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Warren Buffett and Charlie Munger on why you should build culture from scratch rather than try to change it: An audience member explains that he's just joined a new organisation, and for him to succeed there, the culture needs to change. He asks Buffett and Munger how to change the culture of an existing organisation, and how to build a strong, unique culture if you're starting fresh. Buffett doesn't hesitate on which is easier: "Well I think it's a lot easier to build a new organization around the culture than it is to change the culture of an existing organization and it is really tough." He uses Berkshire itself as the example. The culture there is now so deeply embedded that it has become self-protecting: "It's so ingrained in all our managers, our owners, everything about the place is designed in effect to reinforce a culture and for anybody to come in and try and change it very much, I think the culture would basically reject it." But Buffett is candid that Berkshire's strong culture wasn't built quickly, or against resistance. He had something most people don't: a blank slate and decades to work with. "That was the luxury of time I've had with Berkshire; it goes back to 1965 and there really wasn't much of anything there except some textile mills, so I didn't have to fight anything." Rather than forcing change, he added companies that fit and let belief accumulate over time: "As we added companies they became complimentary and they bought into something that they felt good about, but it took decades." Then comes the admission that gives the whole answer its weight. Buffett has tried to change an existing culture, and graded himself honestly on the result: "At Salomon, I attempted to change culture in some respects and I would not grade myself A+ in terms of the result." Munger is even blunter, and funnier, about the difficulty. He's quietly flattered the questioner believes they can pull off what he never could: "Well I'm quite flattered that a man would say that he's in a new place where he can't succeed unless he changes the culture and he wants us to tell him how to change the culture. In your position, my failure rate has been 100%."
Black Edge31,063 Aufrufe • vor 1 Tag
Risk management keeps you alive, but risk taking is what makes you rich
Black Edge336,406 Aufrufe • vor 24 Tagen
A day in the life of a Wall Street fixed income salesman, in his own words:
Black Edge117,248 Aufrufe • vor 9 Tagen
Warren Buffett on why he chose bonds over stocks during the financial crisis: A shareholder asked Buffett why, during the 2009 crisis, he leaned toward debt instruments rather than equity. Specifically, why he invested $300 million in Harley-Davidson at 15% interest instead of buying the stock at $12 (which later traded at $33). Buffett's answer reveals his core investment philosophy: "I don't know whether Harley-Davidson equity is worth 33 or 20 or 45. I just have no view on that. I kind of like a business where your customers tattoo your name on their chest or something, but figuring out the economic value of that, you know, I'm not sure even going on questioning those guys I'd learn much from them." But what he did know was enough: "I do know, or I thought I knew, and I think I'm right, that A: Harley-Davidson was not going out of business, and B: 15% was going to look pretty damned attractive." The lesson is about decision difficulty. Buffett deliberately chose the simpler question: "I knew enough to lend them money. I didn't know enough to buy the equity. And that's frequently the case... I'll go with a simple decision." In other words, he didn't need to predict whether the motorcycle market would shrink or margins would get squeezed. He only needed to answer one question: are they going to go broke or not? Charlie Munger added another dimension to the answer, pointing to their responsibility as fiduciaries: "After all, we are a fiduciary for a lot of people, including people with permanent injuries, etc. And to some extent we are constrained by how aggressively we buy stocks versus something else." Munger also offered a broader insight for investors: "Very often when you're looking at a distressed situation and buy the bonds, you should have bought the stock. So I think you're looking in a promising area." Buffett tied it back to a principle Ben Graham wrote about in 1934: "In the analysis of senior securities, the junior securities usually do better, but you may sleep better with the senior securities." And this is where his philosophy crystallises. Berkshire has $60 billion of insurance liabilities extending out 50 years or more: "We would never have all of our money in stocks. We might have very significant amounts, but we are running this place so that it can stand anything." The payoff for that conservatism came during the crisis itself: "A couple years ago we felt very good about where that philosophy left us. We actually could do things at a time when most people were paralyzed, and we'll keep running it that way."
