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Hmm, I was wondering if you could explain your strategies, namely value investing, in terms of nurturing the next generation of investors . How will you teach this young group? This year, 49 people came to Omaha, mostly universities, a few colleges, uh. We conduct them in groups of six, and in the last class, another university joined us .
So, we had eight sessions, all-day sessions. And they asked me, sometimes, they asked, uh , what would I do if I ran a business school and taught investing. So I told them I would only have two courses. One would be about how to value a business. And the second would be about how to think about markets.
And , uh, there wouldn't be anything about modern portfolio theory, beta testing, efficient markets, or anything like that. We would have gotten rid of it in the first 10 minutes. They, uh... But if you know how to value a business, and you don't need to know how to value all the businesses on the New York Stock Exchange, I don't know, there's probably four or five thousand businesses, and a lot more on the Nasdaq.
You don't have to be right about 4,000 or 5,000. You don't have to be right about 400. You don't have to be right about 40. You just have to stay within your circle of competence, what you can understand, and look for what's selling for less than it's worth, from those that you can appreciate. And you can start with a fairly small set of competencies and learn more about the business as you go along, but you find out that there are a whole bunch of them that just don't lend themselves to being assessed, and you forget about them.
I think if accounting helps you with that , you need to understand accounting to know the language of business, but accounting also has huge limitations, and you need to learn enough to know what accounting makes sense and when you need to, uh, ignore certain, uh, aspects of accounting. You need to understand when competitive advantages are durable and when they are fleeting.
I mean, you have to learn to tell the difference between a hula hoop company , you know, and Coca-Cola. But it's not that difficult to do. And then, you have to know how to think about market fluctuations and really understand that the market exists to serve you, not to teach you. And to a large extent, it's not a question of IQ.
If you have...If you work in the investment business and have an IQ of 150, sell 30 points to someone else because you don't need it. I mean, you have to be...You have to be pretty smart. You don't need to be a genius at all. In fact, it can be harmful. But you need emotional stability. You have to have some inner peace about your decisions because this is a game where you are exposed to stimuli every minute , where people are constantly offering their opinions.
You must be able to think for yourself. And I don't know if it's how it happens, I don't know how much of it is innate and how much of it can be learned, but if you have that quality , you'll be very good at investing if you spend some time on it, learn something about business valuation. This is not a difficult game.
As I've said many times, it's simple, but not easy. This is not a difficult game. You don't need to understand advanced mathematics. You don't need to understand the law. There are all sorts of things you don't need to be good at. There are all kinds of jobs in this world that are much more difficult.
But you need to have a certain amount of emotional stability that will help you get through almost anything. And then you will make the right investment decisions over time . Charlie? Yes, you have a major problem: exactly half of the world's future investors will be in the bottom 50%. In other words, you will always have more skills at the top than at the bottom, and you will never be able to homogenize the investment expertise of the world.
There is so much that is wrong and crazy in modern investment practice, modern investment banking, and in modern academia , in business schools, even in economics departments . What if you just cut the nonsense, uh, that's all I think you can reasonably hope for. Beyond a certain basic level of skill, wouldn't you say that your emotional makeup is more important than some super-high degree of skill?
Uh, of course . And if you think you're talented, if you think your IQ is 160 and he's 150, you're a disaster. A 130 guy who works well within himself is much better. I-I see the students coming. I love a guy from the University of Chicago. Uh, one of the students in The first question I was asked was, what are we studying that's most wrong?
I mean, that's exactly what... It's a shame they didn't ask that in the panel here. How did you manage that in one session? Yes. But that was scripture 25 years ago. The efficient market theory, you know, I never understood how it could even be taught. I mean, if you came in in the first 5 minutes and told the students, "Everything is priced correctly." I mean, how do you kill the rest of the hour?
But they did it. And they got... And they got doctorates for doing it well, you know, and... And the more Greek symbols they could weave into their... you know, their writings, the more they were respected. It amazes me, and I could even imagine academia in general, how crazy ideas take hold and spread.
And then I read a quote the other day that may have partially explained it. Max Planck spoke, a famous physicist, that Max Planck spoke about the resistance of the human mind, even brilliant human minds, to new ideas, especially those that have been carefully developed over many years and have been blessed by other great people and so on.
And he said: " Science advances, funeral after funeral ." And I think there's a lot of truth in that . This is certainly true in the world of finance.
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