June 1, 2014

Warren Buffett - How to Turn $40 into $5 Million

There is more growth in the international market over time, but it will hurt Coca-Cola in the short term. This is a business that went public in 1919. Years later it was at a half price. Since then, there was also the Great Depression and WWII and sugar rationing. But despite all of that, if you had bought a single share of Coca-Cola in 1919 at $40 per share and reinvested the dividends, then it would be worth $5 million today.

In investing, the biggest mistakes are mistakes of ommision rather than mistakes of commission. There are opportunities that could be billion dollar mistakes, but they don't show up on the accounting report. Buying airlines is a risky business. It may be an attractive security in a flawed business. You might like the terms even though you don't like the business, and that can be a mistake.

It is better to learn from other people's mistakes as often as possible. But you shouldn't look back too much. You can only live life forward. You can live from your mistakes, but you will do a lot better to stick with things that you know and understand. There has got to be a reason that you decide to buy something. Not because the volume looks good on the chart.

Buffett doesn't think about the macro stuff. You have to focus on what is knowable. A lot of the macro stuff is unknowable. He has never bought a business because of any macro view. You don't want to pass up something intelligent based on some view of what the economy will do. A lot of what Greenspan and people like that say is just nonsense.

0:00 capita basis and twenty years from now it'll go on a lot faster internationally 0:05 than the US so I really like that market market better 0:08 base that there is more growth there all the time but it will hurt him in the 0:12 and initially deserting him in the short term right now and but that 0:16 that doesn't mean a thing mean that the I 0:19 cohort publican and in 1990 0:22 stocks over forty dollars a share it went back before that as a camera family 0:29 and they they they went back they bought it for two thousand bucks the whole 0:31 business 0:31 a is a camera back in the late 1880s a couple purchases 0:35 for now goes public in nineteen ninety forty dollars a share 0:38 one year later selling for nineteen dollars gone down fifty percent one year 0:43 I'm I think that some kinda disaster and you might think that 0:46 sugar prices increased in the bollard a revaluation all much as you can always 0:50 find a few reasons 0:52 why that wasn't the ideal moment to buy years later you to sing the Great 0:56 Depression and you to sing world war two nites in sugar rationing in using 0:59 thermonuclear weapons and the whole there's always a reason but in the end 1:03 if you bought one share 1:04 for 40 bucks and reinvest the dividends to be worth about $5 million now 1:08 and that factor so override just anything else I think you're right about 1:12 the business 1:13 in you make a lot of money and and the timing part of it is very 1:18 is a very tricky thing so I don't worry about 1:22 any given a that if I've got a wonderful business I 1:26 you know whether what does the next year something bizarre to 1:30 I you know their price controls a been in this country 1:34 various times and that's it's probably gonna rush to businesses I mean 1:37 I would be able to raise the price on December 26 the C's candy if we had 1:41 price controls and we have in this country but that doesn't make it allows 1:44 the business about that what happened to have price controls for 1:46 we had a nearly nearly seventy saw it 1:50 it the wonderful business yea 1:53 you can figure out what will happen you can't figure out when it will happen on 1:56 a focus too much on one you want to focus on what 1:59 that you're right about what you don't have to worry about one very much 2:02 as an area I missing back there any place where why should I am NOT 2:06 focusing all in one place I think that the summer him 2:24 you 2:26 house 2:28 questions about my business was like how much time you have yeah 2:33 wet thinking about the mistakes is that investments 2:36 at least for me and for my partner Charlie Munger the biggest mistakes and 2:40 not been mistakes I've 2:41 of comission they've been mistakes or omissions there are 2:44 where we know enough about the business to do something and for one reason or 2:48 another 2:49 we sat there sucking their thumbs so doing something 2:52 and so we've we've passed up things where we could make billions and 2:56 billions of dollars 2:57 from things we understood forget about things we are sad when I'm I gotta make 3:00 billions on Microsoft demeaning cuz I never understand Microsoft but I make 3:03 billions on health care stocks 3:05 and I should make it and I didn't you know one mine when 3:08 the clinton health care program was proposed and I all one in the tank I 3:13 we should make a ton of money out about I because I can understand I had to make 3:16 a 3:17 I should've been a time money out a Fannie Mae back in the mid-eighty's to 3:20 understand it I didn't do it 3:21 those are billion dollar mistakes are multi-billion dollar mistakes that 3:24 the generally accepted accounting principles don't pick up 3:28 out the mistakes you see the mistakes you see 3:32 we made a own way I made a mistake buying a 3:36 US Air prefer some years ago I mean at the