Black Edge75,782 Aufrufe • vor 10 Tagen
Dave Ramsey to a 17-year-old with $5K invested and $1,500/month income: "Don't get too fancy." Sterling called into The Ramsey Show with what sounds like a dream problem for a teenager. He's 17. He owns a $1,000 car outright. He has $5,000 in a Roth IRA and is contributing $500 a month. He makes around $1,500 a month working as an HVAC cleaner while finishing high school full-time. His college tuition is already covered because his dad works at a university. His question: Should he open an index fund and start investing more aggressively, or save up for a house? Dave's answer pushed back against the instinct most young investors have, which is to maximize every dollar into the market as early as possible. "I would not try to get too fancy. I'm just going to park it as an insurance policy to make sure that if something goes sideways on the free part of the college, you can still finish." His reasoning came down to protecting the bigger asset, which isn't the portfolio. It's Sterling himself: "It's more important for you as especially sharp and as much of an ambition and much of a go-getter as you are to complete school and to complete it debt-free. That is more valuable than any amount of money you will ever make on a mutual fund in terms of the actual math. In other words, you will be more valuable by many times more than this money will make in a mutual fund." The investment, Dave said, was his secondary concern. The primary concern was making sure Sterling had a backup if the free tuition fell through. Worst case if it does? "You have, I don't know, 30 or 40 or $50,000 when you graduate. Oh, darn." Jade Warshaw built on the point with something young investors rarely hear: "Between 17 and 22 years old, there's a lot of transition. There's a lot of change. You have no clue kind of what life is going to bring you. And so, you're not going to not become wealthy if you start really kind of hardcore investing at 22 versus 17 if that makes sense." Her case for keeping cash accessible was practical. Moving for a job. Buying a ring. Covering the gap between graduation and a first paycheck. Liquidity buys optionality in the years where your life shape is still forming. The synthesis from both hosts: Investing early matters, but not at the expense of the runway you need to make good decisions in your highest-transition years. Once life settles after college, then go hardcore.
Black Edge105,783 Aufrufe • vor 15 Tagen
Risk management keeps you alive, but risk taking is what makes you rich
Black Edge23,632 Aufrufe • vor 3 Tagen
A caller asks Dave Ramsey what to do with required minimum distributions from his 401k that he doesn't need. His gut tells him to invest in gold. Dave's response is immediate and emphatic: "No, no, no, no, we don't put anything in gold." His reasoning starts with the math. "Gold is much more volatile. If you look at the price of gold on a chart, it's way up and way down, much more than the stock market is. It is a lot riskier, and it does not yield a good net return; the average annual rate of return on gold sucks." But Dave doesn't stop at performance. He wants to explain "why" gold underperforms. And this is where the conversation gets interesting. "Gold is a commodity; it's a rock that is yellow." He explains that commodities, whether barrels of oil, precious metals, or corn, are all traded 100% based on people's perception of shortage. If the perception is that there's too much of it, the price goes down. Compare that to a real investment: "An investment that creates revenue is a company that's running and making a profit, like Home Depot, Microsoft, or Apple. Their stock goes up because they are creating revenue. Gold, corn, and oil do not create revenue; they only trade based on scarcity and the psychology of the marketplace, greed and fear." In other words, when gold prices rise, the gold itself hasn't become more valuable. Dave puts it plainly: "If a whole bunch of people rush towards gold, it creates a shortage and the price goes up, but the gold did not become more valuable, just more people were chasing fewer bars." He extends the logic to income-producing real estate, which is priced based on the income it creates, not because it's a "golden rock." And he takes a swipe at diamonds while he's at it: "Diamonds are not necessarily a girl's best friend; that is a marketing slogan. Diamonds do not go up in value; there is no actual investment return on them." Then Dave addresses the headlines designed to scare people into gold, stories about the dollar being threatened by China, Russia, or Brazil: "You can't run to gold because there is nothing magical about it." His geopolitical take is sharp: "While Russia and Brazil are large landmasses, they are not large economies. Texas has a larger gross domestic production than Brazil; Texas is a bigger economy. These countries are going to have to do business with the '800-pound gorilla,' and we do business in dollars, so they are still going to be at our mercy." His advice to the caller? Pull the required distribution out of the 401k as the law demands, and move it into good mutual funds in the process.
