1. Buffett went through Moody's Bank and Finance Manual, about 1,000 pages TWICE. That's how he stumbled onto Western Insurance Security Company in Fort Scott, Kansas, a company with earnings of $20 and stock price of $16. He then went down to the insurance commission and got out the convention statements and read Best's. He did a lot of things first.
2.The most important quality is NOT IQ. You need a reasonable amount of intelligence, but the temperaments is 90% of it.
3. You shouldn't buy a stock, in my view, for any other reason other than the fact that you think it's selling for less than it's worth, considering all the factors about the business. You should write this out on a piece of paper before you buy a stock "I am buying 100 shares of General Motor at "X" and multiply that by the number of shares and therefore, General Motor is worth more than $32 billion" or whatever it multiplies out to because [fill in the reasons]. If you can't answer this question, you shouldn't buy the stock and if you can answer the question and you do it a few times, you'll make a lot of money.
4. A couple of fast tests about how good a business is. First question is "how long does the management have to think before they decide to raise prices?" You're looking at marvelous business when you look in the mirror and say"mirror, mirror on the wall, how much should I charge for coke this fall?" and the mirror replies, "more." That's a great business.
5. If you walk into a drug store, and you say "I'd like a Hershey bar" and the ma says " I don't have any Hershey bars, but I've got this unmarked chocolate bar, and it's a nickel cheaper than a Hershey bar" you just go across the street and buy a Hershey bar. That is a good business.
6. The ability to raise prices-the ability to differentiate yourself in a real way, and a real way means you can charge a different price-that makes a great business.
7. Buffett on the Daily Racing Form: It's like selling needles to addicts, basically.
8. Example: AT&T vs Thompson Newspapers: AT&T had $47 billion starting off with, related to plant investments in the telephone business, growing to $99 billion over an eight or nine year period. More and more money had to be tossed in, in order to make increased earnings, going from $2.2 billion to $5.6 billion. You can get more money from a savings account if you keep adding money to it every year. They were not getting paid commensurate with the amount of money that they had to shove into the pot. Whereas Lord Thompson (CEO of Thompson Newspapers), once he bought the paper in Council Bluffs, never put another dime in. He raised prices and raised earnings there every year without having to put more capital into the business.
9. I suggest that you look at the one that is not capital intensive. I took 25 years to figure that out, incidentally.
10. On Berkshire Hathasay's textile business: The thing was, they wouldn't give us another half a cent a yard because nobody had ever gone into a men's clothing store and asked for a pin striped suit with Hathaway lining. You just don't see that.
11. You really want something that if they don't have it in stock, you want to go across the street to get it.
12. When General Motors buys they call in all the steel companies and say "here's the best price we've got so far, and you've got to decide if you want to beat their price, or have your plant sit idle."
13. On failures on Wall Street: I would say that if you had to pick one thing that did it more than anything else, it's the mindless imitation of on'e peers that produced this result. Whatever the other guy did, the other 36 were like a bunch of lemmings in terms of the following. That's what's gotten all the big banks in trouble for the past 15 years. Every time somebody big does something dumb, other people can hardly wait to copy it.
14. I find this very useful when I write my annual report. I learn while I think when I write it out. Some of the things I think I find don't make any sense when I start trying to write them down and explain them to people. You ought to be able to explain why you're taking the job you are taking, why you're making the investment you are making, or whatever it may be. And if you can't stand applying pencil to paper, you'd better think it through some more.
15. Buying some company with enormous amounts of debt, that it's somewhat like driving a car down the road and placing a dagger on the steering wheel pointed at your heart. If you do that, you will be a better driver-that I can assure you. You will drive with unusual care. You also, someday, will hit a small pothole, or a piece of ice, and you will end up gasping. You will have fewer accidents, but when they come along, they'll be fatal.
16. I would suggest that the big successes I've met had a fair amount of Ben Franklin in them.
17. Life tends to snap you at your weakest link. I am looking for people that function very, very well. And that means not having any weak links. The biggest weak links in my experience are liquor and leverage.
18. If you say "I'm taking this job-I don't really like this job but in three years it will lead to this," forget it. Find one you like right now.
19. I would say that the most important thing in business, and investments, from our standpoint, is being able to accurately define your circle of competence.
20. The Wall Street Journal is my deal source. There are about 1,700 or 1,800 of America's companies that I'm generally familiar with-a good many of them. And every day they move around the prices of them. We read hundreds and hundreds of annual reports every year. I own 100 shares of everything.
21. The most important thing with me in evaluating a business is figuring out how bit the moat is around the business. I want to know how big the capital is on the inside and then i want to know how big the moat is around it.
Note: When evaluating a business, list out it's moat and how they make money and how they incur expenses.
22. If we were working with $25 million-so we could sort of look at the whole universe of stocks-I would guess that you could find 15-20 out of three or four thousand that you would find that were A) selling for substantially less than they're worth, and B) that the intrinsic value of the business was going to grow at a compound rate which was very satisfactory.
23. How do you figure out how much to charge your product?
24. Now my job as an investment analyst, or a business analyst, is to figure out where I may have some knowledge what that stream of cash will be over a period of time, and also where I don't know what the stream of cash will be.
25.If you can tell me what all of the cash in and cash out of a business will be, between now and judgment day, I can tell you, assuming I know the proper interest rate, what it's worth. It doesn't make any difference whether you sell yo-yo's, hula hoops, or computers.
26. I can understand Ike Friedman's jewelry store-and then I try to figure what that stream of cash, in and out, is going to be over a period of time, just like we did with See's Candies, and discounting that back at an appropriate rate, which would be the long-term Government rate. Then I try to but it a a price that is significantly lower.
27 On Disney's Mary Poppins: It's like having an oil well where all the oil seeps back in.
28. I read a lot of industry publications.I'll read Editor and Publisher, I'll read Broadcasting, I'll read Property Casualty Review. I'll read Jefferey Meyer's Beverage Digest, I'll read everything. And I own 100 shares of almost every stock I can think of just so I know I'll get all the reports. And I carry around prospectuses and proxy material. I spend 45 minutes a day with the Wall Street Journal.
29. I can do things that other companies can't do. I can arrange the transfer of some of the ownership of the business to another generation. I can promise them it won't get resold.
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