"Start PREPARING Yourself..." | Warren Buffett

I would like to uh just go over two items that I would like particularly new entrance to the stock market to ponder just a bit before they try and do 30 or 40 trades a day in order to profit from what looks like an a Very uh easy game so I would like to uh go to slide L1 so put that up and these on March 31st I ran off a list of the 20 largest companies in the world by stock market value those names good many of which you'll be familiar to they were led

by Apple it's over two trillion and uh it went down to the number 20th was worth 330 odd billion but those are the 20 largest companies in the world by market value on March 31st now if I had a little I was hoping I could get a little uh quiz machine so I could have everybody weigh in on this answer and we could flash it up a little later but prove technically impossible for but what I would like you to do is look at that list um you starts off with well Saudi Aram is a

kind of a specialized country company it's I don't know whether it's 95% owned by the government or what but it's it's essentially a country that's for sale there in terms of that business but the top um six companies five of them are America so when you hear people say that America hasn't it's not working very well or something of the sort you know in the whole world of the six top companies in value five of them are in the United States and if you think about it you we talked a little about this last year

but in 1790 we had one half of 1% of the world's population and a little less we had 4 million people 3.9 million people 600,000 of them were slaves Ireland had more people than the United States had Russia had five times as many people as the US did Ukraine had twice as many people as the United States so here we were but what do we have we had a map for the future an aspirational map that uh somehow now only 20 wellone after the Constitution 232 years later leaves us with five of the top six

companies in the world you know it's not an accident and it's not because we were way smarter uh way stronger you know anything go short we had good soil decent climate but so some of those other countries I named uh and uh the system has worked unbelievably well just imagine thinking of five of the top six companies in the world and ending up with a country that started with a half a 1% of the population just a few hundred years ago but what I would like you to do is look at that list for a

minute or two if you want to and and then make an estimate make your own guess how many of those companies are going to be on the list 30 years from now here they are these powerhouses and how many would you guys are going to be on the list well you know it's not going to be all 20 it may not even be all 20 today or tomorrow this was March 31st what would you you guess and think about that yourself would you put on five eight well whatever it would be I would now invite

you to look at slide two which goes back a little more than 30 years and look at the top 20 from 1989 and if you look at the top 20 from 1989 there's two things that we should grab your interest at least two none of the 20 from 30 years ago are on the present list none zero there were then six us companies on the list and their names are familiar to you it uh we have uh General Electric we have Exxon we have IBM cor I mean these are they're still around Merc is down

there at number none made it to the list 30 years later or zero and I would guess that very few of you when I asked you to play the quiz a little a few minutes ago would have put down zero and I don't think it will be zero but it is a reminder of what extraordinary things can happen things that seem obvious to you Japan had had this wonderful bull market for a very long time so you had a number of Japanese companies on the list today there are none and uh the United States had

the six now we have 13 but they aren't the same six I would invite you to think about one other thing as you look at this list 1989 was not the Dark Ages I mean we weren't just discovering capitalism or anything else people thought they knew a lot about the stock market and the efficient market theory was in and there were it was not a backward time and if you look the top company at that time had a market value of 100 billion 104 billion so the largest company in the world title in just shade

over 30 years has gone from 100 billion to 2 trillion at the bottom the number 20 has gone from 34 billion to something a little over 10 times that well that tells you something about what's happened with equality which is a hot subject in this country it tells you a little bit about inflation but this was not a highly inflationary period as a whole but it tells you that capitalism has worked incredibly well especially for the capitalists and uh it's a pretty astounding number do you think you think it could be repeated now that 30

years from now that you could take two trillion for Apple multiply any company and come up with 30 times that for the leader you know it seems impossible and maybe it is impossible but I just we were just as sure of ourselves as investors and Wall Street was in 1989 as we are today but the world can change in very very dramatic ways and I'll just give you one other example you might Ponder this is when you start feeling too sure of yourself one thing it shows incidentally is that it's a great argument for index

funds is that uh you know the main thing to do was to be aboard the ship you know a ship you know they were all going to to a better Promised Land you just to know which one was the one they necessarily get on but you couldn't help but do well if you just had a diversified group of equities us equities be my preference but to hold over a 30-year period but if you thought you knew a lot about which ones to pick or the person that you had hiring you were paying a lot of

money to had all these ideas and uh they could tell you their best ideas in 1989 did not necessarily do that well although overall equities were absolutely the place to be secondly people get enormously attracted to various Industries I mean they think if you know if a company says it's in the XYZ industry and that's a popular one you can sell IPOs you can you can sell spacks you can people disregard sales numbers earnings numbers it's just you know it's the place to be so brth away where was the place to be in 1903 when

my uh my dad was born in 1903 but that wasn't really that big of news but it wasn't big news that actually Henry Ford was starting the Ford Motor Company failed a couple of times before but he was about to change the world I mean the the auto when you think about everything we've got a great auto insurance company if there weren't any Autos we wouldn't have Geico uh but it it transformed the country and then report brought in the $5 daily wage and that was a huge thing assembly lines everything Autos came along so

let's just assume that you had seen a quick glance back in 1903 of all the interstate highways 290 million vehicles on the road in United States you know everything about it and said well this is pretty easy it's going to be cars it's going to be Autos well we own a company called Maron we bought it from the pritzker family some years ago pritzkers had built this business from many many many companies that they had Acquired and the name of their company was Mormon and uh I don't know exactly why Jay and Bob decided to

