Warren Buffett | Lecture | University Of Georgia | 2001 | Summary and Q&A

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November 11, 2020
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Warren Buffett | Lecture | University Of Georgia | 2001

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Summary

Warren Buffett, the renowned investor, visited a business school and shared his insights and wisdom. He discussed the importance of working for institutions or individuals that one admires, rather than focusing on short-term gains or prestigious resumes. Buffett emphasized the value of integrity, honesty, and generosity in achieving success. He also discussed the concept of intrinsic value and explained his investment philosophy. In addition, Buffett shared his biggest mistakes and the importance of learning from them.

Questions & Answers

Q: How does Warren Buffett define intrinsic value?

Intrinsic value, according to Buffett, is the number that represents the total cash that a business will generate over its lifespan, discounted by the appropriate interest rate. It is determined by understanding the future cash flows of the business and assessing the company's competitive position and economic characteristics. Buffett uses this concept to evaluate potential investments.

Q: Why does Warren Buffett focus on purchasing businesses with durable economic characteristics?

Buffett believes that the key to successful investing is to buy wonderful businesses at fair prices rather than fair businesses at wonderful prices. He highlights the importance of time and compounding in generating wealth. Wonderful businesses have the ability to generate increasing cash flows over time, while lousy businesses can stagnate or decline. Buffett's goal is to find businesses that will compound his investment over the long term.

Q: Can Warren Buffett predict which businesses will succeed in the future?

Buffett admits that he cannot predict which businesses will be successful in the future, particularly in rapidly changing industries like technology. He advises investors to stay within their circle of competence and only invest in businesses they understand. While the potential of certain industries may be exciting, if Buffett doesn't understand the economic characteristics of a business, he won't invest in it.

Q: What are some of Warren Buffett's biggest mistakes?

Buffett acknowledges several mistakes he has made in his investing career. One significant mistake was buying Berkshire Hathaway, a struggling textile mill, which turned out to be a poor investment. He also admits that he made a mistake by investing in the airline industry, particularly with U.S. Air, which resulted in losses. Additionally, Buffett regrets not investing in Fannie Mae when he had the opportunity, which would have been a profitable decision.

Q: What is Warren Buffett's approach to selling stocks?

Buffett's approach to selling stocks has evolved over time. In the past, when he had more investment ideas than available funds, he would sell stocks he liked the least to make room for new investments. However, due to the abundance of funds at Berkshire Hathaway's disposal, the company's current approach is to hold onto businesses and not sell, unless there are significant changes in management or the business's economic characteristics. Buffett wants his partners (shareholders) to have low expectations and believes in long-term partnerships rather than short-term gains.

Q: What is Warren Buffett's view on tax shelters?

Buffett distinguishes between legal tax benefits and illegal tax evasion. He acknowledges that there are legal ways for businesses to reduce their tax liability, such as participating in low-income housing tax credits. However, he condemns tax evasion and believes those engaging in such practices should face legal consequences. Buffett mentions that some insurance companies have reincorporated in Bermuda to save on taxes, but he emphasizes that Berkshire Hathaway would not consider such actions due to the additional requirements and restrictions.

Takeaways

Warren Buffett's visit to the business school provided valuable insights for the students. He emphasized the importance of choosing institutions or individuals admired by the individual as a career path rather than focusing solely on short-term gains or prestigious resumes. Buffett's investment philosophy revolves around understanding intrinsic value and investing in businesses with durable economic characteristics that will compound over time. He acknowledges his past mistakes and emphasizes the learning opportunities they provided. Buffett also emphasizes the importance of integrity, honesty, and generosity in achieving long-term success.

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