Lesson 1

Warren Buffett's Interview in India

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Executive Summary


Buffett's appearance to India is much as he expected - a booming economy. The plant he visited in Bangalore is expanding rapidly.


On the other hand, Buffett doesn't care about the innovation in the market. He buys businesses with a good future, management, and price. Berkshire Hathaway, like what Buffett has always been saying, is in the business of buying businesses.


Buffett gets interested in stock prices only when he's either buying or selling. If he were buying on stocks right now, he hopes it would go down, obviously. Most people like their stocks to go up. Of course, it's the other way around for Buffett. The lower they are, the better to buy.


The best companies to buy are companies with a moat.


If the investor cannot recognize the moat, he doesn’t need to die hard finding it. There are thousands and thousands of stocks! Even at times, Buffett, can't see whether a moat is there or not.


Everyday, the moat widens or narrows. When the cashier personnel smiles to the customers, the customers will probably smile back as well. It widens the moat. If they snarl and the customers are annoyed, it narrows the moat. Every single activity of the company changes the moat. What investors need are businesses with a very durable and wide moat.


Warren Buffett is an optimistic. For him, good things come and mistakes happen. Mistakes don’t bother him. Only, he doesn’t want a mistake that jeopardizes in a significant way anything that is important. He believes in people. Occasionally, they disappoint, but it is better to trust people than have a big shell around without letting anybody inside.


Buffett joked, "Those with an IQ of 160 should sell it to someone else because you don’t need it." The right temperament is what a good investor needs. He needs to detach himself from the views of others. He needs to look at the facts about a business or industry and evaluate it unaffected by what other people think. The 160s don’t beat the 130s. They don’t have the edge.


Buffett has given the gift to his children what his father gave to him - "I want you to do what you want to do. Don't do it just because it's what I'm doing." They may work at Berkshire if they wished to, and if not, they are free to choose whatever best maximizes their talents.


Family relationship is an advantage if the family works together brilliantly. If not, it's a disaster. One family sold their business because they didn't know who should be running it. They didn't want the family to be broken, so they sold it.


Buffett neither gets nervous nor sleepless at nights. He exclaimed, "Those are signs that you shouldn't be investing because you don't know what you're doing!"


Buffett wants written on his tombstone, "Here lies the oldest man that ever lived."

Full Transcript


Buffett is a man who values quality more than quantity.


When Buffett went to India, he said it is much as he expected - a booming economy. Particularly, the plant he visited in Bangalore is expanding rapidly. Aside from that, he met a lot of people of whom a few were invited to their annual meeting at Omaha.


The younger generation of India is much more competent compared to the previous one. In America, the younger generation gets what they need and might probably be an opposite of the Indians, but Buffett counters that.


Buffett has got his calendar full of seminars with 48 unviersties - most are from the United States. The university students remind him of the young Buffett - energetic, yet smarter than him at that age. Every time students see Buffett, they look forward to follow his footsteps.


Buffett doesn't know the market of India that well to express his opinion about what has been happening. He looks at individual companies; not countries. If he finds a business, he would always value it first before he would look at the price. Looking at the price first will have some impact on the valuation.


"Innovation Doesn't Matter" -What?


Buffett doesn't care about the innovation in the market. He wants to buy a piece of a business with a good future, management, and price. Berkshire Hathaway, like what Buffett has always been saying, is in the business of buying businesses. He buys and sells them in their entirely - they own around 70 businesses in full. Some companies, however, they own parts, like Coca Cola.


Buffett doen’t look at the price of the stock market, but he looks at the price of Berkshire once every 2 weeks. Looking at it doesn’t make a lot of difference though. He bought shares 40 years ago. If somebody said, "it’s a good time to sell Berkshire!", I say, "I never sold any!"


Buffett gets interested in stock prices only when he's either buying or selling. If he were buying on stocks right now, he hopes it would go down, obviously. He has billions of dollars left to buy, but he buys wisely. Most people like their stocks to go up. Of course, it's the other way around for Buffett. He forms his own independent judgement of what they're worth. The lower they are, the better to buy.


Who's the Knight in Shining Armor?


If the investor cannot recognize the moat, he doesn’t need to die hard finding it. There are thousands and thousands of stocks! Even at times, Buffett, can't see whether a moat is there or not.


