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The first rule of investing is not to lose money. And the second rule of investing is to remember the first rule. And these are all the rules that exist. What I mean is that if you buy assets significantly cheaper than their cost and buy them as a group, you essentially don't lose money. Warren, what quality do you consider the most important in an investment manager?
It's temperament, not intellectual ability. This business doesn't require a super high IQ. That is, you need to be smart enough to get from here to the mall, but you don't need to play 3D chess or be a bridge pro . You need a stable psyche. You need a temperament that doesn't take pleasure in being with the crowd or against it, because they don't do polls in this business .
This is a business where you have to think. Ben Graham said that you don't become right or wrong just because a thousand people agree with you. And you don't become right or wrong just because a thousand people disagree with you . You are right because your facts and your reasoning are correct. Warren, what do you do differently than 90% of investment managers in the market?
Of course, most professional investors are focused on what stocks will do in the next year or two. And they have all sorts of complex and mysterious methods to approach this question. But in reality, they don't see themselves as owners of a share of the business. The real test of whether you are investing from a value position is whether you care whether the stock market is open tomorrow.
If you make a good investment in securities, you shouldn't be concerned if the stock market closes for 5 years. All the scroll bar shows me is the price. And I can look at the price from time to time to see if it's too low or too high. But prices don't tell me anything about the business itself. Business metrics tell me about it, but the stock price tells me nothing.
I would prefer to first evaluate a stock or business without even knowing the price so that it doesn't influence my evaluation, and then look at the price to see if it deviates from my calculations. How do you manage to stay away from Wall Street? Well, if I were on Wall Street, I would probably be a lot poorer.
There you get overexcited, you hear a lot of things, you can narrow your focus, and a short focus does not contribute to long-term profits. And here I can just focus on how much businesses are worth, and I don't need to be in Washington to understand the value of the Washington Post. Likewise, I don't need to be in New York to evaluate any other company.
It's just an intellectual process. And the fewer obstacles there are in this intellectual process, the better for you. What kind of intellectual process is this? The intellectual process is to determine your area of expertise in valuing businesses, and then within that area—find what is selling for the lowest price relative to its value.
And there are many things that I am not competent to assess, but there are a few that I can assess with confidence. Have you ever bought a technology company? No, really never. In 30 years of investing—none . I didn't understand any of them . So you've never owned, for example, IBM, which... Never owned IBM.
Great company. That is, a sensational company, but I didn't own it. And now a technological revolution is happening, and you are not going to take part in it. She walked past me. Does that suit you? That suits me, Arthur. I don't need to make money on every game. I mean , I don't know what will happen to the cocoa beans.
I ...you know, there are a lot of things I don't know anything about. And it may be unfortunate, but, you know, why should I know everything about them ? I didn't work that hard on it. In the securities industry, you are literally offered thousands of large American corporations every day at a certain price that changes daily, and you don't have to make any decisions.
Nothing is imposed on you. So, in this business, there are no strikes that count automatically. The pitcher just stands there and throws balls to you. And if you're playing real baseball and the ball flies between your knees and shoulders, you either hit or get a strike. If you get too many strikes, you are out of the game.
In the securities business, you just sit there and they throw you US Steel at 25 and General Motors at 68. And you don't have to make a move on each of them. These can be great pitches, but if you don't know enough, you shouldn't hit. You can sit there, watch thousands of pitches, and finally get the one you've been waiting for—the one you understand, and then you hit.
And, uh, maybe you won't be able to fight for half a year. Maybe you won't hit for two years. Is n't that boring? Most people would be bored. And, of course, boredom is a problem for most professional money managers. If they try to miss an inning or two, not only do they start to get nervous, but their customers start shouting from the stands, " Pitch, you idiot!" And it is very difficult for people to do otherwise.
Warren, your approach seems so simple. Why does n't everyone do this? Well, I think partly because it's so simple, scientists, for example, focus on all sorts of variables. Partly because by scientists you mean professors? Yes. The data is available in business schools. Of course. The data is there.
So they focus on whether it is better to buy stocks on Tuesday and sell on Friday, or buy in an election year and sell in other years, or buy stocks of small companies. There are as many such variables as there is data. And they learned to manipulate this data. And, as my friend says, to a man with a hammer, everything looks like a nail.
And once you have these skills, you just want to use them somehow. But they don't matter. If I were invited to participate in a business opportunity, would it matter to me whether I bought it on a Tuesday, a Saturday, an election year, or some other time? A businessman doesn't think like that when he buys a business.
So why think about this when buying stocks? Because stocks are just shares of a business.
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