Warren Buffett's Top Tips for New Investors (MUST WATCH) | Berkshire Hathaway 2010

Summary

In this transcript, Jeff Colette discusses his journey in investing, starting in 1999. He emphasizes the importance of valuing businesses and applying a margin of safety, as taught by Warren Buffett and Charlie Munger. They highlight the significance of understanding one's circle of competence and learning from experience, suggesting that focusing on a few good opportunities and avoiding obvious mistakes can lead to success in investing.

Takeaways

• 📈 Jeff Colette started investing in 1999 and learned the hard way about valuing businesses and applying a margin of safety.
• 📚 Reading Berkshire Hathaway reports and other materials is a good way to learn about investing, as suggested by the speaker.
• 💡 Valuing a business and applying a margin of safety are fundamental principles in investing.
• 🚫 Warren Buffett emphasizes the importance of knowing your limitations and focusing on what you understand, rather than trying to be an expert on everything.
• 🏦 Buffett learned from Ben Graham about valuing certain types of companies, which provided a framework for successful investing, even if the opportunities for such companies have decreased.
• 🌐 Charlie Munger taught Buffett about the value of a durable competitive advantage and understanding the economics of a business.
• 🤔 Buffett suggests thinking about what you would pay for a business, considering its economics, longevity, and competitive position.
• 🌐 Diversification can be a strategy, as demonstrated by Buffett's experience with Korean stocks, where he diversified because he didn't know much about specific businesses but knew the package as a whole was a good investment.
• 📈 Continuous learning and practice are essential for improving at investing, as emphasized by Munger.
• 💼 Munger also highlights the importance of having the right temperament and avoiding obvious mistakes in business decisions.
• 🏆 Success in business often involves rising from humble beginnings and demonstrating discipline and a focus on doing things right, as illustrated by the story of Pete Kiewit.

Q & A

What investment approach did Jeff Colette initially adopt?

Jeff Colette initially adopted a 'Buy and Hold' approach without fretting about market price fluctuations, which he learned before understanding the importance of valuing a business and applying a margin of safety.

What is the key to successful investing according to the speaker?

The key to successful investing, as mentioned in the script, is valuing a business correctly and applying a margin of safety, along with recognizing one's limitations and continuously learning about various types of businesses.

What did Charlie Munger teach about the value of a durable competitive advantage?

Charlie Munger taught about the importance of recognizing a durable competitive advantage and the value of investing in a first-class business, which can provide insights into the long-term potential of a company.

Why is it crucial for investors to know their circle of competence?

It is crucial for investors to know their circle of competence because it helps them to focus on businesses they understand well, thereby reducing the risk of making uninformed investment decisions.

What is the significance of a margin of safety in investing?

A margin of safety in investing is significant as it provides a cushion against the downside risk, ensuring that the investor is not overpaying for a business and has room for error in their valuation.

How did the speaker's approach to valuing businesses evolve over time?

The speaker's approach to valuing businesses evolved from learning a specific method from Graham to valuing certain types of companies, to learning more about various types of businesses and understanding the importance of a durable competitive advantage from Charlie Munger.

What is the importance of continuous learning in the field of investing?

Continuous learning in investing is important because the world and markets are constantly changing, and to stay competitive, investors must adapt and expand their knowledge and understanding of different businesses and economic conditions.

What did the speaker mean by 'the biggest thing is not how big your circle of competence is but knowing where the pr is'?

The speaker meant that it's not about the breadth of knowledge an investor has, but rather the depth of understanding within their area of expertise, and being able to recognize the boundaries of that expertise.

How did the speaker's early experiences with businesses influence his approach to investing?

The speaker's early experiences observing businesses in Omaha, including their successes and failures, taught him the importance of discipline, doing things right, and avoiding trouble, which influenced his approach to investing.

What is the role of temperament in successful investing?

Temperament plays a crucial role in successful investing as it involves patience, discipline, and the ability to avoid making obvious mistakes, which can lead to gradual learning and improvement over time.

How did Charlie Munger's approach to understanding businesses influence the speaker?

Charlie Munger's approach to understanding businesses by thinking about them as if he owned them himself influenced the speaker to always consider the fundamental economics of a business and to continuously seek to learn more about them.

Outlines

00:00

📈 Investing Insights and the Value of Business Understanding

Jeff Colette shares his early investing experiences, starting in 1999. He emphasizes the importance of valuing a business and applying a margin of safety, as taught by Graham. Jeff's initial approach to investing was 'Buy and Hold,' which led to significant losses during the Tech bubble. He learned from Charlie about the value of a durable competitive advantage and the significance of understanding a business before investing. The summary highlights the advice given to continuously learn and understand the businesses one invests in, as well as the importance of recognizing one's own limitations in the field of investing.