A product selling since 1886 with sales increasing every year is a moat. Coca Cola sells 1.8 billion ounces of servings a day. What a moat! For Coke, the moat is partly the taste of the product itself, but it is also the association that enters the mind when someone hears the word "Coke".


The style is simple. Coca Cola wants to be around wherever the customers are experiencing moment of happiness. That overtime, will build something in the mind about the product. There are hundreds of other softdrinks, nothing specific comes into the mind when heard about them. With billions of people around the world having a favorable thing on a product is an advantage.


If a 16-year old boy buys a box of See's Candy, takes it to the girl he's falling for, presents it to her before they go the the movie, and the girl hugs him tight, that 16-year old boy would not try another product! That’s a moat.


Everyday, the moat widens or narrows. When the cashier personnel smiles to the customers, the customers will probably smile back as well. It widens the moat. If they snarl and the customers are annoyed, it narrows the moat. Every single activity of the company changes the moat. What investors need are businesses with a very durable and wide moat.


Buffett sends letters to the managers, but it's not always about the earnings per share. He discusses how to widen the moat. Any business now with a widening moat will make a lot of money over time.


Now if there is a moat, there are guardians who guard the moat. Great businesses are like an economic castle. Many people will try to take it away from you. The castle needs a knight to guard the moat. That knight is the manager who worries about protecting the castle every time. Widening the moat may be through the service, design, offers, or anything as long as it's widening. The knights are in charge of that.


Buffett tells his manager to pretend that the business they have now is the only business they will ever own in the next 100 years. They can't it, so they need to make it wotk. Everyday, they think of what will make a great business over a hundred years.


The "Grahamic" Exercise


Every person around each person has certain qualities. A friend is a friend to someone because he has qualities that the other person admires. Why do you like your friends? For Buffett, he likes generous people - those who think about others. All those qualities are attractive that's why friends became friends. The positive traits that you admire from your friends are acquirable.


There are also others who turn you off. They take credit for things they don’t do. If you could choose what kind of person you can be, why not be the person you admire and not the person you hate?


Here are a few tips on how to do it:


  • Write the qualities you like

  • Why do you like your friends?

  • List down the qualities of your friends

  • See what you need to have in yourself

  • Write the qualities you hate

  • Why do you hate them?

  • See what you need to change in yourself

  • It's enormously important to have people working in unity. They may be occasionally, but in the end, you will get the best from people. Developing good habits earlier is better. One can't just say, "I want to be wise in investing when I'm 60." No. it's not like that.


    Ben Graham was an organized person. Everybody liked him. It wasn’t because he was smart about investment, but because he was a kind of person. Nobody chooses how they are born, but anyone can choose what kind of human being they want to be. The same way as other people choose whether to associate with a certain person or not.


    Warren Buffett, like Ben Graham, is very disciplined. Who would reach this kind success without discipline? There is no question about it. He is a rationally disciplined human being whom you can trust without letting emotions get in the way. He's emotional and sensitive at a very personal level. One doesn't need to come at the expense of the other. Being emotional and rational can be done together. Many people create a great mistake of just choosing one. They can choose both! Buffett has a great joy of balancing both of them.


    "And the Credits Go to..."


    Buffett could have emerged in a different womb and not his mom's or not at all. His life could have been way different if he were born at some place else. He was wired in a right way for a capitalist system and had nothing to do with anything that he does with himself.


    Being a male in the United States at that time had a great advantage. Aside from that, he has been blessed beyond what he can think of. He has a fruitful marriage, a great profession, passionate teachers, and all other kinds of ways. He never looked back and thought about anything that could have been different.


    An optimist is what Warren Buffett is. He looks forward to tomorrow. Good things come and mistakes happen. Mistakes don’t bother him. Only, he doesn’t want a mistake that jeopardizes in a significant way anything that is important. He believes in people. Occasionally, they disappoint, but it is better to trust people than have a big shell around without letting anybody inside.


    You don’t look back. You look forward.


    Secrets Unleased


    Once Buffett offers something to someone, everyone simply jumps in the and wagon. He keeps sending signals around the world.


    Although Berkshire Hathaway has tried to invest quietly, they are legally required at certain points by the securities exchange and other authorities as well to disclose certain things at a certain time. That is the point when people find out what they are doing.


