2005 年 Kansas 商学院学生伯克希尔总部问答

December 2, 2005

University of Kansas Business School Students - Q&A with Warren Buffett at Berkshire Headquarters

I am not familiar with author of these notes. I found them in an old printout in my office on February 28, 2013

Laptops were not allowed, so these notes are a product of the speed of my writing and my memory (egads!). They have been crossed checked with other students, so while the quotes will not be exact, I believe we’ve captured the essence of how Buffett responded to each question. Buffett began the session by stating that he was here to talk about what was on the students’ minds. The only thing off limits was the recent Kansas/Nebraska football game (the Jayhawks beat the Cornhuskers 40-15 snapping a 36 game

losing streak!).

Q: As you get older, how do you continue to find motivation to earn outsized returns?

WEBI don’t measure success by money earned or some compound rate of return. Adding more zeros to your net worth won’t make you happy. In what I do, there is no endpoint; it’s a journey without a destination. I’ve been lucky that I’ve had fun throughout my journey.

There’s no four minute mile in finance. If my goal was to run a four minute mile, and I accomplished that goal, I’d have nothing else to work towards. With business, there will be new problems to keep things interesting, but those problems will be similar enough to the past that I can apply knowledge gained in the past.

I plan to keep going until I go ga-ga. The problem is you don’t know when you’ve gone ga-ga; someone else has to tell you. I’ve told my children that all three of them have to tell me at the same time when I’ve lost my mind. If one of them were to do it, I’d probably end up taking that child out of the will!

Q: A lunch with Warren Buffett recently sold for $350,000 on eBay. How can an investor determine the value

of Warren Buffett?

WEBI think the money goes towards a really good cause. Glide Memorial Church, based in San Francisco, was assigned an inexperienced minister, Cecil Williams, who was in his 20’s back in the early ’60s. It was a dying church, but Cecil revived it by taking in those that had hit rock-bottom. The Glide Foundation continues to provide a lot of help to those that have been marginalized by society. The organization gets a lot of support from celebrities. Cecil believed auctioning lunch with me would be a good fundraiser. The first year it went for $25,000. Two years ago, the first year on eBay, it went for $250,000. This year it went for $350,000. I agree to have lunch with the winner and then they have me for the afternoon. All of the people I’ve met have been really interesting. The guy from the last lunch has a company that designs databases for security applications. He identified 5 of the 19 9/11 hijackers. He was so interesting that I agreed to meet him again. This time I bought him breakfast. It cut the price of lunch in half - to

$175,000!

Q: You have a lot of influential friends. What have you learned from them?

WEBI’ve learned the importance of having good friends. They are smart people, so they’ve given me good ideas over the years, but that’s not as important as having good friends. I’ve been on four major trips with the Gateses. Each time, Bill always ensures that I have a good time. When planning the trip to China, he asked me what types of food I’d like to eat during the trip. I told him I haven’t found anything I like better than what I was eating when I was five years old. He took me seriously and planned ahead by sending chefs to China to teach people at the places we were going to stay how to prepare burgers and other American food. He had me playing ping pong against a 12-year-old (of

course she was a champion). We’ve also played Texas Hold’em, taken art lessons together and of course we play a lot of bridge.

Soldiers talk about war-time bonds. Those are formed from looking after each other for a number of years. I feel the same way about my friends.

As for Charlie [Munger], he of course influenced me to look at good businesses instead of cheap businesses. If I could only have the business/intelligence half of Charlie or the personal half, I’d take the personal half hands down. Charlie and I have had a lot of fun together.

Q: You studied under Ben Graham and give him a lot of credit for your success. However, measured in wealth created, he was much less successful than you. How do you explain that?

WEBBen didn’t care about making money. Investing was a sideline for him. He wrote plays, transcribed Greek books into English, etc. Graham wasn’t playing the wealth maximization game. He was a liberal arts graduate, but was convinced to work on Wall Street to prove that liberal arts students could succeed on in the finance industry.

Graham didn’t get excited about making money. I would come to him with a great investment idea and say “we’re going to get rich!”, but he didn’t care (although Jerry Newman did).

He wrote books because he had an academic nature. He wanted to explain investing in a way anyone could understand. Graham wanted to develop a method that a dentist in Iowa could follow, a system that someone with no special knowledge could use and make money. He wanted to provide a quantitative approach that anyone could follow.

