Warren Buffett

Warren Buffett

May 12, 2006

Chicago GSB Trip.

Dave Sokol was the "warm up act" - answered questions for about 30 minutes, then WB answered questions for around 2 hours. Took us to gorat's for steak.

General Notes:

* On July 5, 1991, WB met Bill Gates for the first time and asked him if you could only hire from one school, which one would it be? The answer was IIT. Spoke highly of Ajit Jain, an IIT alumni. Only person besides WB & CM to be listed in personnel risk when they issued class B shares.

* Indian Investmnet is "fashionable". Money follows fashion and results on Wall Street. The US mkt is around 16 trillion, represents 50% of all stocks. Talked aout Korea - companies trading at 2-3X earnings with good balance sheets. Better values in smaller markets. Capital Flows don't matter.

* ISCAR investment: got a letter last year. "if you don't want to put your business on the market like a piece of meat, we're the ones who get the call" got a letter - "in certain letters character and talent just jump off the page". Charlie met him and liked his character too. Seller didn't like the price (they never do) but took it.

* Jewelry owner salary 100,000 per year "I don't want to make more than you" Tha'ts the kind of people they hire

* When an entrepreneur has worked their whole life on a business painting - their fathers painted it, and they care, we're their only call. I tell them, "Your painting, your life's work can hang in the Metropolitan Museum, or you can sell it to a porn shop operator. He'll make the breasts a little bigger, and sooner or later a man in a trenchcoat will show up and buy it from him, change it some more and sell it to somebody else."

* Petro China

o Would be a 100 bn company in the us, selling for 35 bn in china

o Discount greater than the risk it should have reflected.

o Compared with Yukos, which was "statistically cheap" WB chose china over Russia. China would treat capitalists better

* Likes US markets - understands culture, intstitutions, and taxes.

* Shorting

o "A good way to lose sleep, but it's not sinful - it's not illegal, immoral, or fattening."

o There have been lots of shorts - companies run by frauds, "It's not hard to figure out" but it's run by a very good, full-time promoter. If he could make something worth x sell for 10x, who's to say he can't make it sell for 20x? Mentioned resorts international short story in some book on Wall Street (have to find out author's name)

o May 1901 NY Times article on the Northern Pacific Corner Morgan & 2 groups (the Schiffs) bought over 50% of the Northern Pacific Company (through shorts) and the rest of the market collapsed. There was a little box in the corner of the paper - a brewer in Newark died jumping into a bat of hot beer. He was short the stock, which went from 170 - 1000.

o Daniel Drews quote about shorting: He who sells what isn't his'n must buy it back or go to pris'n.

o You can make more money on the long side.

* Question: Time management

o Gates schedules everything, WEB schedules nothing.

o "I have set up my life to do what I like to do. We have 16 people downstairs, no committee meetings, no HR, because I don't like them. Designing a company is like painting a painting. If you like landscapes, why paint seascapes?"

o Mid-America - I don't need to think about it or be informed. I can go home, put on some sweatpants, and play bridge on the Internet (don't tell the shareholders)

o Churchill: we shape our houses and then they shape us

o If you gave me 2 choices in life: be the CEO of GE or deliver my old paper route, I'd take the paper route. It's more fun. I believe in enjoying yourself.

o Munger got out of HLS with now money, a wife and kids, and was working hard, billing $20/hour to clients. He said I'll sell myself the best hour of the day. His best hour was from 6-7AM.

* Account Deficit / Dollar

o Mostly repeated what he'd said in 2004 annual report.

o Peter Lynch Quote - pick a company that can be run like an idiot and still survive, b/c sooner or later it will be run like an idiot. USA is like that kind of company.

* Investing

o I look for a business I can understand

o "I'm afraid of change - I don't know who will win"

 Uranium in 1950's

 TV Sets

 Auto huge developments

 Originally 2000 auto companies - all of them failed

 Aircraft - net result of air travel been a huge loss. If there was a capitalist on the ground at Kitty Hawk, he should have shot them down.

 Simple things: chewing gum. Snickers has been the #1 candy bar in the US for 40 years. Other countries' candy bars don't sell here. The safety razor was invented 70 years ago, today 70% of the safety razors sold are from Gillette. Will probably be the case in 20 years.

o Investing Process

 Is this something where I can see reasonably well into the future?

 Is there a sustainable competitive advantage?

* Abnormal ROIC

 Is there able and honest management?

* Not geniuses

 Is the price interesting?

 What is in front of me -> think -> move.

* Larson-Juhl. Explained business (Custom wood frames, relationships with over 18,000 framers. People want frames that are really nice and they want them soon. Larson Juhl's sales staff calls on framers 4-5