    IQ vs Temperament


    To be a good investor, a terrifc IQ isn't one of the requirements. Buffett joked, "Those with an IQ of 160 should sell it to someone else because you don’t need it." The right temperament is what a good investor needs. He needs to detach himself from the views of others. He needs to look at the facts about a business or industry and evalute it unaffected by what other people think. The 160s don’t beat the 130s. They don’t have the edge.


    Learn the value of businesses. It produces a lot of money. It may not be today or tomorrow, but it will reach success in the long run.


    The discipline to say no is more than 50% of the advantage. Never say, "I'm doing this because everybody else is doing it." Cancel that!


    Being compared to the rest of the market is challenging, because maintaining rationality and discipline is not easy. The trick is work for a company that understands the business and doesn't compare with competiitors. Instead, they look at the qualities.


    Why not IT?


    Buffett doesn't invest a lot in IT companies, because he doesn't know which would be the winner in 10 years. The chewing gum business would be good 10 years later - and Coca Cola. Not that Buffett does not like it; he just does not understand it very well. Like the car businesses, there were 2,000 brands in the United States back then, but now there are only 3. At that time, buffett did not know yet which one was to succeed.


    Something big and surprising could happen from time to time.


    Game of Swords


    Ajit Jain is far more valuable to Berkshire as he has contributed many billions of dollars to the value of the company. He never has raised that in any way by the slightest interest in terms of suggesting anything about compensation. He has been paid way less by berkshire than how he could have worked somewhere else.


    For Buffett, the world is a game of swords. It's fun putting his views against the rest of them. Some say he's wrong, while some say he's right. Both are challeging and intellectual.


    The Richest Investor Loaned


    Buffett took a loan to start his own business. He was not spoonfed as a kid, and he did not spoonfeed his children as well. They went to the same grade school and high school Warren's father went to. They lived very normal. They have not lived in some rare atmosphere at all. They are not the children of some rich person. If they wanted a business, they need to learn it their way just like Warren did.


    Buffett's children have gained a lot of friends from all kinds of social and economic situations. They know America as it is. They know who they are. They feel secured to have achieved what they should have. They have foundations of their own. if one of them has a good idea, the other one can pick it up if the first one doesn't like it.


    Buffett has given the gift to his children what his father gave to him - "I want you to do what you want to do. Don't do it just because it's what I'm doing." They may work at Bershire if they wished to, and if not, they are free to choose whatever best maximizes their talents.


    Family relationship is an advantage if the family works together brilliantly. If not, it's a disaster. One family sold their business because they didn't know who should be running it. They didn't want the family to be broken, so they sold it.


    Even then, Buffett's family eats 3 meals a day. They have a bed and they can eat what they want. That only uses up 1% of his wealth.


    Like a Snow Ball


    Continuing to do things that make sense is like a snow ball going downhill. It accumulates more snow as it rolls. Intelligence and energy are good. Wealth will build up. Don't force it.


    The money that Buffett gives to charity does not affect the money of Berkshire. He's just giving them stock certificates that represent ownership.


    A stock certificate says who gets the bounty from the investment that's taking place.


    Buffett had 98 hundred dollars when he got out of school and married soon. He had little money, but big ideas. As a young investor, he was having a good time 60 years ago same as today. The adventure is where the fun is. The money does not make him sad or happy. He doesn't worry where he'd sleep or what to eat. He just had enough.


    Your Enemy


    Volatility is the enemy. However, sometimes it sells 1/3 of X, 1/2 of X, etc. If an investor could buy that, he is very blessed. If investors get mad at it, they don't really understand the market.


    It's all about evaluating the economic potential of the business, but most of the answers aren't present yet. But again, sometimes, you run into it and then now you know the worth. That's life! Aesop said, "A bird in a hand is worth two in the bush."


    Sleepless Nights


    Buffett neither gets nervous nor sleepless at nights. He exclaimed, "Those are signs that you shouldn't be investing because you don't know what you're doing!"


    In 25 years, Buffett has changed very little. He is doing what he was doing back then. He's still working with more and more people whom he likes. Generally, he has gotten better. He wouldn't be doing this 25 years ago if he didn't want any of this. He would have done something else that would have given him fun and thrill.


    Buffett wants written on his tombstone, "Here lies the oldest man that ever lived."


    That just shows how much he loves life - his secret to success.