Warren Buffett & Bill Gate part 2

Warren Buffett & Bill Gate Part 1

Warren Buffett & Bill Gate

About Life : What is the most important thing you do every day?

B: Well, I do a lot of variety.
I think reading a lot, you know, and continuing to learn.  I'm in a lot of new areas in the Foundation, education, health.  And I love reading a lot.  So I think, you know, arming myself with that knowledge and sitting down with people who live the topic and brainstorming with them, that's what helps me back the right people and make sure I know what's going on.  So I guess I'd say learning is what is the key thing.

What's the one thing that your MBA didn't prepare you for when you got out into the real world? 

W: Well, I was -- it prepared me very well, not the whole degree,
but specific professors prepared me very well for what I wanted to go into.  I knew I was interested in investing, like I say, from the time I was six or seven years of age.  So I was lucky that I found what turned me on early on.  And I had these two marvelous professors here at Columbia that just being around -- I had read all the stuff they had written.  So it wasn't I was acquiring lots of incremental knowledge but I was getting inspired.  They were terrific for me.  They treated me like a son.  They would take me out to dinner.  Ben Graham did the same thing for me.  So it gave me confidence in myself.  It just propelled me into a field I already love with a terrific tailwind from these professors that believed in me.  But let me add one point because -- to the MBA situation.  Right now, I would pay $100,000 for 10% of the future earnings of any of you.  So anybody that wants to see me after this is over --If that's true, you are a million-dollar asset right now, right, if 10% of you is worth 100,000?  You could improve -- many of you, and I certainly could have when I got out, just in terms of learning communication skills.  You know, it's not something that is taught.  I actually went to a Dale Carnegie course later on in terms of public speaking.  But if you improve your value 50% by having better communication skills, that's another $500,000 in terms of capital value.  See me after the class and I'll pay you 150-thousand.

Could you reflect on what role pure luck played in your success?

B:  Well, I was lucky in many ways.  I was lucky to be born with certain skills.  I was lucky to have parents that created an environment where they shared what they were working on and let me buy as many books as I wanted to.  And I was lucky in terms of the timing.  The invention of the microprocessor was something profound.  And it turned out only if you were kind of young and looking at that could you appreciate what it meant.  And then I had been obsessed with writing software.  It turned out that was the key missing thing that would allow the microprocessor to have this incredible impact.  So in timing and skill set, in some of the people I was lucky enough to meet, you know, meeting Warren and talking to him, learning from him, it is unusual to have so much luck in one life, I think.  But it's been a major factor in what I have been able to do.

You both knew early in your careers what you wanted to do in your life.  What advice do you have for those of us who are a little bit unclear?

B: Well, finding the thing that you are passionate about and that you are good at can sometimes take a period of years.  I think Warren and I were lucky we kind of ran into it.  I wasn't even sure it was software.  I was kind of obsessed with it but then it wasn't clear it could be a career.  When that happened, it was great.  I think most other people get into their 20s and have to try out some different experiences.  And some things will expose you to a lot of different businesses, a lot of different work opportunities.  And I think you can make your first few jobs optimized for getting that exposure.  And then when you want it, see the thing that you want to be fanatical about and just jump on to that.

W: First of all, I'd say marry the right person. And I'm serious about that. It will make more difference in your life.  It will change your aspiration, all kind of things.  It's enormously important who you marry.  Beyond that, I would say that do what you would do if you were in my position, where the money means nothing to you.  At 79, ... I work every day.  And it's what I want to do more than anything else in the world.  The closer you can come to that early on in your life, you know the more fun you're going to have in life and really the better you're going to do.  So don't be driven where you think the last dollar is presently or anything of that sort.  And then also go to work, if possible, for an organization or an individual that you admire.  I mean I offered to go to work for Ben Graham because there was nobody I admired more in the business than him.  I didn't care what he paid me.  When he finally did hire me in 1954, I moved from Omaha to New York and I didn't know what I was getting paid until I got my first paycheck.  But I knew I wanted to work for Ben Graham.  And I knew I would jump out of bed every morning and be excited about what I would do and I would go home at night smarter than I was in the morning.  Go to work at a job that turns you on and a person that turns you on and institution 

How would you recommend an individual investor who follows the Graham and Dodd philosophy to allocate their capital today?

W: Well, it depends whether they are going to be an active investor.  Graham distinguished between the defensive and the enterprising and that.  So if you are going to spend a lot of time on investment, you know I just advise looking at as many things as possible and you will find some bargains.  And when you find them, you have to act.  It doesn't -- it hasn't changed at all since I was here in 1950, 1951.  And it won't change the rest of my life.  You start turning pages.  When I got out of school, I turned every page in Moody's 10,000-some pages twice, looking for companies.  And you have to find them yourself.  The world isn't going to tell you about great deals.  You have to find them yourself.  And that takes a fair amount of time.  So if you are not going to do that, if you are just going to be a passive investor, then I just advise an index fund more consistently over a long period of time.   The one thing I will tell you is the worst investment you can have is cash.  Everybody is talking about cash being king and all that sort of thing.  Most of you don't look like you are overburdened with cash anyway.  Cash is going to become worth less over time.  But good businesses are going to become worth more over time.  And you don't want to pay too much for them so you have to have some discipline about what you pay.  But the thing to do is find a good business and stick with it. We always keep enough cash around so I feel very comfortable and don't worry about sleeping at night.  But it's not because I like cash as an investment.  Cash is a bad investment over time.  But you always want to have enough so that nobody else can determine your future essentially.  The worst -- the financial panic is behind us.  The economic spillout which came to some extent from that financial panic is still with us.  It will end.  I don't know if it will end tomorrow or next week or next month.  Or maybe a year.  But it won't go on forever.  And to sit around and try and pick the bottom, people were trying to do that last March and the bottom hadn't come in unemployment and the bottom hadn't come in business but the bottom had come in stocks.  Don't pass up something that's attractive today because you think you will find something way more attractive tomorrow.