Black Edge82,642 Aufrufe • vor 16 Tagen
Warren Buffett on the costly mistake investors make when sizing up a new deal: At a Berkshire Hathaway meeting, a shareholder named Mike Riiffken asks Buffett to explain why five recent transactions all carried such different terms. Goldman at 5 billion and 10% plus warrants. GE at 5 billion and 10% plus warrants. Dow Chemical at 3 billion and 8.5% convertible. Wrigley/Mars at 4.4 billion and 11.45%. Swiss Re at 2.7 billion and 12%. Why the different interest rates, and why warrants in only some cases? Buffett's answer comes down to one idea: every deal was done at a different time, under different conditions. As he puts it, "our opportunity costs were different in every single one of those five transactions." He's quick to admit he isn't perfect at this: "we could have done a much better, I could have done a much better job of allocating our money." "we not only don't have perfect foresight, sometimes it's pretty, it's pretty bad." Then he explains how he actually thinks when capital is on the table. He wasn't measuring the Swiss Re deal against the Dow Chemical deal committed a year earlier. He was only weighing what that money could do right now: "I was thinking about what else I could do with $2.7 billion dollars. And that, that's the way all the decisions are made." Every decision, he says, goes through "a mind that is looking at everything available that day," including how much cash they hold and what might come along next week or next month. Past deals, in his words, "don't really make any difference." That leads to the lesson every investor should sit with: "one of the errors people make in business, and sometimes it can be a huge error, is that they try and measure every deal against the best deal that they've ever made." The trap is subtle. Once you anchor to your greatest trade, you become determined never to accept anything less attractive again. And the result, Buffett warns, is that "they, in effect, sometimes they take themselves out of the game." His reframe: "The goal is not to make a better deal than you've ever made before; the goal is to make a satisfactory deal. It's the best deal that you can make at the time." He closes with no room for ambiguity: "There's no other rational way to make deals."
Black Edge15,922 Aufrufe • vor 4 Tagen
Charlie on Elon: confidence beats correctness, every single time
Black Edge79,123 Aufrufe • vor 28 Tagen
Warren Buffett on why he buys "terrible" businesses: A shareholder asked Buffett about Berkshire's exposure to the housing market through businesses like Shaw, Acme Brick, Johns Manville, and HomeServices, and what he sees coming over the next decade. Buffett didn't sugarcoat the present: "Well, the immediate situation is it's terrible. It's been flatlined now for a long time and it affects Shaw. It affects Acme Brick. It affects Johns Manville. Affects our home services operation and there has been no bounce at all." But then he revealed why that doesn't bother him. Berkshire had just bought the largest brick operation in Alabama, a state Buffett notes "uses more brick per capita than any state in the union," right in the middle of a market with virtually no buyers. "We wrote a check for cash and we like improving our position." His reasoning comes down to a simple long-term view: "This country over time will build houses at a rate that overall in total commensurate with household growth. And I think we're going to see plenty of household growth in future decades. And I think that our companies are well positioned to make significant money when we get to a normalized level of home building." Buffett admitted he had no idea when the turn would come. He thought it might happen by year end, but added: "I don't think anybody knows the answer on that." That uncertainty wasn't the point. The point was the price he paid for what the business would earn over decades. Charlie Munger cut to the heart of it: "Well, one advantage of buying these very cyclical businesses is a lot of people don't like them. And what difference does it make to us if the earnings average say 300 million a year, if it comes in in a very lumpy fashion? In the big scheme of things, what do we care if it's lumpy? As long as it's a good business and we have an advantage on that stuff. Nobody else was bidding for a brick plant in Alabama with no customers." Buffett then offered a comparison that reframes how to think about lumpy earnings entirely. See's Candy, he pointed out, loses money roughly eight months of the year: "Now it just so happens we know the seasonal pattern. So we don't worry in July that somehow Christmas won't come. We've got a couple thousand years on our side." His conclusion on cyclical businesses: "If you take the next 20 years, there will be three or four terrible years for residential housing and there'll be a lot of them that are pretty good and there'll be a few that are terrific. And I don't know the order in which they're going to appear, but I know if I can buy the assets cheap enough to participate in those 20 years that we'll do okay over that time."
Black Edge15,393 Aufrufe • vor 7 Tagen
