The first part focuses on the fact that ‘on average’ most people will be ‘net buyers’ of stocks and not ‘net sellers’ and therefore, we should be looking for depressed markets in order to be able to pick up bargains.

The second part focuses on how lucky Buffett has been in his life and how much he enjoys what he is doing. The speech ends with an extremely insightful take on society, the social system and social responsibility.

Enjoy the last part of the talk:

The questions Buffett asks himself are:

1. Can I understand the business?
2. Do I like/trust the people that are running it?
3. Is it selling at an attractive price?

Then the discussion turns to real estate investments and the fact that, if you can, it is always better to invest directly rather than through an intermediary like an Investment Trust.

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Tomorrow we will take a look at the last part of this MBA Talk.

• either you want to add ‘intensity’ to investing and are prepared to devote time, analysis and effort to really understand the securities you are studying (probably 1% off all investors) – then all you need is about 6 holdings. As Buffett states “few people get rich on their 7th best ideas”.

or

• you simply want to participate to the market growth, without to much effort and therefore, you should just own a low commission index fund (99% of all investors) – thereby participating in the growth of the US.

The next questions he answers are about investing in Procter & Gamble (PG), Coca-Cola (KO) and McDonald’s (MCD).

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• you need to think for yourself
• avoid being overstimulated
• concentrate on trying to find good ideas

You only really need to have one good idea per year with the conviction and strength to ride it all the way! Readers have to understand that investors make their money through inactivity, whilst Wall Street makes money through activity.

He then goes on to discuss why Berkshire has never and will continue not to pay a divided, the case for not splitting stock and various other issues like his track record in arbitrage deals.

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Buffett then goes on to talk about his mistakes and that despite having made more than one – notably US Air and the fact that he has an 0800 number to stop him from being an ‘air-aholic – he never looks back. Naturally, one should learn from mistakes but as he says: ‘it’s better to learn from mistakes others make’ and he doesn’t look back. There is so much to look forwards to that it would simply be wrong to live life looking backwards.

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Some people may think the above is too simplistic or at times even so obvious that it would be impossible to find real opportunities using these techniques. However, despite the fact that it may sound simple, it does not mean that it is easy: one example is Coca-Cola.

In this part of the Q&A Buffett revels one of key factors that will ensure Coca-Cola’s continued success (actually something that applies to all Colas): Cola has not taste memory – that means that it doesn’t cumulate on you like chocolate or other things.. This is a key factor why people continue to consume a high number of serving and why it has an extra edge on other foods and beverages: yes in essence quite simple but did you know this fact?

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Despite being a value investor and a disciple of Graham, Buffett made his fortune by understand that there was an extra piece of the puzzle. He started adding another variable to the idea of ‘margin of safety’ and that is, the overall and longterm potential of the brand which he summarized in Part 3 as share of mind not share of market.

In this part of his talk, he discusses his acquisition of See’s Candies , the brand, business model and longterm potential. He perfectly outlines the compounding value of margin of safety linked to share of mind. He than also goes on to further make his point by using Disney as another example in the DVD market.

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Then he tackles how investing is not simply following a ticker symbol but actually becoming part owner of a business and preferably a simple one. Simple does not mean easy but a company which we can predict long term and one that has a wide economic moat. Ideally, one should look for a ‘castle’ which is surrounded by a big ‘moat’; a castle that is ruled by a hard working, honest and able Duke who will make sure to keep that moat as efficient as possible!

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Here he mainly addresses the Long Term Capital Management issue where he had been rumored as a potential rescue buyer. He explains how, indeed, he had made a bid but what is really interesting, is his take on what actually happened. Despite stressing that all the people involved where not ‘bad people’ and that he was friends with most of them, he points out that what fascinated him was their behavior – and in general, why clever people do stupid things.

They key take-out is when he explains why he found LTCMs actions so foolish:

• to make money they didn’t have and didn’t need, they risked (and lost) money they did have and did need.

Ultimately, why risk something that is important to you for something that isn’t?

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• looking for three things in hiring people: integrity, intelligence and energy. And that if a person did not have the first two, the later two would kill him, because if he didn’t have integrity, then you want him dumb and lazy!
• investing in Japan and that despite money being cheap, it was difficult to find companies with good returns on equity.

Enjoy: