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This is a great way to sell investment advice, with a huge number of different categories. Many commissions, many advices , many actions. And, uh, and a lot of things that we just don't feel privileged enough to participate in. When we hear someone talk about any concepts, including country concepts or anything like that, we tend to think that they are probably better at selling than investing and it's just such an easy way out.
I mean, that's what people expect to hear when someone comes along and says that today we think you should pay attention to this or that around the world. The best thing to do is simply find a good business at an attractive price and buy it. Our experts really love Bolivia. And you say, "Well, you liked Sri Lanka last year ." And it's just...we do n't like it.
Yes. And we usually think it's nonsense, but... That's why we don't like it . We don't really start by looking for emerging markets or specific countries or anything like that. We can find things, you know, along the way, but it's not like Charlie and I are talking in the morning and saying this is a particularly good idea— to invest in Brazil, India, China, or whatever.
We've never, ever had this conversation , Charlie. No, no. And this simply won't happen. Uh, we do n't think that's our strength. And we know that our strength is not in this, and we believe that, probably, the strength of most people is not in this either. I mean, it sounds good, but I don't think it's the best way to look at investing.
If you told me that this was the only way we could invest , we would totally agree. We once owned a significant stake in PetroChina. We now have a stake in BYD. We have owned securities outside the United States and will continue to do so. But if you told us that we could only invest in the United States for the rest of our lives, we wouldn't consider it a big burden.
You mentioned that you are 85% a follower of Benjamin Graham and 15% Phil Fisher. And you also said that if you only had $1 million today, you could make a 50% profit. Since I am a young investor, this is my question to both of you. What was your investment strategy when you were still accumulating capital , compared to managing billions?
Did you focus on specific industries, small or large cap? Name etc. Thank you. Well, managing a million dollars is a completely different game than managing Berkshire Hathaway or a $20 billion or $50 billion fund. If Charlie and I had a million or a hundred thousand right now, we would probably be looking for some very small objects.
We would look for small differences in certain situations, because the opportunities exist, and periodically they are extraordinary. But we do n't think about it anymore, because our problem is how to manage the 12 or 14 billion that comes in every year. This means we have to look for very big deals and forget about what we did in our youth.
Charlie? Yes, I'm glad that this problem is behind me. He worked hard on this when... He should have done it again , right? Yes. Yes. We looked under a lot of rocks, and yes, it's true. I used to make big profits using funds earmarked for taxes. During the time I had money before paying taxes to the state, I often managed to earn enough to cover the tax.
But this only worked with small amounts and little-known cases. However, he didn't tell me how to do it. You always want to have the right to choose, not give it to others, but with life insurance, it's just the opposite. Actually, the mortgage business...I mean, if Charlie and I were in the savings and loan business.
The very idea of giving someone a 30-year mortgage, where if it's beneficial to you, they can break it tomorrow, and if it's beneficial to them—they hold it for 30 years. These are terrible tools. They are good for you if you are buying a house, and I recommend to everyone in this room to take out a 30- year mortgage because that is the best for housing.
Because if conditions become unfavorable and rates drop to 1%, you can refinance. And if rates go up to 6-7%, you might be able to buy back the debt for 70 cents on the dollar or something like that. So, life insurance companies have been doing this very, very, very actively for the last few decades, and many of them are paying the price for it, and some of them don't even realize what the problems are.
They're a bit like that guy in a knife fight, you know, when the other guy swings the knife at him and he says, "You didn't hit me." "And the other one replies, 'Well, wait until you try shaking your head.'" Well, that's a bit like the position some insurance companies are in right now, Charlie. Anything else you want to add, Charlie?
No, it's already pretty bleak. Okay, ninth station. I studied finance at university, couldn't understand Greek formulas, but now I can invest pretty well. My question to you is: in the past, you said that for 99% of investors, it's a good idea to just put your money in an index fund, leave it there, and not worry about it.
