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my name is warren hayes i'm from chicago illinois i understand from various publications like outstanding investor digest that many of the best value investors are buying high quality multinational japanese companies that are trading below net net working capital value do you agree that these values exist in japan and would you consider the purchase of some of them well henry emerson who publishes the outstanding investors digest is here so i will i will give a tout on it i read the outstanding investors digest oid and it's a it's a very good publication uh uh and i have read some of those some of the commentary about about japanese securities we've looked at securities in all major markets and we certainly looked at them in in japan particularly uh in recent years when the nikkei has so underperformed uh the s p here we're quite a bit less enthused about those stocks as being any kind of obvious bargains than the people that that you read about in oid the returns on equity in most areas of japanese business returns on equity are very uh very low and it's extremely difficult to get rich by owning by being the owner of a business that earns a low return on equity you know we we always look at what a business does in terms of what it earns on capital we want to be in good businesses what we really want to be is in businesses that are going to be good businesses and better businesses 10 years from now and we want to buy them at a reasonable price but many years ago we gave up what labeled the cigar but approach to investing which is where you try and find a a really uh kind of pathetic company but it's all so cheap that you think there's one good free puff left in it and we used to pick up a lot of soggy cigar butts you know i mean i had a portfolio full of them uh and there were free puffs in them i mean i made money out of that but a it doesn't work with big money anyway and and and b we don't find many cigarette butts around that we would be attracted to the but they those are the companies that have low returns on equity and if you have a business that's earning five or six percent on equity and you hold it for a long time uh you are not going to do well in investing even if you buy it cheap to start with time is the enemy of the of the poor business and it's the it's the friend of the great business i mean if you have a business that's earning 20 or 25 on equity and it does that for a long time time is your friend but time is your enemy if you uh if you have your money in a low return business and uh you may be lucky enough to pick the exact moment when it gets taken over by someone else but uh we like to think when we buy a stock we're going to own it for a very long time and therefore we have to stay away from businesses that have low returns on equity charlie yeah it's not that much fun to uh buy a business where you really hope this sucker liquidates before it goes broke we've been in a few of those too right yeah charlie and i we we uh or at least i have i've owned stock in an ampersand room that don't know what an anthracite is street railway companies windmill manufacturers what other gems have we had jerome yeah berkshire was a mistake believe it or not i mean it we went into berkshire because it was cheap statistically just as as a a general investment back in the early 60s and it was a company that in the previous 10 years had earned less than nothing i mean it had a significant net loss over the previous 10 years it was selling well below working capital so it was a cigar button and uh it was i mean we could have done the things we've done subsequently from a neutral base rather than a negative base and and actually it would have worked out better but it's been a lot of fun
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