woman could not read or right if you told her this room was 68 ft by 43 she would tell you how many square yards it was like that she never went to school a day in her life she would tell you how how much that was at 5.98 a yards

she'd add the tax she'd knock off something cuz she liked your looks and that would be it and that that's you know that is the that you can't beat that you know and and you can't replicate that at General Motors you can't can't institutionalize that the the person who brings that kind of drive to a business and does it day after day and thinks about their customer uh and that's all she did can't and well she raised four kids in the process too but you can't it it can't miss and no you don't have to

worry if you're an entrepreneur in most Fields there's some Fields where you can't do it because there are scale aspects to it but in most Fields you know you'll you'll kill people Bob Shaw did that was with Shaw nobody ever heard of Shaw in carpet 30 years ago and he's got 40% of the carpet business in the country uh so don't I it's it's a great field of opportunity out there and I uh uh I don't know about Trucking specifically but I wish you the best on it and you're you won't be at a disadvantage

in many fields if if you're small and you'll actually have an advantage thank you okay oh