And for those 1% of investors, choose the five best stocks and invest a significant amount of money in them. I'm just curious about the strategy of buying the top 20 stocks in America, you know, Procter&Gamble, Coca-Cola , Johnson&Johnson, etc. Companies that have been around for centuries, or centuries, or decades, and just leave things as they are.
Do you think this will outperform the index fund in the long run? And I want to hear Charlie's opinion on this too. Well, it's a little unclear here whether you're talking about the 20 largest companies or the top 20. Different people may have different opinions about what these companies are. But I think the 20 you would choose would probably actually match the performance of the index fund.
Who knows for sure which ones will be the best? But the real difference that Graham wrote about in his book is the difference between someone who will spend a significant amount of time becoming an expert in the business, because stocks are a business, and someone who will be busy with another profession, will follow their own stocks, and will actually be successful in investing.
But the real problem is that they can tend to get carried away with stocks at the wrong time . Uh, you know, they, they, uh...really the idea of buying an index fund over time is not about buying stocks at the right time or the right stocks, but about avoiding buying at the wrong time or buying the wrong stocks.
So, if stocks perform well over time, you just need to avoid getting overly excited when other people are excited, or getting excited about certain industries when others are doing the same. Trying to act like a professional when you're not putting in the time and effort required to play at a professional level.
And if you are an amateur investor, there is nothing wrong with that, you simply have a very logical and profitable course of action — it is simply buying American businesses in a broadly diversified form and investing money over time. So I would say your group of 20 would probably match up to an index fund, and you would probably have as much success with that as you would with an index fund.
Charlie? Well, I have nothing to add, but I really think that knowing the limits of your own competence is very important. If you think you know a lot more than you actually do, you're just inviting a lot of trouble upon yourself. Yes, and this is also true outside of the investment sphere. This works especially well in marriage.
Would you like to give any more advice on this matter? If I'm in my 20s and starting a partnership, what advice would you give me on how to get people to invest before I have a track record of success as a solo investor? Well , you haven't convinced me. No, I...I think people should be pretty careful about investing money in other people, even if they have a history of success, by the way.
There are many performance metrics that mean nothing , but in general, I would advise any young person who wants to manage money and wants to attract it in the future to start creating an auditable success story as early as possible . I mean , that was far from the only reason, far from the only reason we hired Todd and Ted.
But we certainly looked at their track record, and we looked at the track record that both of them trusted and could understand, because we see a lot of tracks that we don't think mean anything. I mean, if you have, you know, a coin tossing competition, like I wrote about, you know, a few years ago, and you take 300, 10 million orangutans, and they flip the coin 10 times, you know, instead of having 300 million left, you're left with about 300,000 that all successfully flip the coin 10 times in a row.
And those orangutans will probably try to raise a lot of money to support them in future coin toss competitions, but it's our job, when we hire someone to manage the money, to find out whether they were lucky gamblers, whether they really know what they're doing. When you had a similar problem, did n't you raise about $100,000 from a loving family?
Yeah, well, I hope they continued to love me after they gave me the money. It was, well, it was very slow, and it was supposed to be very slow. But, as Charlie pointed out, some people probably thought I had organized a pyramid scheme. And others may not have thought so, but thought it was profitable for them to scare people because they were selling investments in Omas, but what about you?
To attract money, you must deserve it. And you must, over time, build a track record that backs it up. And then you have to be able to explain to people why this result is a product of sound thinking, and not just a consequence of following trends or luck. Charlie? You start today, and you are so-and-so years old.
How to raise money? Friends and family. Or people whose trust you have already earned in other ways. So it's hard to do when you're young, and that's why people start small. And only a few will succeed. This is also true. Some, many will be successful and make...I mean, you know, we had a hedge fund manager here.
And during this time, hedge fund managers probably made a very significant amount of money. As I mentioned, Todd and Ted, working on the " two and twenty" scheme, if they had put their money in a hole in the ground, would have made $120 million each this year. So, this is not exactly a scheme that you shouldn't think about at least a little before entering into it.
This arithmetic attracts , this arithmetic attracts a lot of the wrong people. Of course, we considered ourselves exceptions. Uh-huh. Yes.
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