The three big ideas that came from Graham are all in The Intelligent Investor. 1) View stocks as pieces of businesses; 2) The market is a voting machine in the short term, but a weighing machine in the long term; 3) Margin of safety.

Q: You have over $40 billion in cash. How do you plan to invest it?

WEBWe’ve been able to invest a lot more cash this year. $3.4 billion was spent on the Pacific Corp. acquisition, for example. There is still a lot of competition for potential acquisitions. It’s hard to find 50-cent dollars, so the question becomes whether or not it makes sense to buy 80-cent dollars. Charlie and I get antsy with $40 billion, but there are

worse problems to have. Eventually the market will change and we’ll see opportunities. We have to be prepared to act.

1998 was an example. Most of the opportunity was in fixed income at the time because of what happened at Long Term Capital Management. You had to be able to disassociate with fear at the time. I was on vacation with the Gates at the time. We could have made $2 billion if I was in New York instead of Yellowstone.

Q: You don’t believe the semi-strong efficient market theory. What are your arguments against it?

WEBHow can you argue for it? The market is fairly efficient. Most stock prices are appropriate. There is a huge difference between stocks being priced appropriately most of the time and all of the time. It’s the difference between getting rich and staying poor. For example, Washington Post was valued by the stock market at $100 million. You could have had an auction in the middle of the night on some island and bidders would have been swimming to it to bid $400 million. How can you call the market efficient?

It’s important to do a lot of digging to find those situations. Back in the 1950s the Moody’s and S&P manuals were a good source of information. [Buffett then showed the students the actual copy of the 1951 edition of Moody’s Banks and Finance manual. He then proceeded to flip through the pages and then turned to page 1431, which listed Western Insurance Securities.] This is panning for gold. Western Insurance Securities had EPS of $21.66 in 1949, EPS of $29.09 in 1950. The price range in 1950 was $3-13. I personally went to check out the company and found nothing wrong. I ran an ad in the Fort Scott Newspaper to find shares. [Buffett then flipped to page 1443]. Now I’ll flip a few more pages to 1443. I was in gold territory! Here is National American Insurance. It had EPS of $29.02 and traded in a range of $27-28. This company was located a block and a half from where I was working at the time in Omaha.

Again, I went to check it out and there was absolutely nothing wrong. Of course, a professor would say the markets are efficient, so these stocks must have been priced right!

So the question is: Can you still do this today? [Buffett then pulled out the 2004 Korean Stock Guide compiled by Citigroup]. My broker at Citigroup told me to look through this Korean version of the Moody’s guide. He said it would look just like 1951, and he was right. I began flipping through the pages and found a lot of good companies trading at very low multiples. In 5-6 hours I put together a small portfolio of 20-25 stocks - about $100 million total.

One example was DaeHan Flour Mills. It has a 25% market share in wheat flour in South Korea. Book value was 206,000 Won and the company had 201,000 Won in marketable securities and was trading at 2x earnings. The market is clearly not efficient all the time. There are certain opportunities that can make you fabulously rich.

Professors have to pledge allegiance to the efficient market hypothesis or they risk getting ostracized.

Q: What sources of investment ideas are available today?

WEBFirst, you need two piles. You have to segregate businesses you can understand and reasonably predict from those you don’t understand and can’t reasonably predict. An example is chewing gum versus software. You also have to recognize what you can and cannot know. Put everything you can’t understand or that is difficult to predict in one

pile. That is the too-hard pile. Once you know the other pile, then it’s important to read a lot, learn about the industries, get background information, etc. on the companies in those piles. Read a lot of 10Ks and Qs, etc. Read about the competitors. I don’t want to know the price of the stock prior to my analysis. I want to do the work and estimate a value for the stock and then compare that to the current offering price. If I know the price in advance it may influence my analysis. We’re getting ready to make a $5 billion investment and this was the process I used.

I used to handicap horse racing. The odds had to add to 100%. Sometimes there would be what in horse racing is referred to as an “overlay”. We’re looking for overlays in the stock market. It’s like a treasure hunt. You can increase your sources of investment ideas by widening your circle of competence. I’ve widened my circle over the years. I only needed to understand insurance in 1951. There were enough opportunities in that sector alone.

Q: How should current college graduates go about finding a job?

WEB[Buffett gave his standard reply to this question: do what you love, don’t worry about the money, etc.]. Don’t do something you don’t believe in or work with people you don’t like or trust. Most pick their job based on top pay and happenstance.

