Questions and answers between Buffet and students

BruceKovner

Q: What is your career advice?
　　A: If you want to make a lot of money go to Wall Street. More importantly though, do what you would do for free, having passion for what you do is the most important thing. I love what I do; I'm not even that busy. I got a total of five phone calls all day yesterday and one of them was a wrong number. Ms. B from NFM had passion, that's why she was successful. A few months ago I was talking to another MBA student, a very talented man, about 30 years old from a great school with a great resume. I asked him what he wanted to do for his career, and he replied that he wanted to go into a particular field, but thought he should work for McKinsey for a few years first to add to his resume. To me that's like saving sex for your old age. It makes no sense.
　　对于一个职业的热爱能带来人的潜力释放，工作，不是单纯为了生活，终极目的是为了自由！
　　Q: In many of your letters you speak about the importance of looking through the windshield and not the rearview mirror. What issues do you think people today are mistakenly looking at through the rearview mirror?
　　A: Investors are always looking for the holy grail, the next great idea that will carry performance and pension returns for the several years. Right now its 'alternative investments' - private equity, hedge funds, the assets that have outperformed public equities for the past five years since the tech bubble burst. There's so much money chasing these ideas now that the returns in the future will probably not be as good. At some point, public equities will become good investments again and fewer people will be looking at them.
　　At Berkshire, we look at a lot of "super-cat" (super catastrophe) insurance business that few firms will write. The challenge is determining when there's a paradigm shift, when the future will no longer look like the past. It's probable that the next hundred years of hurricane activity will not look like the past hundred years. Another example, we write a lot of D and O insurance, Directors and Officers liability. Post Enron, I feel strongly that juries will award much harsher penalties to victims of corporate fraud, etc. than they would have five years ago before the average juror watched hours of news stories about all the scandals. There's no model that can quantify that added risk, but it's a risk that won't be captured looking at historical data.
　　
　　Q: In one of your letters to shareholders you reference Byron Trott grudgingly as "an investment banker who earns his fee". What do you feel Wall St. does well and doesn't do well?
　　A: Wall St. makes money well. Per incremental unit of energy and IQ, you will make more money on Wall St. than anywhere else. Wall St. is very good at selling things and at auctions, they're good if you're selling a business. On the other hand, there are so many products that Wall St. has created and not all of them are good. There's a pervasive sense of 'if you don't do it someone else will'. There's an HBO movie coming out in October called Last Best Chance, it's about a nuclear crisis precipitated by a Russian soldier who is bribed by terrorists stealing a weapon. He almost didn't go through with it but they told him 'if you don't do it someone else will, so you may as well be the one to get the money'. This type of thinking has gotten people into trouble, like CEOs managing earnings. In 1985 a Cleveland firm, Scott & Fetzer [a conglomerate that included World Book encyclopedias] was selling their business, First Boston was their advisor and they sent pitches to twenty buyers without anyone biting. Berkshire didn't get a pitch, but I sent the seller, Mr. [Ralph] Schey, a letter saying we were interested and did the deal. Since First Boston was due a fee from any transaction, at a closing dinner they offered Charlie [Munger] their pitch book with pages of analysis, Charlie replied 'no thanks'. We only buy companies where the seller cares about where the business goes.
　　Q: How will the expensing of stock options affect entrepreneurship and small business?
　　A: Not much at all. Berkshire has never used options as compensation in our companies. At The Pampered Chef [a Berkshire acquired cooking utensil company], our employees value travel awards as a kind of extra compensation. Often the recipients of stock options don't place the same value on them as the giver does, or should. In the 90's when we were involved with Salomon Brothers instead of granting stock options to employees I offered to sell them options at 80% of their present value. They turned it down.
　　管理层激励的方法：直接和可度量性。
　　Q: Do you think oil is fairly priced given emerging market growth?
　　A: It's fairly priced given today's information. In 2004 when oil was at $35/barrel, the 2012 future was at $27. Today the forward curve is flat, the market thinks these prices are here to stay. There are currently 500,000 oil producing wells in the U.S., there isn't any more domestic oil left undiscovered. It takes about one hour of pumping out of a U.S. well to produce enough crude to make enough gasoline to fill the typical 20-gallon gas tank, which takes about a minute to fill up.
　　[The format was one question per person. At this point a student prefaced his question by stating it was a two-part question, here is Mr. Buffett's reply]
　　There was an older couple I knew, and they were what you would call romantically challenged. One night they sat down for an intimate dinner with candles and wine, and the wife felt stirrings she hadn't felt in a long time. She suggested to her husband that they go upstairs and make love. He replied 'I can do one or the other but not both.' That's sort of how I think about two-part questions.
　　Q: What is your view on the leverage in the economy?
　　A: We are currently an enormous debtor to the rest of the world. The danger is that our children and their children will not want to pay this debt, or said another way, will reject the costs that servicing this debt will impose on society. Let's say that during the Revolutionary War, the colonists were offered a choice: instead of fighting a bloody war that will cost thousands of lives, you can simply agree to pay King George 5% of total national income for perpetuity in exchange for full independence and political freedom. Now to the colonists this would have been a great deal, potentially having their lives spared and gaining freedom for only 5%/year. Decades later their children may not think it's as good a deal but will still have heard stories from their parents and will probably pay the fee. But eventually, three or four generations down the line, enough Americans will forget the original rationale for the deal and will in some way demand a change in terms - possibly go to war with England again to halt the payments. The danger today is that future generations of Americans will be unwilling to continue paying for today's spending and force political action with potentially negative consequences.