I had a lot of money around I I make 3:40 mistakes when I get cash 3:41 chart going to go to a bar instead a hundred no higher on the office but I 3:45 I around the office and i got money in my pocket i'm dumb it happens every time 3:49 and and so I I bought this and nobody but maybe by 3:52 I now have a 800 number I call every time I got my stocking airline and they 3:57 talk me down I say and I say I'm 1 I'm in there all I can then the guy says hey 4:01 talking going up in our don't do anything rash tryna get over 4:05 out but I am but I i what you know 4:08 and I it look like we're gonna lose all your money on that 4:12 and we came very close to losing our money and and say we deserve those are 4:15 mine 4:16 and we bought it because it was an attractive security 4:19 but was an hour not an attractive business and at the same thing with 4:22 Solomon 4:23 about what an attractive security in a in a business that I would have bought 4:27 the equity and 4:28 Sol you can say that that's one former mistake 4:31 buying something cuz you like the terms when you don't like the business that 4:35 while 4:35 and I'm I'm I've done that in the past but we do it again I'll 4:39 the the bigger mistakes that were the ones that abomination 4:43 I I did Mac back 10 why the ten thousand bucks that but 4:46 two thousand dollars over and over thank our service station which I lost 4:50 so my opportunity cost about $1.6 billion right now I'm 4:54 a her fairly big mistake yeah 4:57 make you feel the harbour she goes down and because the cost too much 5:00 superstation goes down to him have backed by 20 percent opportunity cost 5:04 and but I will say this: you talk about learning from mistakes 5:09 I really believe better learn from other people's mistakes as much as possible 5:12 but 5:12 what we don't spend any time looking back 5:16 at Berkshire at I got a partner Charlie Munger 5:19 women pal for forty years never had an argument wat disagree on things a lot 5:23 but we believe but we don't live argument about and 5:26 we never look back way just and we just for you so much look forward to that 5:30 there's just no sense 5:31 thinking about what we might a.m. the it just doesn't make any difference 5:34 I'm you you got only reply forward and you can learn something 5:39 perhaps from the mistakes but the the big thing to do is stick with 5:43 the businesses you understand and that so if there's a generic mistake I've 5:48 getting outside of your circle compliments and you know 5:51 buying something to somebody get shot or something of the sort in in an area not 5:55 knowing about 5:56 I mean that you should learn something from that which is that you stay with 5:59 what you can't figure out yourself 6:00 me you really want your decision-making to be 6:04 by looking in the mirror and saying yourself I'm by otter shares a general 6:09 motors at fifty-five because 6:11 and militia responsibility if you're buying them there's gotta be a reason 6:15 and he can state the reason should buy it because I talk about a cocktail party 6:20 not good enough I'm it just it's gotta be something 6:23 you know can't be because the the volume in the chart looks good on a grinning 6:26 like a 6:27 gotta be reviewed by the business and 6:30 we that we stick to pretty 6:33 recovery that's 1 like Ben Graham talking yup 6:42 way 6:44 are 6:45 right 6:46 well 6:47 where r 6:50 question about what's gonna happen interest rates we're gonna rock I don't 6:53 think about the macro stuff 6:54 and I I just done important it what you really want to go on investments 6:59 this figure out what important and Noble it was unimportant 7:03 unknowable your you forget about it what you talk about is important but in my 7:06 view it's not normal 7:08 understand overhaul aznar normal or wrigley here 7:11 eastman-kodak track I mean you can understand those business that's normal 7:15 and who even on weather turns out to be important 7:19 depends on where your valuation William the current price and all that 7:23 but we have never either bought a business or not bought a business 7:28 because I've any macro feeling have any kind we don't read 7:31 things about him projections about interest rates for business running like 7:35 that because it doesn't make any difference 7:36 I mean let's say in 1972 when we watch sees candy 7:39 I think maybe next input on the price controls a little bit later let's say we 7:44 think that but so what way to miss the chance to buy something for $25 million 7:47 turning sixty million pre-tax now I'm 7:49 with we don't walk to pass up chance to do something intelligent 7:53 because I have some protection about something that were no good idea anyway 7:57 so 7:57 but we just don't we don't read or listen to or do anything 8:00 in relation to the macro factors at all searle 8:03 and the typical investment counseling organization goes out to you though they 8:06 have bring out their economist at runtime of his big macro picture and 8:10 then they start working from there on da 8:11 in our view that's nonsense have to I and if 8:15 you know alan greenspan was on one side in me and bob rubin on their side 8:18 they're both whisper in my ear exactly what they're going to do the next 12 8:21 months 8:21 will make any difference to me and my paper executive jet her generation germs 8:25 or anything else I do 8:26 yeah

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