05:00

🧐 The Art of Business Valuation and Avoiding Mistakes

This paragraph delves into the process of business valuation and the importance of continuous learning in the field of investing. It discusses the strategy of avoiding competition and the value of self-discipline and careful decision-making in business. The speaker, presumably Charlie Munger, shares anecdotes from his youth and how observing successful businesspeople in his hometown influenced his approach to investing. The summary underscores the idea that avoiding obvious mistakes and having a disciplined approach to learning about various types of businesses is crucial for success in investing.

Keywords

💡Investing

Investing refers to the act of allocating resources, such as money, with the expectation of generating income or profit. In the video, Jeff Colette mentions starting to invest in 1999, which sets the stage for the discussion on investment strategies and learning experiences.

💡Buy and Hold

This is an investment strategy where an investor buys stocks and holds onto them for a long period, regardless of market fluctuations. Jeff Colette learned this approach early in his investing career, which highlights the importance of long-term investment perspectives.

💡Margin of Safety

The margin of safety is a principle in investing that suggests buying a stock at a price significantly lower than its estimated intrinsic value to reduce the risk of loss. It is a central theme in the video, with Charlie Munger emphasizing its importance in valuing businesses.

💡Circle of Competence

This concept, mentioned by Warren Buffett, refers to the limit of an individual's knowledge or expertise. It is crucial for investors to understand their areas of competence to make informed decisions. The video emphasizes the importance of knowing one's limits in the investment process.

💡Durable Competitive Advantage

A durable competitive advantage is a feature that allows a business to maintain an edge over competitors for an extended period. Charlie Munger discusses this concept, indicating that understanding a business's ability to sustain its advantage is key to valuing it.

💡Valuing a Business

Valuing a business involves estimating its intrinsic value to determine if it is undervalued or overvalued. The video's theme revolves around the importance of this process, with both speakers sharing insights on how to improve at it.

💡Market Fluctuations

Market fluctuations refer to the ups and downs in the value of investments over time. Jeff Colette mentions not fretting about these fluctuations, which underscores the video's message on maintaining a long-term focus in investing.

💡Economic Moat

An economic moat is a sustainable competitive advantage that protects a company from competitors. The concept is implied in the discussion about durable competitive advantages and the importance of identifying businesses with such features.

💡Knowledge Accumulation

Knowledge accumulation is the process of continuously learning and gaining experience over time. Charlie Munger emphasizes this as a key to success in investing, suggesting that constant learning and reflection are essential.

💡Risk Management

Risk management involves the identification, evaluation, and prioritization of risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events. The concept is evident in the discussion on the margin of safety and avoiding investment mistakes.

💡Competitive Strategy

A competitive strategy is a long-term plan to achieve a sustainable competitive advantage. The video touches on the importance of understanding a business's strategy, as it is a factor in determining its value and potential for success.

Highlights

Jeff Colette's introduction and his initial investment experience during the Tech bubble.

Learning the importance of valuing a business and applying a margin of safety from Charlie Munger.

The concept of 'circle of competence' and its significance in investment decisions.

Warren Buffett's early lessons on valuing companies from Benjamin Graham.

The evolution of Buffett's understanding of various types of businesses over time.

The importance of recognizing one's limitations in the business world.

Buffett's approach to valuing businesses like a McDonald's stand.

The strategy of asking oneself critical questions about businesses to extend knowledge.

The concept of margin of safety as a fundamental principle in investment.

Charlie Munger's emphasis on continuous learning and adapting to a changing world.

The idea that success in a competitive field requires constant learning and practice.

Warren Buffett's anecdote about learning from an old gentleman at the Omaha Club.

The strategy of avoiding competition by understanding the fundamental economics of a business.

The unpredictability of success and the importance of discipline and doing things right.

Charlie Munger's approach to considering businesses from a fundamental economic perspective.

The story of Pete Kiewit and the importance of avoiding obvious mistakes in business.

The value of having the right temperament and attitude in business for long-term success.

Munger's perspective on practicing law and always thinking about the fundamental economics of a client's business.

The story of a Caterpillar dealership sale and the importance of understanding business valuation.

