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problem is I bring nothing to that party and I'm probably going to get my head handed to me if I try to participate. So, it's not in the no-brainer category. It's not something where I have an edge. Of course, I do believe that it's transformational, but you know, I knew the internet was transformational.
We've known electricity is transformational. We've known the app store is transformational. But in investing you can do extremely well without understanding all these things. We go back to John Arriga you know doesn't understand any of these things or even Warren Buffett and and you know Apple is in the rear view they sold most of it.
Yeah they might have sold all of it by now but basically that was a one and done but basically yeah I think that we don't need to understand flavor of the day. We don't need to understand Nvidia. We don't need to understand AI. you know, uh, the world is chaotic. The future is never clear. Uh, some people spend their time trying to figure out the future and pricing it.
I say it's unclear and we abstract from that. So, you know, we just we just try to look at individual companies uh and figure out which ones will grow, which one will repay their loans and uh and uh deal on that basis. We call that bottom up, not top down. Well, you say it's overpriced. Uh I would say it's high priced.
Uh overpriced is a judgment call and you know you you you you you think about what you think something is worth. You compare how it's selling rel relative to that. Uh and then in my opinion that should determine whether or not you're aggressive or defensive. So uh I think we would agree that uh US stock valuations for example are on the high side uh relative to history.
that would uh tell me to be a little less aggressive than usual, a little more defensive, but not necessarily to get out. You know, getting out uh is is really a big step. Most of the time in my 55 years in this business, it's been a mistake. Um either you get out and it goes up or you get out and it goes down and you forget to get back in and it goes up without you.
So, uh, you know, it's just a matter of calibrating, in my opinion, your behavior between aggressiveness and defensiveness. When things are a little high, as they are, a little more defensive than usual. But this notion of risk on, risk off, in or out, buy or sell, that's too black and white, is not fitting for the world we live in.
A place like Berkshire Hathaway or even the Daily Journal, we've done better than average. And now there's a question. Why has that happened? Why has that happened? And the answer is pretty simple. We tried to do less. We never had the illusion we could just hire a bunch of bright young people and they would know more than anybody about canned soup and aerospace and utilities and so on and so on and so on.
We never had that dream. We never thought we could get really useful information on all subjects like Jen Kramer pretend pretends to have. And and we always realized that if we worked very hard, we could find a few things where we were right and that a few things were enough and that that was a reasonable expectation.
That is a very different way to approach the process. And if you would asked Warren Buffett the same thing that this investment counseling did, give me your best idea this year and you just followed Warren's best idea, you would find it worked beautifully. But he would trying to know the whole he would give you one or two stocks.
He had more limited ambitions. I had a grandfather who was very useful to me, my mother's grandfather. And he was a pioneer and he came out to Iowa with no money but youth and health and took it away from the Indians. He fought in the Blackhawk he was a captain in the Blackhawk wars and he he stayed there and he bought cheap land and he he was aggressive and intelligent and so forth.
Eventually he was the richest man in the town and owned the bank and and uh and highly regarded and a huge family and a very happy life. And and he had the attitude having come out to Iowa when the land was not much more than a dollar an acre and having stayed there until that black top soil created a modern rich civilization and some of the best land in the world.
His attitude was that in a favored life like his when you were located in the right place, you just got a few opportunities if you live to be above 90. And that the trick in coming out well was seizing a few opportunities that were your fair share that came along when they did. And he told that story over and over again to the grandchildren around him all summer.
And my mother, who had no interest in money, remembered the story and told it to me. But I'm not my mother's natural imitator. And I knew grandpa was right. And so I always knew from the very first when I was a little boy that the opportunities that were important that were going to come to me were few and that the trick was to prepare myself for seizing the few that came.
This is not the attitude they have at a big investment counseling thing. They think if they study a million things, they can know a million things. And that and of course the result is almost nobody can outperform an index. Whereas I sit here with my Daily Journal stock, my Berkshire Hathaway stock, my holdings in Leelu's Asian fund, my Costco stock, and of course I'm outperforming everybody and I'm 95 years old and I practically never have a transaction.
And the answer is I'm right and they're wrong. And that's why it's worked for me and not for them. And now the question is, do you want to be more like me or more like them? The the idea of diversification makes sense to a point. If you don't know what you're doing, you want the standard result and not be embarrassed.
Well, of course, you can widely diversify. They nobody's entitled to a lot of money for recognizing that because it's a truism. It's like knowing that two and two equals four. And but the investment professionals think they're helping you by arranging a diversification. An idiot could diversify a portfolio and or a computer for that matter.
And and but the whole trick of the game is to have have a few times when you know that something is better than average and invest only where you have that extra knowledge and then if you get just a few opportunities that's enough and what the hell you care you own three securities and JP Morgan Chase owns a hundred you know it's what's wrong with owning a few securities where always says, "If you lived in a growing town and you owned stock in three of the best enterprises in the town, isn't that diversified enough?" The answer is, "Of course it is.
They're all wonderful places." And that fortunes formula which got so famous, which was a formula to tell people how much to bet on each transaction if you had an edge. And of course, the bigger your edge, the more close the transaction was to a certain winner. the more you should bet. And of course, there's mathematics behind it.
But of course, it's true. It's perfectly possible to buy buy only one thing because the opportunity is so great and such a sinchange or only two or three. So the whole idea of diversification when you're looking for excellence is totally ridiculous. It doesn't work. It gives you an impossible task. What fun is it to do an impossible task over and over again?
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