Q: Thoughts on giving money?

WEBIt all starts with a simple question, “how do I save the most lives per dollar spent?” Gates has given $30 billion.

He’s given a lot to cure malaria. His decision was based on that question, not whether he would have a building named after him. I think that is a terrific approach. The estate tax is a good thing. Out of the two million that die every year, only 30,000 are affected by the estate taxes. The money has to come from somewhere.

The question is how to give. At the end? Yearly? What I could give 25 years ago would not make much of a difference. The Gates model would not have worked for me then. Now it makes more sense because I could do more.

Q: With gold prices at an all-time high, what are your thoughts on gold?

WEB$50 billion worth of gold mined each year. The utility of gold does not command that much gold. In 1900, gold was trading at $20/ounce. It was revalued in ’33 at $35/ounce. In ’70 it traded freely at $20. Now its at $500 today. It offers no income, plus you have storage and insurance expenses. The S&P or Dow has done a lot better, plus

it pays you dividends. Gold is a lousy long-term investment. It has to be. There simply is not that much intrinsic value. Oil and certain other commodities have much more utility. I like assets that are producing money all the time; gold just sits there.

Q: Anheuser Busch is growing its presence in China. Is investing in American companies like AB the best way to invest internationally?

WEBFew U.S. companies have enough value coming from foreign operations. It’s a diluted way to get into a growing international market.

As for Anheuser Busch, China is a tiny plus for the company, but I’d rather they be there than not. It did not account for much of my valuation. China is a tough place to invest. Our only direct investment was in PetroChina. I knew nothing about PetroChina five

years ago, despite it having 500,000 employees. I read a report three years ago that made good sense and the company sold for one-third of other big oil companies. I would rather have those assets in the U.S., but wouldn’t want to pay 3x the price. I read their annual reports. It says right in there that they are going to pay out 40% of dividends to

shareholders each year. The dividend this year was $100 million. We only paid $400 million for the investment.

I’m not comfortable investing in banks and insurance companies in China because I don’t know what is going on or what could happen there.

Q: What is the best question you’ve ever been asked?

WEBI guess the best question I’ve ever asked is my wife to marry me. Her answer might have been her worst!

[Buffett paused for a moment] Why don’t you tell me the best question you’ve ever been asked and I’ll answer it? The best questions ask what I’ve learned about life over the years. You can’t know those answers when you’re young. For both men and women, the most important decision you’ll ever make is your choice of spouse. The most important job is raising children. The first five years are very important in a child’s life. The Gateses do a good job raising their children and have thought about it a lot.

Q: How would you like to define your personal and professional legacy?

WEBFor Berkshire, I’d like it to be looked at as a success that accomplished its success in an unorthodox way, i.e. the way we delegate to management, the unconventional rules. It would be tough to look back if Berkshire wasn’t a success.

Personally, if Berkshire does well after I die, then what is done with the money is important. I don’t want Berkshire to be dependent on me. I also want the “stock checks” to benefit society. The test is also based on your children and grandchildren and how they contribute to society.

Q: You’ve had a lot of financial success. How do you weed out those that want something from you because you’re rich?

WEBI’ve had a lot of friends that I’ve acquired over the years, so they aren’t friends necessarily because I’m wealthy. It’s a tougher problem for children of wealthy families. I’ve never really been in that situation. I get a lot of letters, especially from prisons! He’s received letters from prisoners who play a lot of bridge.

Life really is not that much different with more money. I can’t change the score of the Nebraska/KU game! I still sleep the same (seven hours a night and on the same mattress you can buy at Nebraska Furniture Mart). I listen to an iPod while I’m on the treadmill just like you can. All of you live better than J.D Rockefeller did.

Right now [as college students] you are investing upfront for a future payout. You are an asset - do things to improve that asset. Adding $100 million to that asset won’t change you that much.

Q: Should the government step in to stop the recent shenanigans in corporate America?

WEBWhat Spitzer did was wonderful for society. Millennium Partners just settled for $180 million. Their reputation is now destroyed. Because of what Spitzer’s done, you won’t see those problems in the mutual funds and insurance in the future because of the embarrassment. Charlie always says that a few public hangings per year would

help society to no end…metaphysically speaking! Bad press will go a lot further than statutes such as Sarbanes-Oxley.

Spitzer may cross the line at times, but net has done a lot of good for society.