In a speech by Warren Buffett, a student asked some hardball questions that implied that Warren Buffett may be losing his touch. Warren responded showing that he is as sharp and “on it” as ever. Take a listen:
Transcription:
My name is Che Lee and I’m from China. I’m currently a graduate student in Georgetown.
My friend Dennis Joel, and I, we are both a very big fan of you and your friend, Charlie. And we read his book, which is very interesting. He had this whole system of credit criteria on how to evaluate a company. It’s all very confusing, but he said that Warren and I are always staying away from the industries.
We don’t know. So you have railways and Coca Cola, but now the world is changing. We are living in a new era. The business models are changing the B2C platforms. Everybody’s shopping online. Maybe in a few years, everyone is going to pay with their I-phones and bank of America. No longer issues, credit cards.
So nonprofit is a new model And yeah, there’s just so many things you don’t know about. We’ll take out a flip phone and show you, so he’s not going to be one. This is my new one. It’s going to take, it’s just turned into one Alexander Graham bell gave me So the question is the business models are changing. The world are changing. They’re the new technology. They’re changing everything. There’s no way you can just stay out of it and stay with the traditional now for the private investors, especially in the venture capital What would you think is the most important thing?
The key in evaluating a company it’s where I’m not asking about doing mediocre, not asking about being average, but about excellent. Remarkable. Just one thing.
The most important thing is to decide what is to be able to define which ones you can come to an intelligent decision on, and which ones are beyond your capacity to evaluate you. Don’t have to be right about thousands and thousands of companies. You only have to be right about a company. A couple.
I met bill gates on July 5th, 1991. We were in Seattle and bill said, you’ve got to have a computer. And I said, why? And he said he said, you can do your income tax on it. I said, I don’t have any income Berkshire doesn’t pay a dividend. He said you can keep track of your portfolio. I said, I only have one stock.
I said, he says, it’s going to change everything. And I said will it change? Whether people chew gum? And he said probably not. And I said we’ll change. What kind of gum they chew? And I said then I’ll stick the chewing gum and you stick to computers. I don’t have to understand all kinds of, but there’s all kinds of business.
I don’t understand. But there’s thousands of opportunities there. I did understand the bank of America, and and I’ll be able, I’m able to do that. I’m able to understand some given percentage, but Ted Williams wrote a book called the science of hitting and in the science of hitting, he’s got a diagram, shows him at the plate and he’s got the strike zone divided in the 77 squares each the size of a baseball.
And he said, If I only swing at pitches in my sweet zone, which he shows there and he has what his batting average would be, which is 400. If he had to swing at low outside pitches, but still in the strike zone, his average would be two 30. He said the most important thing in hitting is waiting for the right pitch.
Now he was at a disadvantage because of the count was Owen two or one and two or so on. Even if that ball was down where he was only going about 230 he had to swing at it in investing. There’s no called strikes. People can throw Microsoft at me and you name it any stock general motors and I don’t have to swing at, nobody’s going to call me out on call strikes.
I only get a strike call if I swing at a pitch and miss so I can wait there and look at thousands of companies day after day. And only when I see something I understand. And when I like the price at which is selling, then if I swing, if I hit it fine, if I miss it it’s a strike, but it’s an enormously advantageous.
And it’s a terrible mistake to think. You have to have an opinion on everything. You only have to have an opinion on a few things. In fact, I’ve told students if, when they got out of school, they got a punch card with 20 punches on it, and that’s all the investment decisions they got to make in their entire life.
They would get very rich because they would think very hard about each one and you don’t need 20 right decisions to get very rich four or five will probably do it over time. So I don’t worry too much about the things. I don’t understand it. If you understand some of these businesses that are coming along and can spot things on, if you can spot an Amazon, for example, it’s a tremendous accomplishment.
What Jeff Bezos has done. And I tip my hat to him. He’s a wonderful businessman and he’s a good guy too, but could I have anticipated that he would be the success and 10 others? Wouldn’t be, I’m not going to enough. But I don’t, fortunately I don’t have to, I don’t have to form an opinion on Amazon.
And I did form an opinion on the bank of America and I form an opinion on Coca-Cola. Coca Cola has been around since 1886, there’s 1.8 billion, 1.8 billion, eight ounce servings of Coca Cola products sold every day. Now, if you take one penny and get one penny extra that’s $18 million a day and 18 million times 365 is 7 billion, three less, 730 billion, or 6 billion, $570 million.
So annually 6 billion, $570 million from one penny. Do you think Coca-Cola is worth a penny more than, Joe’s Cola? I think so. So you know, and I’ve got about 127 years of history that would indicate it. So those are the kind of decisions I like to make. And you may have an entirely different field of expertise.
Then I would have probably much more up-to-date in terms of the kind of businesses that we’re seeing about. And you can get very rich if you just understand a few of them and understand their future. But fortunately, I don’t have to. If we go into Heinz, I look at people pouring ketchup on, hamburgers and potato.
I don’t think it’s going to change him. And and the nice thing about some products travel, some products don’t travel, candy bars, don’t travel well. If you look at the Cadbury bars in England, they don’t sell well here. And if you look at the Hershey bars here, they don’t sell as well someplace on soft drinks, travel and ketchup travels I like products that travel. Thank you. Thank you.