2005 年 Kansas 学生问答

Warren Buffett’s Talk with Students from University of Kansas : Q&A

Thanks to Professor Hirschey, University of Kansas ( May 6, 2005 )

Question: According to a business week report published in 1999, you

were quoted as saying “it’s a huge structural advantage not to have a

lot of money. I think I could make you 50% a year on $1 million. No,

I know I could. I guarantee that.” First, would you say the same

thing today? Second, since that statement infers that you would

invest in smaller companies, other than investing in small-caps, what

else would you do differently?

Yes, I would still say the same thing today. In fact, we are still

earning those types of returns on some of our smaller investments.

The best decade was the 1950s; I was earning 50% plus returns with

small amounts of capital. I could do the same thing today with

smaller amounts. It would perhaps even be easier to make that much

money in today’s environment because information is easier to access.

You have to turn over a lot of rocks to find those little anomalies.

You have to find the companies that are off the map - way off the

map. You may find local companies that have nothing wrong with them

at all. A company that I found, Western Insurance Securities, was

trading for $3/share when it was earning $20/share!! I tried to buy

up as much of it as possible. No one will tell you about these

businesses. You have to find them.

Other examples: Genesee Valley Gas, public utility trading at a P/E

of 2, GEICO, Union Street Railway of New Bedford selling at $30 when

$100/share is sitting in cash, high yield position in 2002. No one

will tell you about these ideas, you have to find them.

The answer is still yes today that you can still earn extraordinary

returns on smaller amounts of capital. For example, I wouldn’t have

had to buy issue after issue of different high yield bonds. Having a

lot of money to invest forced Berkshire to buy those that were less

attractive. With less capital, I could have put all my money into the

most attractive issues and really creamed it.

I know more about business and investing today, but my returns have

continued to decline since the 50’s. Money gets to be an anchor on

performance. At Berkshire’s size, there would be no more than 200

common stocks in the world that we could invest in if we were running

a mutual fund or some other kind of investment business.

Q: Since Ben Graham isn’t around anymore, what money managers do you

respect today? Is there a Ben Graham today?

You don’t need another Ben Graham. You don’t need another Moses.

There were only Ten Commandments; we’re still waiting for the

eleventh (j/k). His investing philosophy is still alive and well.

There are disciples of him around, but all we are doing is parroting.

I did read Phil Fisher later on, which showed the more qualitative

aspects of businesses. Common stocks are part of a business. Markets

are there to serve you, not to instruct you. You can often find a

couple of companies that are out of line. Find one; get rich. Most

people think that what the stock does from day to day contains

information, but it doesn’t. It isn’t just something that wiggles

around. The stock market is the best game in the world. You can take

advantage of people who have no morals. High prices inside of a year

will typically be 100% of the low price. Businesses don’t change in

value that much. That is simply crazy. There are extreme degrees of

fluctuation, and Mr. Market will call out the prices. Wait until he

is nutty in one direction or the other. Put in a margin of safety.

Don’t find a bridge that says no more than 10,000 pounds when you

have a 9800 pound vehicle. It isn’t a function of IQ, but receptivity

of the mind.

When investing you don’t have to invest in all 10,000 companies

available, you just have to find the one that is out of line. Mr.

Market is your servant. Mr. Market is your partner and wants to sell

the business to you everyday. Some days he is very optimistic and

wants a high price, others he is pessimistic and will sell at a low

price. You have to use this to your advantage. The market is the

greatest game in the world. There is nothing else that can, at times,

get this far out of line with reality. For example, land usually only

fluctuates within a 15% band. Negotiated transactions are less

volatile. Some get this; others don’t. Just keep your wits about you

and you can make a lot of money in the market.

Q: Do you expect the stock market premium to continue to be 6.5% over

bonds?

I don’t think that the stock market will return 6.5% over bonds in

the future. Stocks usually yield a little more, but that isn’t

ordained. Every once in a while, stocks will get very cheap, but it

isn’t ordained in scripture that this is so. Risk premiums are mostly

nonsense. The world isn’t calculating risk premiums.

Best book prior to Graham was written by Edgar Lawrence Smith in 1924

called Common Stocks as Long Term Investments. It was a study that

evaluated how bonds compared to stocks in various decades of the

past. There weren’t a whole lot of publicly traded companies back

then. He thought he knew what he was going to find. He thought that

he’d find that bonds outperformed stocks during periods of deflation,

and stocks outperformed during inflationary times. But what he found

was that stocks outperformed the bonds in nearly all cases. John M.

