2008 Berkshire Shareholder Q&A continued
8, the essence of compound interest is not able to build a big guy in a day or a week. Although many people in the market dream of becoming an overnight celebrity and becoming a millionaire. We never try master moves, we keep doing what I understand, sticking with it, and having fun in the process, then over time, at some point, he gets big.
It's not some magical thing, it's a lot of money put in a great idea and multiplied in a matter of weeks, which is certainly good, but not our approach.
We've been doing the same thing, and it's a way of moving forward automatically, not a formula that flies forward. We weren't unhappy about not running.
Also be wary that most small businesses, including large ones, end up in mediocrity or worse. It's a tough race, such a business, you have to find out early and avoid. Of course, you must also get used to this difficult game, nothing is to sit back and enjoy it, without constant attention and testing, which is also the charm and fun of the game.
9, what kind of company to invest in. First of all, the first question that must be asked is whether I know enough about the business so that the financial statements will give me useful information for me to judge what future financial statements will look like. Probably most of the time, the answer is no. I think the business I know, if I know enough about past statement performance, it will tell me enough about future financial performance that I can decide whether to buy or not.
It's not that I'm 105% or 95% value-oriented X, but if I can buy it at 40%X, I feel like I have a margin of safety. This margin of safety must be obvious, significant, not a 5% discount or a 10% discount, if accurate to that point, it means that it is not enough to provide redundant protection, which in turn will require your X calculation judgment to be particularly accurate, and the accurate and precise judgment of x will turn over the precise wrong way of thinking, it is easy to be interfered with by secondary contradictions and forget the main contradiction.
I must know the nature of the enterprise, otherwise the financial statements will not tell me anything, and I must have an understanding of the company's products to make a judgment. Generally, I don't see the management, mainly through looking at financial reports, business common sense, and some specific understanding of the industry.
One of the principles Munger likes, cash flooding, is that you have a lot of constant cash inflows. If there is a lot of profit, the result is to buy various production tools and equipment, which is not good business. For those who are in the wrong industry, even if the reporting is good or the management is good, it really doesn't make much sense.
10, compared with high profitability but slow mature growth, compared with high growth, the current profitability is lower. How to think. This is no different for Buffett, evaluating a variety of businesses with a focus on companies that are enduringly competitive. To be able to understand the business, then a reasonable price. There is an extension here, that is, they are all continuously competitive, because the weight of high growth is more in the future, so the error is easy to be large, but also pay attention to this feature, in particular, people often have expectations for the future, in the lively time will be highly expected, and once there is not enough expectations, it will become extremely pessimistic, so to calm themselves in this market sentiment, for the future cash flow value judgment do not follow the wave, so it may be better to deal with such fluctuations, in addition to the way is to run in reverse, The third is to control the greater margin of safety.
Buffett likes to build Berkshire with a group of businesses with good long-term economic characteristics.
11, the previous small funds, looking for mispricing, in 2008 this meeting said that a few years ago found South Korea cheap outrageous, so bought POCO Steel. Most of the opportunities in these mispricings are in small companies.
12. Talk about the Washington Post and Express in the 1970s. In the perspective of a long cycle, you will find that this is a mistake, and it is a mistake not to put half of your net worth in a good idea. Then how well the idea is defined, you'll really see, something without a doubt, that you won't see very often. For example, long-term capital management companies, they just see the inevitable thing of the return of the average spread, and the mistake is to use 25 times the leverage, if not, it is good. The Metropolis of 74 years, the price is only 1/3 to 1/4 of the net worth, there are so good managers, so that you can re-position (think of the current bank's net worth in half, 2022)
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