CHARLIE MUNGER: A lot.
(Laughter)
WARREN BUFFETT: Yeah, well.
We — I think
I would describe it as we try to stay away from the things,
to start with, that we don’t understand. And when I say don’t understand,
it isn’t that I don’t understand, you know, what a certain business does.
But
when I say understand, it means that I think I have a reasonably —
a reasonable fix on about
what the earning power and competitive position will look like in five or 10 years.
So I’ve got some notion of
how the industry will develop and where the company will stand within the industry.
Well, that eliminates a whole bunch of things.
And then, beyond that, if the price is crazy, even though I understand it,
that eliminates another bunch. So you get down to a very small universe,
and you get down to a particularly small universe when we’re working
with lots of money, as we are now.
But
we — well, I would say this: I can’t recall any time in the last
30 years, at least, that we’ve bought a new issue, have we, Charlie?
CHARLIE MUNGER: I can’t think of one.
WARREN BUFFETT: No. I mean, the idea, that somebody is bringing something to market today,
a seller who has a choice of when to come to market,
and that that security, where there’s going to be a lot of hoopla connected with it,
is going to be the single cheapest thing to buy
out of thousands and thousands and thousands of businesses in the world is nonsense,
you know.
CHARLIE MUNGER: And then when it carries a 7 percent commission, or higher.
It’s ridiculous.
WARREN BUFFETT: Yeah, it’s ridiculous.
So you know it can’t be the most attractive thing.
But people get excited about what’s coming and all that sort of thing.
But I will guarantee you
that
if you have thousands of opportunities among stocks all over the world
and most of them are not being promoted or being sold with
special commissions in them or something else,
and then some other security is coming to market that day,
when the seller picks the time to bring it,
as opposed to just this auction market operating otherwise,
you know, it just doesn’t make any sense
to spend five seconds thinking about new issues,
so we don’t think about them.
And
we also — you know, there’s industries we know
that may have a wonderful future, but we don’t have the faintest idea who the winners will be,
so we don’t think about those, either.
So there’s a whole lot of things we don’t think about.
And we have a — Charlie and I have a number of filters
that things have to get through very quickly
before we’re willing to think about them.
And
sometimes we’re thought of as rude —
probably Charlie is thought of that way a little more often than I am
— (laughter) —
sometimes we’re thought of as rude
because people will call us and they start explaining some idea to us,
and it just doesn’t make it through the first filter or two.
So we just — we think we’re saving their time if we just politely say, you know,
that we just have no interest, and we don’t want to have you finish the sentence.
(Laughter)
But we do that, don’t we, Charlie?
CHARLIE MUNGER: Yeah.
WARREN BUFFETT: We don’t have to do very many things that work.
I mean, that’s the beauty of this business.
You don’t have to be able, you know,
to spell 500 words or something to get to the end of the spelling bee and beat everybody else.
You just have to do one or two things every now and then that —
where you don’t make a big mistake and where every now and then one works out real well.
And the solution — you know, you’ll get a good result.
You can’t have a big disaster.
You just — that is what we try to avoid.
We do not ever want to lose a significant percentage of
Berkshire’s net worth, and so far we haven’t.
CHARLIE MUNGER: I think there are a couple little rules of thumb.
If it’s got a really large commission in it —
WARREN BUFFETT: Forget it.
CHARLIE MUNGER: — don’t read it.
Because the chance of somebody who is paying a very high commission
to give you a big advantage is very low.
And the
other thing that is,
I think, helpful in reverse, is —
as a place to look, looking at things that other smart people are buying.
That is not a crazy search method as a sorting device for opportunities to consider.
WARREN BUFFETT: Charlie knew me when,
I used to look at — I grabbed the Graham-Newman reports as fast as they would come out.
(Laughs) CHARLIE MUNGER: Yeah, sure.
WARREN BUFFETT: You know,
if Graham Newman was doing something,
it was certainly worth my time to look at it.
CHARLIE MUNGER: Warren has made a lot of people rich he doesn’t even know.
Just copied him.
WARREN BUFFETT: Don’t go into things with big commissions.