Keynes then enumerated the reasons that this was so. He said that

over time you have more capital working for you, and thus dividends

would grow higher. This was novel information back then and investors

then went crazy and started buying stocks for these higher returns.

But then they started to get crazy, and no longer really applied the

sound tactics that made the reasons given in the book true. Be

careful that when you buy something for a sound reason, make sure

that the reason stays sound.

If you buy GM, you need to write the price and the respective market

valuation. Then write down why you are buying the business. If you

can’t, then you have no business doing it.

Quote from Ben Graham: “You can get in more trouble with a sound

premise than an unsound premise because you’ll just throw out the

unsound premise”.

Q: What was your biggest mistake?

First off, follow Graham and you’ll be fine.

My biggest mistakes were errors of omission vs. commission. Berkshire

Hathaway was also a big mistake. Sometimes the opportunity costs of

keeping money in something (like a lousy textile business) can be a

drag on Berkshire’s performance. We didn’t learn from the previous

mistake and bought another textile mill (Womback Mills) 6-7 years

after buying Berkshire Hathaway. Meanwhile, I couldn’t run the one in

New Bedford.

Tom Murphy, my friend, bought the newspaper in Fort Worth. The

previous ownership of these entities owned NBC as well, but he wanted

to divest the NBC affiliate - $30 million to buy, doing $75 million

in earnings. It was really a pretty good company, but he wanted to

sell it anyway. There wouldn’t be many more of it. Network television

stations don’t require excessive brains to run. They add a lot of

money to our bottom lines.

We have never lost lots of money in things, except in insurance after

9/11. We don’t do the kinds of things that lose you a lot of money.

We just might not be finding the “best” opportunities.

Don’t worry about mistakes. You’ll make mistakes. Get over it. At the

same time, it’s important to learn from someone else’s mistakes. You

don’t want to make too many mistakes.

Side note: Warren once asked Bill Gates, “If you could only hire from

one place, where would it be?” Gate’s reply was Indian Institute of

Technology.

Q: Could you comment on your currency position?

We have about $21 billion in about 11 foreign currencies. We have $60-

70 billion in things that are denominated in US Dollars. We still

have a huge US bias. If Martians came down with currency certificates

and could choose any currency on earth, I doubt it would be 80% in US

Dollars.

We are following policies that make me doubt that our currency will

not follow a downward spin. We lost $307 million this quarter. The

net gain since we started holding foreign currencies in 2002 is $2.1

billion. We have to mark these future contracts to market daily. If

we owned bonds instead of sterling forward contracts, it wouldn’t

fluctuate around so much.

Identifying bubbles is fairly easy. You don’t know how big they will

get and you don’t know when they will pop. You don’t know when

midnight will hit, but when it does, it turns carriages to pumpkins

and mice. What markets will do is pretty easy. When they will do it

is more difficult. Some people want to stick around for the last

dance, and they thought that a bigger fool would be just around the

corner tomorrow.

When we bought those junk bonds, I didn’t know we would make $4

billion in such a short time. It would have been better if it

wouldn’t have happened so quickly, as we would have gotten a bigger

position.

Q: When did you know you were rich?

I really knew I was rich when I had $10,000. I knew along time ago

that I was going to be doing something I loved doing with people that

I loved doing it with. In 1958, I had my dad take me out of the will,

as I knew I would be rich anyway. I let my two sisters have all the

estate.

I bet we all in this room live about the same. We eat about the same

and sleep about the same. We pretty much drive a car for 10 years.

All this stuff doesn’t make it any different. I will watch the Super

Bowl on a big screen television just like you. We are living the same

life. I have two luxuries: I get to do what I want to do every day

and I get to travel a lot faster than you.

You should do the job you love whether or not you are getting paid

for it. Do the job you love. Know that the money you will follow. I

travel distances better than you do. The plane is nicer. But that is

about the only thing that I do a whole lot different.

I didn’t know my salary when I went to work for Graham until I got

his first paycheck. Do what you love and don’t even think about the

money. I will take a trip on Paul Allen’s Octopus ($400M yacht), but

wouldn’t want one for myself. A 60 man crew is needed. They could be

stealing, sleeping with each other, etc. Professional sports teams

are a hassle, especially when you have as much money as him. Fans

would complain that you aren’t spending enough when the team loses.

If there is a place that is warm in the winter and cool in the

summer, and you do what you love doing, you will do fine. You’re rich

if you are working around people you like. You will make money if you

are energetic and intelligent. This society lets smart people with

drive earn a very good living. You will be no exception.

Q: What is your opinion of the prospects for the Kmart/Sears merger?

How will Eddie Lambert do at bringing Kmart and Sears together?

Nobody knows. Eddie is a very smart guy but putting Kmart and Sears

together is a tough hand. Turning around a retailer that has been

slipping for a long time would be very difficult. Can you think of an

example of a retailer that was successfully turned around?

Broadcasting is easy; retailing is the other extreme. If you had a

network television station 50 years ago, you didn’t really have to

invent or being a good salesman. The network paid you; car dealers

paid you, and you made money.

But in retail you have to be smarter than Wal-Mart. Every day

retailers are constantly thinking about ways to get ahead of what

they were doing the previous day.

Retailing is like shooting at a moving target. In the past, people

didn’t like to go excessive distances from the street cars to buy

things. People would flock to those retailers that were near by. In

1996 we bought the Hochschild Kohn department store in Baltimore. We

learned quickly that it wasn’t going to be a winner, long-term, in a

very short period of time. We had an antiquated distribution system.

We did everything else right. We put in escalators. We gave people

more credit. We had a great guy running it, and we still couldn’t

win. So we sold it around 1970. That store isn’t there anymore. It

isn’t good enough that there were smart people running it.

It will be interesting to see how Kmart and Sears play out. They

already have a lot of real estate, and have let go of a bunch of

Sears’ management (500 people). They’ve captured some savings already.

We would rather look for easier things to do. The Buffett grocery

stores started in Omaha in 1869 and lasted for 100 years. There were

two competitors. In 1950, one competitor went out of business. In

1960 the other closed. We had the whole town to ourselves and still

didn’t make any money.

How many retailers have really sunk, and then come back? Not many. I

can’t think of any. Don’t bet against the best. Costco is working on

a 10-11% gross margin that is better than the Wal-Mart’s and Sams’.

In comparison, department stores have 35% gross margins. It’s tough

to compete against the best deal for customers. Department stores

will keep their old customers that have a habit of shopping there,

but they won’t pick up new ones. Wal-Mart is also a tough competitor

because others can’t compete at their margins. It’s very efficient.

If Eddie sees it as impossible, he won’t watch it evaporate. Maybe he

can combine certain things and increase efficiencies, but he won’t be

able to compete against Costco’s margins.

Q: What led you to develop your values and goals at an early age?

I was lucky because I knew what I loved at an early age. I was wired

in a certain way when I was born, and I was lucky enough to stumble

upon some books at a library at a very early age. In 1930, I won the

ovarian lottery. If I had been born 2000 years ago, I’d have been

somebody’s lunch. I couldn’t run fast, etc.

I was lucky. I had a terrific set of parents. My father was an

enormous inspiration for me. The job when you are a parent is to

teach them. Be a natural hero. They are learning from you every

moment you are around. There is no rewind button. If your parents do

what they say and their values match what they teach you, you are

lucky. What I observed in the world was consistent with what my

parents taught me. That was important. If you are sarcastic, and use

it as a teaching tool to kids, they’ll never learn to get over it.

Those first few years they are very impressionable.

Q: Could you discuss your views on estate planning and how you will

allocate your wealth to your children?

It really reflects my views on how a rich society should behave. If

it weren’t for this society, I wouldn’t be rich. It wasn’t all me.

Imagine if you were one of a pair of identical twins and a genie came

along and allowed you to bid on where you could be born. The money

that you bid is how much you had to agree to give back to society,

and the one who bids the most gets to be born in the US and the other

in Bangladesh. You would bid a lot. It is a huge advantage to be born

here.

There should be no divine right of the womb. My kids wouldn’t go off

and do nothing if I give them a lot of money, but if they did, that

would be a tragedy. $30 billion will be generated from estate taxes,

which will go to help pay for the war in Iraq and other things. If

you take away the estate tax, that money will have to come from

somewhere else. If not from estate taxes then you inherently get it

from poorer citizens. Less than 2% of estates will pay the estate

tax. They would still have $50 million left over on average. I think

those that get the lucky tickets should pay the most to the common

causes of society. I believe in a big redistribution. Wealth is a

bunch of claim checks that I can turn in for houses, etc. To pass

those claim checks down to the next generation is the wrong approach.

But for those that think I am perpetuating the welfare state,

consider if you are born to a rich parent. You get a whole bunch of

stocks right at the beginning of your life, and thus you are sort of

on a welfare state of support from your rich parents from the

beginning. What’s the difference?

At $100,000 a year, I can find 10 people to paint my portraits to

find the perfect one. I have that kind of money. But that is a waste,

as those people could be doing something useful. I feel the same way

about my kids and other heirs. They should be doing things that help

to contribute to society.

