Warren Buffett | Lecture | University Of North Carolina | 1996 | Summary and Q&A

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November 11, 2020
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Warren Buffett | Lecture | University Of North Carolina | 1996

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Summary

This interview with Warren Buffett provides insights into his investment philosophy and decision-making process. He emphasizes the importance of buying quality businesses at the right price and with the right people. Buffett also addresses the topic of stock market predictions and why he pays no attention to them. He shares stories of successful investments in businesses like Berkshire Hathaway, Coca-Cola, and See's Candies, as well as a mistake in the airline industry. Buffett also discusses the importance of investing in companies with strong franchise value and the trend of banking consolidation.

Questions & Answers

Q: Why does Warren Buffett believe in buying businesses that any idiot can run?

Warren Buffett believes in buying businesses that any idiot can run because sooner or later, someone less capable will actually be running it. By selecting businesses that can thrive even without exceptional management, Buffett can ensure long-term success.

Q: How did Warren Buffett find a suitable replacement to run Solomon Brothers when the top management had to resign?

When the top management at Solomon Brothers had to resign, Warren Buffett needed to find a suitable replacement quickly because of the company's significant leverage. He interviewed 12 candidates and chose someone who demonstrated qualities of character, such as being humble, trustworthy, and reliable. The selected candidate, Derek Mohne, proved to be an excellent choice, showing uncanny judgment and putting in long hours to handle the business operations.

Q: What analysis does Warren Buffett do when considering investing in companies like Rose Blumkin's Furniture Mart or Coca-Cola?

When considering investments like Rose Blumkin's Furniture Mart or Coca-Cola, Warren Buffett looks for simple, understandable businesses with durable products and universal appeal. He focuses on the long-term prospects of the business, the competence of management, and whether the price is reasonable in relation to future earnings. Buffett emphasizes the importance of having a circle of competence and understanding the business and industry before investing.

Q: When should you sell a great business according to Warren Buffett?

According to Warren Buffett, it is rare to sell a great business because the long-term economics of a great business will continue to be favorable. Selling a great business due to short-term factors or the price being high is usually a mistake. Buffett prefers to hold on to great businesses for the long term and only considers selling if the business's fundamental economics deteriorate.

Q: Who does Warren Buffett admire in business and politics?

In business, Warren Buffett admires CEOs like Tom Murphy (Cap Cities), Roberto Goizuega (Coca-Cola), and Don Keough (Coca-Cola). He also admires Bill Gates for his incredible achievements in business. In politics, Buffett does not specifically mention anyone, suggesting he may not have a particular admiration for any politicians.

Q: What prompted Warren Buffett to invest in US Air, given the cutthroat and opaque nature of the industry?

Warren Buffett's investment in US Air was largely due to temporary insanity, as he jokes. He acknowledges that the airline industry is tough, but he believes in the integrity and capabilities of the CEO, Seth Shulman. Buffett admits that investing in airlines is not his strong suit and has learned from this mistake.

Q: How does Warren Buffett approach investing and predicting the stock market?

Warren Buffett pays no attention to predicting the stock market. He believes that focusing on the long-term prospects of businesses is more important than predicting short-term market movements. Buffett compares investing in a company to buying the entire business, emphasizing that understanding the business's fundamentals and long-term prospects is crucial.

Q: What are Warren Buffett's thoughts on banking consolidation?

Warren Buffett believes that banking consolidation will continue in a big way. Many managers want to grow their banks, either intelligently or in other ways. He notes that the number of banks listed by size in publications influences managers to measure success by size rather than profitability. However, Buffett does not mention whether he personally invests in banks or believes in the industry's future prospects.

Q: How does Warren Buffett assess the franchise value of a company?

According to Warren Buffett, assessing the franchise value of a company requires evaluating factors such as brand strength, customer loyalty, and market dominance. For example, he highlights Coca-Cola's strong franchise value due to its well-known brand, global presence, and consistent per capita consumption growth. Buffett believes that investing in companies with a strong franchise value is crucial for long-term success.

Q: What advantage does Warren Buffett have at Berkshire Hathaway due to his mental flexibility?

Warren Buffett's mental flexibility allows him to allocate capital into different businesses as he sees fit. Unlike companies that are tied to a particular industry, Berkshire Hathaway is not constrained by a predetermined focus. This flexibility enables Buffett to move capital into businesses that make sense and drive growth.

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