　　On housing, let's pretend that Omaha passed a law saying that nobody could move in or out, that the birthrate exactly equaled the deathrate, and the only new housing construction allowed was to replace damaged or destroyed buildings. In other words, a completely stable real estate supply and demand. Now let's say that, in order to increase wealth, someone came up with the idea that at the end of every year, everyone would simply sell the deed of his or her house to a neighbor, and every year the town would increase the price of every house by 20%. Residents could borrow money from outside of town to finance the transactions, and the increased paper wealth allowed them import more luxury goods from outside of Nebraska. As you can tell, no real value has been created in the Omaha economy.
　　Q: In your letters you speak frequently of the importance of not over-complicating things. What are your secrets to keeping your life simple?
　　A: When making investments, pretend in life you have a punch-card with only 20 boxes, and every time you make an investment you punch a slot. It will discipline you to only make investments you have extreme confidence in. Big money is made by obvious things. If using a discount rate of 8% vs. 10% is going to make or break an investment idea, it's probably not a good idea.
　　Back in 1951 Moody's published thick handbooks by industry of every stock in circulation. I went through all of them, thousands of pages, motivated by the hope that a great idea was just on the next page. I found companies like National American Insurance and Western Insurance Securities Company that nobody was paying attention to that were trading for far less than their intrinsic values. Last year we found a steel company on the Korean Stock Exchange that had no analyst coverage, no research, but was the most profitable steel company in the world.
　　这就是巴菲特的思路：好的投资目标是少的（打孔）。勤奋的精神让我感到惭愧，欣慰的是从深发展和唐钢的投资和巴菲特有非常相似之处。
　　Q: How does one become a successful general manager?
　　A: The first thing is that you have to know how you are wired. You have to pick the right environment. I can't imagine being responsible for hundreds of people and going to meetings all day, so I work with 17 other individuals. And, you have to have a passion for what you do.
　　对于工作必须要热爱。
　　Q: How do you identify extraordinary business ability?
　　A: Again, passion. When Ms. B's son was fighting in World War II, they exchanged letters every day about the furniture business. When Berkshire acquired a 90% stake in NFM in the 80's, Ms. B and I shook hands and signed a two-page agreement. There was no audit of the books, no due diligence, I trusted her integrity. When Wal-Mart sold me one of their operating units, their CFO came to my office, I gave him a price, he called Bentonville [Arkansas - Wal-Mart headquarters], and that day the deal was done. I know how Wal-Mart conducts business [very well], and when we took over the division, it was exactly how they described it. So integrity is a requirement. One of Berkshire's businesses is FlightSafety, the founder is dedicated to preventing deaths, he's not motivated by the next quarter's numbers.
　　Q: What is your view on education?
　　A: Bill Gates thinks we're [America] falling behind. [Mr. Buffett speaks with Bill Gates frequently]. I had a great advantage when I went to public school compared with kids today. When I was in school there were very few career opportunities for women, so an enormous number of very talented women became teachers, and I benefited from their instruction. Today there are many more career opportunities, and as a result the pool of potential teachers has shrunk.
　　Q: You've spoken about the importance of getting on the right train early in your career, how do you identify the right train?
　　A: Don't pay attention to beginning salaries. My first job with Benjamin Graham I accepted before I even knew what the salary was. Do what you're passionate about.
　　Q: Do you have any regrets?
　　A: I'm so lucky. It would be a mistake to look back and say that I should have turned right or left. If you hit a hole in one on every hole, you wouldn't play golf for very long. I believe that it pays to look forward.
　　关键不是不犯错误，而是从错误中不断学习提高，还有，感悟。
　　Q: After all your accomplishments, what legacy do you want to leave behind?
　　A: I think an example is the best thing you can leave behind. Obviously, you want to leave the right example. I mean, Wilt Chamberlain's tombstone may say, "At last, I sleep alone," and that's probably not the example you want to leave. If what I've done with Berkshire Hathaway - running a unique and independent company in true pursuit of shareholder value - persists and people learn from it to improve the way they invest and run their companies, that would be a fine legacy to leave.
　　Q: When you consider an acquisition, what are the first things you look for in a management team?
　　A: Well, what do you look for in a girl? Seriously, you look for the logical things - passion, an interest in running the business, honesty. Such as, do they love the business, or do they love the money? This is the first filter. I mean real passion; Mrs. B ran Nebraska Furniture Mart until she died at the age of 103 - that's passion. If temperament is the most important personal asset in managing money, in business, it's passion. Secondarily, if you've been doing it a while, you get to know how to do it. But obviously no management team is perfect, so you're often stuck making a judgment call. You don't want to wait forever to find the perfect team. Incidentally, a friend of mine spent twenty years looking for the perfect woman; unfortunately, when he found her he discovered that she was looking for the perfect man.
　　如何选择一个公司的CEO和团队？热爱、智慧和品德！
　　Q: I have worked in various technologies businesses, but I understand that you do not typically invest in the technology sector. Why is that? How do you view technology as an individual and as an investor?
　　A: Technology is clearly a boost to business productivity and a driver of better consumer products and the like, so as an individual I have a high appreciation for the power of technology. I have avoided technology sectors as an investor because in general I don't have a solid grasp of what differentiates many technology companies. I don't know how to spot durable competitive advantage in technology. To get rich, you find businesses with durable competitive advantage and you don't overpay for them. Technology is based on change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy. To me, all technology sectors look like 7-foot hurdles.
　　关键是自己的能力圈范围，对于高科技企业的投资也是如此。变化是投资的大敌（不确定性）。
　　☆☆转发自嘎子博客