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It's not because I've calculate some price precise PE ratio or price book value ratio or whatever it might be. It is because I have some idea of what the company might look like in five or 10 years and I have a reasonable amount of confidence in that judgment and there's a disparity in price and value and and it's big.
Charlie, would you like to elaborate? We don't know how to buy stocks just by looking at financial figures and making judgments based on ratios. We may be influenced a little by some of that data, but we need to know more about how the company actually functions. And and uh Anything a computer could be functioned to do in terms of screening.
I know I never do it. Do you use a computer to screen anything? No, I don't know how to. No. Uh Bill structure I can explain it I we You can it's a little hard to be precise on it because we don't really use screens. On the other hand, we're screening everything, but it's not like we sit there and say, you know, we want to look at things that are low to price book value or low PEs or something of the sort.
We are looking at businesses exactly like we'd look at them if somebody came in and offered us the entire business and then we try to think what is this place going to look like in five or 10 years and how sure are we of it? And most a lot of companies, you know, we just don't know the answer to it.
We do not know which auto company is going to, you know, be knocking the ball out of the park 10 years from now or which one's going to be hanging on by its fingernails. You know, we watched the auto business for 50 years. It's a very interesting business. But we don't know how to we don't know how to uh foresee the future well enough on something like that.
Uh we think that the Burlington Northern will have a computer a competitive advantage 15 years from now with a high degree of confidence. We would never have that degree of confidence about Apple no what matter what their financial statements showed. No, it's just it's too hard. Yeah, we don't know what we don't know about an oil company 10 years from now, you know, in terms of what the product will be selling for anything, but we I would say we're, you know, we're virtually 100% confident about a Burlington Northern or a Geico or some other company I said I won't name.
People with very high IQs who are good at math naturally look for a system where they can just look at the math and know what security to buy. It's not that easy. You really have to understand the company and its competitive position and the reasons why its competitive position is what it is. And that is often not disclosed by the math.
Yeah. It's not what I learned from Ben Graham, although the fundamentals of looking at stocks as businesses and and the attitude toward the market and all that is absolutely still part of the catechism, but uh I wouldn't I don't know exactly how I would manage money if I was just trying to do it by by the numbers that uh You'd do it poorly and I'm Yeah.
That takes care of that. We're looking at quantitative and qualitative We're looking at the aspects of a stock. We're looking at the aspects of a business. It's very important to have that mindset that we are buying businesses whether we're buying 100 shares of something or whether we're buying the entire company.
We always think of them as businesses. So when Charlie and I leaf through Value Line or look at annual reports that come across our desk or read the paper or whatever it may be that for one thing we have a we do have this cumulative knowledge of a good many industries and a good many companies, not all by a long shot.
And different numbers are of of different importance or various numbers of different importance uh depending on the kind of business. I mean, if you were a basketball coach you know, you would if you were walking down the street and some guy comes up that's 5'4 and says, you know, you ought to sign me up cuz you ought to see me handle the ball, you would probably have a certain prejudice against it, but there might be some one player out there uh that that made sense on, but on balance we would say well, good luck, son, but, you know, we're looking for 7-footers and then if we find 7-footers we have to worry about whether we can get them halfway coordinated and keep them in school and a few things like that.
But we see certain things that shout out to us look further or think further. And over the years we've accumulated this background of knowledge on various kinds of businesses and we also have come up with the conclusion that we can't make an intelligent analysis out of about all kinds of businesses.
And then usually some little fact slips into uh uh view that causes us to rethink something. It was mentioned now I got the idea about or making an offer to Bank of America on a preferred stock when I was in the bathtub, which is true. But the bathtub really was not the key factor. It The The truth is I read I read a book more than 50 years ago called Biography of a Bank.
It was a great book about A.P. Giannini and the history of the bank and and I have followed the Bank of America and I followed other banks, you know, for 50 years. Charlie and I have bought banks. We used to trudge around Chicago trying to buy more banks in the late '60s and so we have certain things we think about in terms of a bank that are different than we think about when we're buying a car and so there is not not one size fits all.
Uh we think about when we're buying an insurance company. There's certain things we think about when we're buying a company dependent upon the dependent upon brands. Some brands travel very well. Coca-Cola being a terrific example and some brands don't travel. And you know, we just keep learning about things like that and then every now and then we find some opportunity.
Do you share his view that market returns in the next few decades will be much lower than in the past few? And should we expect Berkshire's free future market returns to be greatly constrained not only by its size, but also by much lower equity returns overall? Yeah, Charlie and I don't pay any attention to macro forecast.
And we have worked together now for 54 years and I can't think of a time when we made a decision on a on a stock uh or on a company where a macro discussion where we've talked about macro and you know, we don't we don't know you know, what things are going to look like in any precise way. And in in in incidentally, naturally we think if we don't know nobody else knows.
That's a little conceit that we have and uh so we you know, why talk why spend time talking about something you really don't know don't know anything about, you know, I mean, people do it all the time, but it it's it's not very productive. So we talk about the businesses and uh uh I like Bill Gross.
He sounds like Lloyd Bentsen, you know, back in the He's a friend of mine, but I don't it doesn't make any difference to me what he thinks about the future. It doesn't make any difference to me, you know, what what any economist uh thinks about it. I have a general feeling that America will continue to work well and I don't you know, there's all throughout my adult lifetime and before that there's always been all kinds of opinions that, you know, about what's going to happen this year and next year and anything like that and nobody knows.
What you do know with a very high degree of certainty in my view is that the NSF will be carrying more carloads 10 years from now, 20 years from now that that there will be no substitute for the service that they provide that there will be two important railroads in the west and two important railroads in the east and that they will have an asset that has incredible replacement value.
Nobody could turn out something like it and that they'll get paid fairly for for what they do and it's not it's not very complicated and the to ignore what you know because of predictions about what you don't know or what and and what nobody else knows in our view is just plain plain silly. So we don't we don't have anything against somebody talking about a new normal or an old normal or an in-between normal, but it doesn't it doesn't mean anything to us.
My own guess is that that people will do very well owning good businesses if they don't pay too much for them. Uh you know, whether they hold them for 10 years or 20 years or 30 years. And if they try and time their purchases in some way by listening to forecasts about what's going to happen in business and try and buy and sell them uh they're going to do very well for their broker and not so well for themselves.
Charlie? Yeah, but of course when we have a lot of money, we have to do something with it. So, we're going to do our thing no matter what the external climate is. If you're a business surgeon and trying to decide whether to work two more years before you retire, then you're you may be more interested, and rationally so, in the new normal.
And I would personally advise the guy to work an extra couple of years. In other words, I kind of agree with Bill Gross. What do you think the normal is? Well, less than we've enjoyed in our lifetimes. The new normal. What have we enjoyed in the last 10 years? I mean, you know, it hasn't been so bad.
No, and it hasn't been It hasn't been so, you know, But it's not nearly as good as it was in the first 30. Yeah. And do you think it'll be worse than the average of the last 10 years? I think that's quite a conceivable outcome. Yeah. So, take your pick. Okay.
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