Berkshire Hathaway 2006 Annual Meeting Audience Question # 34

If you learn the lessons of certain investors in the past, you don’t need to worry about not having a contemporary example

Warren Buffett:

Number 7.

Audience Member:

Hello, Warren, Charlie. My name is Matt Peterson. I’m a shareholder from Seattle, Washington, and it is a true pleasure being here today. My question for you is simple.

The two of you have had a… many great opportunities throughout your years to work with many fine mentors and teachers.

And I’m wondering if you could provide us with a few names of some present-day mentors that we may look to for advice and our own ways to approach problems and situations, people similar to the Grahams and the Fishers of the present day?

Warren Buffett:

Well, the interesting thing, you don’t have to look at the present-day ones, necessarily.

I mean, if you wanted to look at great business careers, you could look at Tom Murphy or Don Keough on our board.

And you can learn everything you could learn about being an outstanding businessperson by just studying them. And you don’t have to study somebody that is 55 and currently in some executive position. Their lessons are timeless.

And there’s going to be a study… I think the Harvard Business… somebody sent it to me from the Harvard Business School, you know, on Cap Cities.

But there’s been others in the past. And, you know, if you learn the lessons of Tom Murphy, you don’t need to learn any other lessons in terms of business.

And I would say if you learn the lessons of certain investors in the past, you know, you don’t need to worry about a contemporary example.

Charlie?

Charlie Munger:

Well, I think it’s also true that Warren and I are not following very well the 40-year-old investment professionals. Isn’t that right?

Are you hiding something from me?

Warren Buffett:

I didn’t know there were any 40-year-olds.

I thought they’re all 25 now.

Charlie Munger:

Yeah.

Warren Buffett:

The… investing is not that… is really not complicated. I mean, the basic framework for it is simple. Now, then, you… you have to work at it some to find the best pockets of undervaluation, maybe, or something.

But you didn’t have to have a… you didn’t have to have a high IQ. You didn’t have to have lots of investment smarts to buy junk bonds in 2002 or even to do some of the stuff that was available when LTCM got in trouble.

You really had to have, sort of, the courage of your convictions. You had to have the willingness to do something when everybody else was petrified.

And… but that was true in 1974 when, you know, we were buying stocks at very, very low multiples of earnings. It wasn’t that anybody didn’t know that they were cheap.

They were just paralyzed for one reason or another. And, you know, that… the lesson of following logic rather than emotion, you know, is something that… it’s obvious. And some people have great trouble with it, and others have less trouble.

Charlie, can you give them any more?

Charlie Munger:

Well, I think this is different. When we were young, we had way less competition than you people have now.

There weren’t very many smart people in the investment management field. There really weren’t. And you should have seen the people who were in the bank trust departments.

I mean… so, now we’ve got armies of brilliant young people and all these private partnerships and all these proprietary desks in all the big investment banks. It’s a… and we’ve got a vast amount of talent in the investment management business.

So… and there’s a lot of competition. Now, if there were suddenly a crisis now, there would be 500 firms that would be studying it intensely, each having capital that they could commit on a hair trigger. In our day, we would frequently be all alone.

Warren Buffett:

But in 2002…

Charlie Munger:

We’d be the only buyer.

Warren Buffett:

But in 2002, Charlie, there were tons of people that had investment experience and high IQs and lots of money was around. It wasn’t a question about money, it’s just they were terrified of that particular arena.

Charlie Munger:

Well, when you have a huge convulsion, which is like a big fire in this auditorium right now, you know, you get a lot of weird behavior. And if you… and if you can…

Warren Buffett:

Particularly at the head table.

Charlie Munger:

… and if you can be wise when everybody else is going crazy, sure, there will still be opportunities. But that may give you long, dull stretches, if that’s your strategy.

Warren Buffett:

Three years ago… two… three years ago you could find a number of securities in Korea, population 50 million, advanced society, strong balance sheets, strong industry positions, at three or so times earnings. Now…

Charlie Munger:

But that took a convulsion to create that, a real… a big convulsion.

Warren Buffett:

Yeah. But the convulsion happened three or four years earlier…

Charlie Munger:

Yeah.

Warren Buffett:

… five years earlier. And plenty of smart people in Korea in the investment business, plenty of smart people here scouring… the information was all available.

You can go to the internet and get information about Korean companies that’s just as good as you get it from the SEC. And there they were, dozens of companies at very, very, very cheap prices. Now, where…

Charlie Munger:

It did…

Warren Buffett:

… were all these smart people with all this money…

Charlie Munger:

It did happen. But if I asked you to name 20 more like it, you would have great difficulty.

Warren Buffett:

Well, if I have 20 more like it, I’m not going to name them.

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