When I began my MBA, I watched this 1998 talk given by Warren Buffett to the students of the University of Florida. It was a guiding light. Now, I'm passing the video onto my wife Hannah, who begins her MBA career the week after next at MIT Sloan.
The speech touches on a number of points, and I've done my best to annotate, but the highlights for an incoming MBA student are:
PART 1 - Intro and the MBA Game
2:20 - The MBA Game - Which classmate will you invest in?
7:12 - Investing in Japan
8:25 - Cigar butt approach to investing, i.e. buying stocks valued below working capital
PART 2 - Wealth, leverage, and taking a job you love
0:10 - Long-Term Capital Management - Berkshire's bid for the imploding hedge fund
4:30 - On the founder's of LTM: "To make the money they did not have and did not need, they risked what they did have and did need. That is foolish."
4:44 - "If you risk something that is important to you for something that is unimportant to you, it just does not make any sense."
5:37 - On leverage - small upside, big downside
6:55 - "Betas don't tell you a damn thing about the risk of stock"
9:18 - "Work in jobs you love. You're out of you mind if you keep taking jobs you don't like because you think they look good on your resume."
9:50 - "Taking a job you don't like is like saving sex for old age."
PART 3 - The Moat
0:30 - Landing the job with Benjamin Graham; "I kept pestering him. I kept writing him and giving him ideas."
2:00 - "I like businesses I understand."
2:39 - "I want a business with a moat around. I want a very valuable castle in the middle. And I want the Duke in charge of the castle to be honest and hardworking and able."
4:15 - Kodak and how they lost "share of mind" to Fuji
5:15 - "I've got one message to the managers: Widen the moat."
7:00 - "I don't want to buy any stock that if they close the NY Stock Exchange tomorrow for five years I won't be happy owning it."
7:25 - "You're not buying a stock; you're buying a part ownership in a business."
7:56 - Buffett buys his first stock at 11 years old.
PART 4 - See's, Disney and Coke: Building and Protecting The Moat
0:49 - See's Candies purchase
3:45 - Disney
5:10 - Coca-Cola
PART 5 - Qualitative Analysis?
1:00 - "Almost every business we bought has taken 5 or 10 minutes, in terms of [quantitative] analysis...if you don't know enough to know about the business instantly, you won't know enough in a month or two months."
2:10 - Circle of competence
3:10 - The Silver Bullet question - To find the best company in a market, ask all the players which competitor they would eliminate if they had the chance.
4:00 - HH Brown acquisition
4:45 - Asian Crisis & Coca-Cola
PART 6 - Mistakes: Warren is an "airoholic"
0:24 - Coca-Cola IPO; if you bought 1 share and reinvested the dividends, it would be worth about $5M now.
2:40 - Mistakes - "The biggest mistakes have not been mistakes of commission, they've been mistakes of omission: where we knew enough about the business to do something, but for one reason or another we sat there sucking our thumbs."
3:20 - Fannie Mae
3:30 - Investing in airlines
4:20 - Solomon Brothers
4:35 - "One form of mistake is buying because you like the terms [of the security], when you don't like the business that well."
5:28 - "Never look back...you can only live life forward."
6:55 - Macro factors - "Figure out what is important and knowable. Macro is important, but it is not knowable....We have never bought a business or not bought a business because of any macro feeling of any kind."
PART 7- The value of NOT being on Wall Street
0:10 - Benefit of being an out-of-towner v. on Wall Street
1:00 - "Get one good idea a year, and then ride it to its full potential...and that is very hard to do in an environment where people are shouting prices back and forth every five minutes."
1:30 - Stock brokers
3:00 - Berkshire dividend? No chance.
4:10 - Berkshire HQ: 12 people, 3500 sq. ft.
6:35 - "We never buy something with a price target in mind."
8:08 - Arbitrage
PART 8 - Diversification
0:30 - Coco bean arbitrage
1:15 - Diversification: "If you are not a professional investor, than I believe in extreme diversification [and no trading]." In other words, buy and hold index funds. "Once you're in the business of evaluating business, then diversification is a terrible mistake. If you really know businesses, than you probably should not own more than six of them."
3:20 - Procter & Gamble
5:00 - McDonald's
6:10 - Gillette
7:30 - Utilities
PART 9 - Large Caps and REITS
0:10 - Large caps
2:30 - Real Estate Investment Trusts - If you have a large amount of capital, REITs are not attractive.
4:30 - Texas Pacific Land Trust
PART 10 -You're extremely lucky
0:00 - Down markets? "I prefer the market going down."
0:55 - Net buyers should want the price of stocks to go down.
1:45 - Chapter 8 and Chapter 20 in Graham's Intelligent Investor: "the two most important essays ever written on investing."
3:00 - "The Ovarian Lottery." Warren advocates for a John Rawls / Theory of Justice approach to social issues.
6:00 - If you could put your ball back (i.e. life), would you do it in exchange for 100 balls? You're in the luckiest 1% of the world.
7:20 - Only work with people you like.
I'm the Founder and CEO of Peak Support. This blog is my take on early-stage companies and innovation. Every so often, there may be a post about culture, networking, family -- you name it. After all, what is a blog if it isn't a tad bit unstructured.