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as Berkshire hathway heads into its annual shareholder meeting this weekend in Omaha shareholders are bound to be happy both classes of the company's Shares are up nearly 11% this year compared to just a 2% gain for the S&P 500 few investors in the world are as successful as Warren Buffett so author and investment analyst Jeremy Miller has compiled more than 30 letters Buffett wrote to his business partners in the 1950s and 60s and assembled this Timeless investment knowhow into a book Warren Buffett's ground rules and Jeremy Miller joins us now to discuss welcome Jeremy great to have you great to be here congrats on the book and you also have a market watch article out today about one of the principles that Warren Buffett holds dear you say we can all benefit from this and that is this is the principle of comp compound interest correct that's right that's right so it's interest upon interest it's really something that requires a long-term uh mindset it it doesn't really kick in for you know 5 to 10 years really but once it does it's the most powerful force in investing and and that's what Buffett would say and he's certainly known for having that long-term mindset he has one letter specifically about Market swings what were his thoughts about that he he writes our job is to pile up yearly advantages over the performance of the Dow without worrying too much about how the absolute results in a given year are a plus or minus he thinks that as long as he's beating the Dow even if he's down he's doing better than if he's on par with the Dow right that's right and and the analogy he uses is a duck floating on the pond so a duck doesn't get any credit for its altitude if the water level goes up and shouldn't get penalize if the water goes down the duck should be evaluated on how well it flaps its wings right right so Buffett wants to be judged on how he does relative to the market because in any given year you never know right and now in another letter he talks about risk and how he defines risk can you elaborate on that yeah I think it's a great uh way of thinking that he offers to investors because a lot of times people equate risk with quantitative measures beta or the amount of stock squiggles on a given day and that's not how he thinks about it at all he thinks risk is not knowing what you're doing if you don't understand the company that you're invested in when those inevitable drops in the market come you're apt to get scared out of your position that's why the average investor earns far less per year than you know the overall averages tend to give you right which is a good point because we know that he was a strong prop of of index funds correct I mean reading his will in your book made me think oh my goodness unless I'm investing in Berkshire hathway maybe I should just be in index funds right yeah well I think the the the big point is you know you can't get anything out of the market that you don't put into it in other words if you're not willing to do the work to look and invest in the individual companies or find the right manager for you then you really should just buy the index um but he is an active investor so for him and for others who are willing to put put the work in you know there's great benefits back to the point on compounding if you just get an extra couple points versus the the market a year over the long term that really adds up makes a big difference absolutely now what was his view on cheap stocks he has a letter on this as well so you know Buffett came out of Columbia went to work for Ben Graham he's really the best student of Ben's and he started as a real grite you know buying super cheap stocks statistical Bargains and through the partnership era you know this is 1956 to 1970 we really start to see his migration towards quality Compounders things like American Express Disney those are the kind of companies he was buying at the end very different than the ultra cheap what he would call cigar butts you know the one free puff left you know but it's free but did he but he obviously looked into these companies and knew they weren't cheap because of fundamental issues with the company correct well he looked at them and he saw that there was more value in the business than um than than what was uh reflected in the security price right right so it was a bad business but it was a price as an awful business so if he could just play the awful to bad yes he could make money but he'd have to move on from those it was kind of like a treadmill for him and all of these lessons still apply today right these are from letters that he wrote in the 50s and 60s but nothing's really changed that's right that's right you know that's why the intelligent investor remains you know a top 100 Business book you know and that's even older that's because the less in in the letters are are really principles based they're not tactics tactics change principles are sort of you know forever and speaking of principles how telling is it that Warren Buffett does not charge the 2 in20 fee structure that so many hedge funds do charge and that he has as much skin in the game as his investors I think it's a very Noble structure you know he's really made great efforts to align himself with his Partners he's always looked at U his investors his shareholders as his partners and you know by aligning his interests with theirs you know it goes back to the partnership era the first Partners were his aunt his brother-in-law um you know his college roommate so you know he was he treats his Partners like he treats his family absolutely Jer Jeremy Miller thank you so much for this insight into the Oracle of obaja we loved it thanks so much for that thank you
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