Q: What kind of impact will the demographic shift (i.e. baby boomers)

have on the United States?

We aren’t big on demographic trends. It’s difficult to translate that

information into profitable decisions. It is hard to figure out what

businesses will prosper in the future, based on macro trends. See’s

candy is for anyone and Fruit of the Loom is for people who need

underwear today. We want to be right on something that will work

right now, not something that might work in the future. I doubt that

Wal-Mart spends a lot of time on demographics. They instead focus on

where to put the store and what to put on the shelves. I’ve never

found those kinds of stats useful. People were all excited to go into

stocks 6 years ago, but it wasn’t because of demographic trends.

Warren then referred to a recent WSJ article written by Jeremy Siegel

that discussed funds flowing out of investments because baby boomers

will need to cash in their investments during retirement. He said he

respected Siegel, but he doesn’t find fund flows data useful.

Q: What would Berkshire be like if you hadn’t met Charlie Munger?

It would be very different, but I could say the same thing about a

lot of other people, too. I’ve had a lot (at least a dozen) of

heroes, including my parents. Charlie and I didn’t meet until 1959,

although he grew up a half a block from where I lived. Charlie was 35

and I was 29. We’ve been partners ever since. He is very strong-

minded, but we’ve never had an argument that whole time. I’ve never

been let down once. It must be a terrible feeling to be let down by a

hero.

Hang around people who are better than you all the time. You do pick

up the behavior of people who are around you. It will make you a

better person. Marry upward. That is the person who is going to have

the biggest effect on you. A relationship like that over the decades

will do nothing but good.

Q: Are investors more or less knowledgeable today compared to ten

years ago?

There is no doubt that there are far more “investment professionals”

and way more IQ in the field, as it didn’t use to look that

promising. Investment data are available more conveniently and faster

today. But the behavior of investors will not be more intelligent

than in the past, despite all this. How people react will not change -

their psychological makeup stays constant. You need to divorce your

mind from the crowd. The herd mentality causes all these IQ’s to

become paralyzed. I don’t think investors are now acting more

intelligently, despite the intelligence. Smart doesn’t always equal

rational. To be a successful investor you must divorce yourself from

the fears and greed of the people around you, although it is almost

impossible.

Do you think Ponzi was crazy? The tech and telecom madness that

existed just 6 years ago is right up there with the craziest mania’s

that have ever happened. Huge training in capital management didn’t

help.

Take Long Term Capital Management. They had 100’s of millions of

their own money, and had all of that experience. The list included

Nobel Prize winners. They probably had the highest IQ of any 100

people working together in the country, yet the place still blew up.

It went to zero in a matter of days. How can people who are rich and

no longer need more money do such foolish things?

Q: What effect does large institutional ownership have on stock price

volatility?

Never has so much been managed by so few that care so much about what

happens tomorrow. So much of the world of investing is people who are

trying to beat indexes, and they have a willingness and eagerness to

make decisions in the next 24 hours. This condition didn’t exist

years ago. It has created a “hair trigger” effect. An example of this

hair trigger effect was Black Monday in ’87. The cause was program

trading and stop loss orders.

Q: What sectors are hurting? Is there a bear market coming?

Humans are still made up of the same psychological makeup, and

opportunities will always present themselves. All these people have

not gotten more rational. They are moved by fear and greed. But I’m

never afraid of what I am doing. What are directors thinking [by not

repurchasing shares] if the business is selling on a per share basis

for one-fourth of what the whole business would sell for? They don’t

always think rational. I simply don’t have that problem.

Berkshire owned the Washington Post, the ABC network and Newsweek. It

was selling for $100 million based on the stock price. No debt. You

could have held an auction, and sold off the companies individually

for $500M total, but $100M was the price. In other words they were

willing to sell us money that was worth $1 for $0.25. According to

efficient markets, the beta was higher when the stock was at $20 than

at $37. This is insanity. We bought what was then worth $9 million

that is now worth $1.7 billion.

Q: How do you feel about divisions of conglomerates trying to horde

capital?

Berkshire wants the capital in the most logical place. Berkshire is a

tax efficient way to move money from business to business, and we can

redeploy capital in places that need them. Most of the managers of

companies we own are already independently rich. They want to work,

but don’t have to. They don’t horde capital they don’t need.

Q: How do you feel about the current real estate environment?

If you are buying to own a home, that is fine. Otherwise, it seems to

be getting into bubble territory. We’re not excited about real estate

because generally there is not enough return at current prices.