Warren Buffett shares how they choose businesses to invest in and the philosophy behind it.
Table of Contents
Warren Buffett talks about how he filters businesses
A, we didn’t have it thought out that well in a sense at that time.
But we basically looked for companies where we thought we could understand what the future would look like 5 or 10 or 15 years hence, and that didn’t mean we had to do it to 4 decimal places or anything of the sort.
But we had a feel for it and we had to know our limitations.
So we stayed away from a lot of things and at that time prices where different so we in terms of knowing we were getting enough for our money it was a much easier decision than it is currently.
But it wasn’t …
no planning sessions or anything of the sort we just keep reading and we kept thinking and we kept looking at things that came along as Charlie described it in the movie and you know comparing opportunities A with opportunity B…
And in those days, we were capital constrained, so we usually had to sell something if we were going to buy something else and that
always makes for… you know
That’s an interesting challenge always when you are measuring something you hold against something that has come along and see which is more attractive.
And we probably leaned very much towards things that we felt we were certain to get a decent result than where we were hopeful of getting a brilliant result.
We went with our instincts.
And kept putting one foot in front of the other.
Charlie, what would you say?
Well that’s exactly what we did and, it worked wonderfully well and part of it is cause we are such splendid people and worked so constructively and part of it is we were lucky.
We had some good fortune. Now Warren says he was lucky to go to Geico but not every 20-year-old was going down to Washington DC and knocking on the doors of empty buildings trying to find something out he was curious about.
So we made some of our luck by being curious and seeking wisdom and we certainly recommend that to anybody else, and there is nothing that improves wisdom more thoroughly than really getting your own nose whacked hard when you make a mistake and we had a fair amount of that, didn’t we?
We had plenty of it. If you read his book you’ll see about a few of them, we thought we knew the department store business in Baltimore, and we thought we knew about the trading stand business, we have had a lot of experience with bad businesses and that makes you appreciate a good one.
And to some extent it sharpens your ability to make distinctions between good and bad ones.
And we have had a lot of fun along the way. That helps too. If you are enjoying what you are doing, you know, you are likely to get a better result than if you go to work with your teeth clenched every morning.
I think we were helped because we came from families where there was some admirable people and we tended to identify other admirable people better than we would have coming from a different background.
So my deceased wife used to say you can’t accomplish much in one generation.
We owe a considerable amount both of us to the families we were raised in.
I think the family standards helped us to identify good people more easily than we would have had more disadvantaged backgrounds.
You agree with that Warren?
Have you still got your father’s briefcase?
Yeah I still got it I just don’t know were it is. hahaha.
I can’t carry it anymore it’s all worn out, it’s got holes in it.
I got my dads’ desk from 75 years ago.
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Making decisions to invest in a business is a long-term decision. I would think about how the business would become 10 to 20 years in the future.
And that assessment would be even more difficult in a high tech industry like electric vehicles or renewable energy.
Who knows what kind of new technology would come out to disrupt the old industry.
One thing we can do is to keep learning about industries, keep reading about how business work.
Along the way, we may make mistakes and reflect on it, that would be valuable.
Another important lesson I learned is that using your instincts to belive in a great business, great management, great products or services with higher certainty and higher chances of survival is more important than calculating the numbers into 5 decimal places, like calculating PE, intrinsic value per share, or anything of the sort.
In this talk, Warren Buffett and Charlie Munger share their philosophy on how they choose businesses to invest in.
They emphasize the importance of understanding the future of the business, staying within their limitations, and being patient.
They also talk about the importance of having fun and being surrounded by good people.
As a value investor, I agree with many of the points that Buffett and Munger make.
I believe that it is important to invest in businesses that have a long-term competitive advantage and that are managed by capable people. I also believe that it is important to be patient and to avoid chasing after hot stocks.
One of the things that I appreciate about Buffett and Munger is their willingness to share their mistakes. They talk about the businesses that they have invested in that have not turned out well. This is important because it shows that even the best investors make mistakes. It also shows that it is possible to learn from your mistakes and to become a better investor.
Overall, I found this talk to be very informative and insightful. It provides a valuable glimpse into the minds of two of the most successful investors of all time.
Here are some specific points from the talk that I found to be particularly relevant to value investing:
- The importance of understanding the future of the business.
Buffett and Munger emphasize the importance of understanding the future of the business before investing in it. They say that you should be able to “see what the future will look like 5 or 10 or 15 years hence.” This is a key principle of value investing, as it allows you to identify businesses that are likely to be successful in the long term.
- The importance of staying within your limitations.
Buffett and Munger also talk about the importance of staying within your limitations. They say that you should not invest in businesses that you do not understand. This is another important principle of value investing, as it helps you to avoid making mistakes.
- The importance of being patient.
Buffett and Munger emphasize the importance of being patient when investing. They say that it is important to “keep putting one foot in front of the other.” This is a key lesson for all investors, as it reminds us that we should not expect to get rich quick.
- The importance of having fun.
Buffett and Munger also talk about the importance of having fun when investing. They say that if you are not enjoying what you are doing, you are less likely to be successful. This is a valuable reminder that investing should be enjoyable, not stressful.
I believe that these principles are essential for successful value investing. By following these principles, you can increase your chances of finding and investing in great businesses.
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