name it Maron but they did own a company called Maron and the Maron which in 1911 had been the company whose car won the first Indianapolis 500 maybe that's why they called it marman they were proud of the fact that the company in 1911 won the first Indianapolis 500 it also was the company that invented the rearview mirror I'm not sure whether that was a big contribution to society certainly around your household Rew here you don't want to emphasize too much but they uh the car that was entered in the Annapolis 500 the the guy

who normally sat next to the driver and looked backwards to tell what the competitors were doing he was six so they they invented the rear view mirror so let's just assume that you decided that Autos were this incredible thing and someday there'd be an Indianapolis 500 and someday ever review M on cars and someday 290 million cars would be buzzing around the United States car or AO or County trucks there and so I decided to look at the history and I thought I'd put up the list of auto companies from over the years and I

was originally going to put up just the ones that were the m so I could get them on one slide but when I went to the M's it went on and on and on so I just decided to put up the ones that started with Ma and as you can see there were almost 40 companies that went into the auto business just stared with ma including our little our Mar there in the middle column and uh which uh lasted for a while quite a while it was selling cars in the 1930s were really quite special

but in any event there were at least 2,000 companies that entered the auto business because they clearly had this incredible future and of course you remember that in 2009 there were three left two of which went bankrupt so there is a lot more to picking stocks than figuring out you know what's going to be a wonderful industry in the future uh the mayag company put out a car allate put out a car Dupont put out a car I mean there was a Nebraska motor comp everybody started car companies just like everybody's starting something now that

can be where you can get money from people but there were very very very few people that picked the winner got the opportunity at Ford Motor hry Ford had a few partners and he really didn't like them so he figured way to buy them out that was sort of the uh was sort of the beginning of the the auto finance that's a long story but we won't get into that but uh you couldn't buy into the Ford motor and of course General Motors became the the dominant company uh finally went hry for did not really

make the shift from the Model T to the model a very did not work very well so I just want to tell you it's not as easy as it sounds you mentioned that you guarantee you could make a 50% annual return if you had to start again with under $1 million good question I'm Glad You Came yeah answer would be in my particular case it would be going through the 20,000 pages and since we were talking about railroads you know I went through the Moody Transportation manual a couple of times that was 1500 or 2,000

Pages or well probably 1500 pages and I found all kinds of interesting things when I was 20 or 21 and I don't imagine there's anybody here that knows about the Green Bay and Western railroad company but uh there were hundreds and hundreds of railroad companies and I like to read about every one of them the green band Western in those days everybody had a nickname for railroads I mean that was just what Northern Pacific was the Nipper and you know Phoebe Snow was one of them in the East that used to go up to Cornell

and uh the green band Western was known as grab baggage and walk and gbnw and they had a bond that was actually the common stock and they had a common stock that was actually a bond on and you know that could lead to unusual things but they wouldn't lead to unusual things that would work for you with many millions of dollars but if you collected a whole bunch of those which I set out to do and actually that's what impressed Charlie when I first met him because I knew all the details of all these little

companies on the west coast that he thought I would never have heard of but I knew about the Los Angeles Athletic Club or whatever it might be and he thought he was the only one that knew about that and that became an instant point of connection so to answer your question I don't know what the equivalent of Moody's manuals or anything would be now but I would I would try and know everything about everything small and I would find something and with a million dollars you could earn 50% a year but you have to be

in love with the subject you can't just be in love with the money you really got to just find it you know essentially like you know people find other things in other fields cuz they just love looking for to a biologist looks for something because they want to find something and it's built in I don't know how the human brain works that much and I don't think anybody not understands too well how the human brain works but there's different people that just find it exciting to expand their knowledge in a given area we you know

I know great bridge players I know great chess players actually uh Kasparov came to Al all met Mrs B I've had the luck of meeting a lot of people that are unbelievably smart in their own Arena and do some unbelievably dumb things in other areas so all I know is the human brain is complicated and but it does its best when you find out what your brain is really suited for and then you just uh pound the hell out from that point and that's what I would be doing if I I had a small amount

of money and I wanted to make 50% a year but I also wanted to just play the game and you can't do it if you really if you don't find the game of Interest whether it's Bridge or whether you know whatever it may be chess or this case finding Securities that are undervalued but it sounds to me like you're on the right track I mean anybody will come all the way to this annual meeting has got something in their mind other than Bridge or chess uh so I'm glad you came and come again next year

I think Berkshire is a very good thing to hold but for a given individual particularly my wife I just think that having a a tiny fraction that which is all it takes for her to do very well for the rest of her life I think that the best thing do is byy by 90% on an in an S&P 500 Index Fund I personally prefer holding birkshire to holding the market because I'm quite comfortable I think our businesses are better than the average in the market well these are just accidents of history and things are fluctuating

at all times but on a composite basis i' buil on Berkshire over the market that's assuming we're all de I I recommend the S&P 500 Index Fund and have for a long long time to people and uh I've never recommended Burkshire to anybody because I don't want people to buy it because they think I'm tipping them into sometime never I mean no matter what I was selling for and uh you know I've made it public you on my death there's a there's a fund for my uh then Widow and 90% will go and do an

S&P 500 Index Fund and 10% of treasury bills