Transcripts

hello my name is Jeff Colette and I'm

from OA Kansas I got started in

investing in 1999 right before the uh

big Tech bubble and unfortunately I

learned Buy and Hold and uh don't fret

about market price fluctuations before I

learned the importance of valuing a

business and applying a margin of safety

so as Charlie said I got my feet wet

with huge failure right away and the

club thank you I don't feel so bad now

um so that leads to my my question if it

seems like to I've read all the burshire

reports and all the reading I can do

about you two and and I thank you for

these wonderful meetings but it seems

like it boils down to some simple things

valuing a business and applying a margin

of safety so my question is what do you

recommend for an approach to getting

better and better at valuing companies

that was a very very good

question and in my own case you know I

started out without knowing anything

about valuing companies and then Graham

taught me a way to value a certain type

of company that would prove

successful except the universe of those

companies dried up but neverthe it it it

was almost a guarantee against failure

but it wasn't it was not a guarantee

that these things would continue to be

available Charlie taught me a lot a lot

about the value of a durable competitive

advantage and and in a really first

class business but over time I've

learned more about various types of

businesses but you to be amazed how many

businesses I don't feel that I

understand well uh the biggest thing is

not how

big your circle of competence is but

knowing where the pr is if you you don't

have to be an expert on 90% of the

businesses or 80% or 70 or 50 but you do

have to know something about the ones

that you actually put your money into

and if that's a very small part of the

universe that still is not a killer

and I I think if you think about what

you would pay for a McDonald's stand

what you think you would pay for you

know think about the businesses in your

own hometown of to laughing you know

which would you like to buy into which

do you think you could understand their

economics which you think will be around

10 or 20 years from now which you think

it would be very tough to compete with

just keep asking yourself questions

about businesses talk about with other

people about them you will extend your

knowledge over time and always remember

that margin of safety and I think you

basically have the right attitude

because you do you recognize your

limitations and that's enormously

important in this business you will find

things to do six or seven years ago

maybe not that long

yeah six or seven years ago when I was

looking at Korean stocks for example I

never had any idea that Korean stocks

would be something that I would be

buying but I looked over there and and I

could see that there were a number of

businesses that met the margin of safety

test and there I Diversified because I

didn't know that much about any specific

one but I knew that a package of 20 was

going to work out very well even if a

crook might run one of them and a couple

of might run into competition I didn't

anticipate because they were so cheap

and that was sort of the old gr approach

you will find Opportunities from time to

time and the beauty of it is you don't

have to find very many of them Charlie

well obviously if you want to get good

at

something which is

competitive you have to think about it a

lot and learn a lot and practice doing

it a

lot and the way the world is

constructed in this field you have to

keep

learning because the world keeps

changing and you're competitors keep

learning so you just have to get up each

morning and try and go to bed that night

a little wiser than you were when you

got up and if you keep doing that for a

long time and and accumulate some

experience good and bad as you try and

master what you're trying to do people

that do that almost never fail utterly

they may have a bad

period when luck goes against them or

something but very few people have ever

failed with that if you have the right

temperament you may rise slowly but you

you're sure to rise did you take any

business courses in school no I took

accounting

and when did you start valuing

businesses and how'd you go about it

when I was a little

boy I can remember I would come down to

the Omaha club and there was an Old

Gentleman who hit the ELA Club about

10:30 every morning he obviously did

almost no work and yet was quite PR

he became your ideal yeah so well but he

made me very curious as a little boy I

said to my father how in the hell does

he do

that and he said Charlie he's in a

business where he enjoys practically no

competition he gathers up and renders

dead

horses that was an example of avoiding

competition by one strategy and if you

keep asking questions like that of

reality starting at a young age you

gradually learn

yeah W you were doing the same thing

well yeah thankfully he extrapolated

went beyond his

original insight there but I noticed

it's rather

interesting if you take the rulers of

the businesses when I was a little boy a

awful lot of those business in Omaha a

lot of those businesses went broke a lot

of them sold out at modest prices under

distress and some of the people who Rose

like kiwit from from small be Beginnings

nobody thought of as the great glories

of of that early time and I think that's

kind of the way life is it's hard to get

anywhere near the top and it's hard to

hold any position once you've attained

it but I think you could predict that TT

was likely to win they cared more about

doing it right they cared more about

avoiding trouble they put more

discipline on

themselves well if you knew the if you

knew the individual well you would have

you would have BET right what if you

knew the individual be himself I would

not have bet on any of the people I knew

who were already

wealthy but I would have bet on Pete

kiwit his sister taught me math and

and no half Dutch half German you know

this is a tough culture and there's your

there you've just heard it folks half

Dutch half

German well but go out looking for him

well the man that's recommending this is

named

Munger anyway the

uh

no I don't think it's that but

here I was just automatically doing that

what was

working what was failing why was it

working why was it failing if you have

that temperament you are gradually going

to learn and and uh if you don't have

that temperament I can't help you

if you'd followed Pete ke around for 10

years you never would have seen him do

anything dumb right oh yeah

so it it's avoiding the dumb thing you

don't you really don't have to be

brilliant but you you know you have to

avoid just sort of what almost seem the

obvious mistakes but I would say that

you're on the right track back there and

in terms

of having the basic fundamentals knowing

your limitations but still seeking to

learn more about various kinds of

businesses charlot

I think when he practiced law any client

that came in Charlie was thinking about

that businesses if he owned the place

and he probably generally felt he knew

more about the place than the guy that

actually owned it who was his client who

was the client but but I remember

talking to him you know 50 years ago and

he would started talking about

caterpillar dealerships and Bakers field

or something of the sort it was he was

incapable of looking at a business

without thinking about the fundamental

economics of it how' that guy do with

the

caterpillar

well he sold it for a perfectly

ridiculous price to a dumb Oil

Company it it wasn't worth half what he

got for it yeah but they had a concept

and a Str they had a concept in the

strategy and how out they had

Consultants