(Question)
WARREN BUFFETT: Well, I think you should read everything you can.
I can tell you in my own case,
I think by the time I was
— well, I know by the time I was ten —
I’d read every book in the Omaha Public Library
that had anything to do with investing,
and many of them I’d read twice.
So I don’t think there’s anything like reading,
and not just as limited to investing at all.
But
you’ve just got to fill up your mind with
various competing thoughts and
sort them out as to
as to what
really makes sense over time.
And then once you’ve
done a lot of that, I think you have to jump in
the water, because
investing on paper
and doing — you know, and investing with real money,
you know, is like
the difference between reading a romance novel and doing something else.
There is nothing like actually
having a little experience in investing.
And you soon find out whether you like it.
If you like it, if it turns you on,
you know,
you’re probably going to do well on it.
And the earlier you start,
the better, in terms of reading.
But,
you know,
I read a book at age 19
that formed my framework for thinking about investments ever since.
I mean, what I’m doing today at 76
is running things through the same
thought pattern
that I got from a book I read when I was 19.
And
I read all the other books, too,
but
if you — and you have to read a lot of them
to know which ones really do jump out at you
and which ideas jump out at you over time.
So
I would say that
read and then, on a small scale in a way that can’t
hurt you financially, do some of it yourself.
Charlie?
CHARLIE MUNGER: Well, Sandy Gottesman, who is a
Berkshire director, runs a large and successful investment operation,
and you can tell what he thinks
causes people to learn to be good investors by
noticing his employment practices.
When a young man
comes to Sandy,
he asks a very simple question,
no matter how young the man is.
He says,
“What do you own and why do you own it?”
And if you haven’t been interested enough in the
subject to
have that involvement already, why,
he’d rather you go somewhere else.
WARREN BUFFETT: Yeah. It’s very —
that whole idea that you own a business,
you know, is vital to the investment process.
If you were going to buy a farm,
you’d say, I’m buying this 160-acre farm because
I expect that the farm will produce
120 bushels
an acre of corn or 45 bushels an acre of soybeans
and I can buy — you know,
you go through the whole process.
It’d be a quantitative
decision
and
it would be based on pretty solid stuff.
It would not be based on, you know,
what you saw on television that day.
It would not be based on, you know,
what your neighbor said to you or anything of the sort.
It’s the same thing with stocks.
I used to always recommend to my students that
they take a yellow pad like this
and if they’re buying
a hundred shares of General Motors at 30
and General Motors has whatever it has out, 600 million shares or a little less,
that they say,
“I’m going to buy the General Motors company for $18 billion,
and here’s why.”
And if they can’t give a good essay on that subject,
they’ve got no business buying 100 shares
or ten shares or one share
at $30 per share
because they are not subjecting it to business tests.
And to get in the habit of thinking that way,
you know, Sandy would have
followed it up with the questions,
based on how you answered the first two questions,
that made you defend
exactly
why you thought that business
was cheap at the price at which you are buying it.
And any other answer, you’d flunk.