The investment of alternative energy as for developing economy and getting it back on track.

B: Well, there are many, many ideas.  And there's enough that we can say most of them will turn out to be dead ends.  You know, the solar-thermal, solar-electric, nuclear is going to go through some of the revival and see if it can solve some of its cost challenges. As a country, we want to make sure all of those get lots of R&D and regulatory enablement because one of them is going to give us much cheaper power without causing any problem.  We don't know which one it is.  And we don't have quite as much R&D going into those things as I'd like to see.  We have quite a bit, but I think the government policies could drive for more.  But it is one of these areas that is somewhat faddish in nature.  When you have a lot of energy focusing on a field, the amount of money that goes in is very large.  And the overall return on capital is often quite large.  The car industry in its heyday was a disaster.  The airline industry, even the software industry because people don't remember all the non-Microsofts that don't exist until today.  When something is hot, you get kind of a bubble.  So energy, you're going to have to be a bit careful to make sure it's one that's really got its cost structure in line and it's not just being pushed along by subsidies and there will be scientific surprises.  So a very hot area, but not necessarily a good area for investment.

Warren, one thing you said years ago that's always stuck with me is you never know who is swimming naked until the tide goes out.  And that, of course, says maybe there's some value in knowing when it's going to be low tide.  It also says there's value in knowing context.  How do we develop -- how do we encourage business leaders who understand context and connect the dots?

W :  Well, I think they have learned a lot about that in the last year.  Some never learn, you know.  At Berkshire, we have actually 70-some managers.  I think most of them are a fair amount smarter than they were 15 months ago but they were plenty smart to go in.  But, you know, I think that what I learned from a Ben Graham, who came up here every Thursday afternoon.  He didn't need to do it, you know.  He donated whatever he got paid back to the school and all of that.  But having sound principles takes you through everything.  And the bedrock principles that really I learned from Graham and Dodd, I haven't had to do anything with them.  They take me through good periods.  They take me through bad periods.  In the end, I don't worry about them because I know they work.

What do you think is the most important character for a business leader to have?

B: Well, it's surprising that the fundamentals of business are pretty straightforward, you know.  You try to take more in income than you spend in cost.  That's a pretty straightforward subtraction.  But it's surprising in terms of projecting out into the years ahead that, you know, are we making the right investments, are we gaining on the competition, are we making it a little bit harder for people to replace what we're doing?  That kind of common sense, I guess you've got to develop it through experience.  And I think it's neat if you are young and you can see that in a small scale and be hands on with it because a lot of people who start with large businesses may have a hard time with it.  So, you know, the basics are pretty straightforward.  Learning how it works and doesn't work in a variety of industries, by reading a lot, I think that's something that comes with time and a business school is an intense period where you can get ahead of the game.

W: I send one message out every year and a half or two years.  They get one letter from me every couple of years.  And basically it says, run this business like it's the only business that your family can own for the next 100 years.  You can't sell it.  But every year don't measure it by the earnings in the quarter that year.  Measure it by whether the moat around that business, what gives it competitive advantage over time has widened or narrowed.  If you keep doing that for 100 years, it's going to work out very well.  Then I tell them basically if the reason for doing something is everybody else is doing it, it's not good enough.  If you have to use that as a reason, forget it.  You don't have a good reason for doing something.  Never use that.

QUESTION:  Mr. Buffett, Mr. Gates, it is absolutely fantastic having you here.  Thanks a lot.  My name is Kata Cafunka.  I am a second-year MBA student here at Columbia.  Actually, my question is really related to what you were asking.  Many of us and many people in general aspire to become somebody like you.  But actually only a few people got that height, right?  So what do you think were the major qualities that you have that distinguish you from the majority?

W: It's always interesting when Bill and I appear together, they don't figure they can do what Bill does, but they know they can do what I do. We did both have a passion.  We were doing what we did because we loved it.  We weren't doing it to get rich.  We probably felt if we did it well, we would get rich.  But we'd have done it, you know, if somebody was slipping bread in under the door, you know, to keep us going.  And so I think that passion for it is enormously important.  I was lucky enough to have a couple of great teachers, particularly one great teacher.  I had a great teacher in life in my father.  But I had another great teacher in terms of profession in terms of Ben Graham.  I was lucky enough to get the right foundation very early on.  And then basically I didn't listen to anybody else.  I just look in the mirror every morning and the mirror always agrees with me.  And I go out and do what I believe I should be doing.  And I'm not influenced by what other people think.