Warren Buffett breaks down how he would invest if he had to start again with $1 million

In a 2018 discussion, Warren Buffett shared his strategy for achieving a 50% annual return if he were to start again with under $1 million. He emphasized the importance of thorough research, reminiscing about his past experience of meticulously studying the Moody's Transportation manual to find undervalued assets, such as the Green Bay and Western railroad company. Buffett highlighted the need for passion and dedication to the subject of investing, comparing it to the enthusiasm a biologist or chess player might have for their field. He suggested that with a deep understanding of small companies and a love for the investment game, it's possible to earn significant returns. He also touched upon the complexity of the human brain and how individuals excel when they engage in activities that align with their natural inclinations and interests.

Takeaways

• 📚 Warren Buffett emphasizes the importance of thorough research, suggesting that he would read through extensive materials like Moody's manuals to find investment opportunities.
• 🚂 He specifically mentions his past experience with railroads and how he found value in lesser-known companies, such as the Green Bay and Western railroad company.
• 🔍 Buffett highlights the need for a deep understanding and love for the subject matter, rather than just a love for money, to succeed in investing.
• 💡 He suggests that with $1 million, it's possible to achieve a 50% annual return if one is passionate and dedicated to finding undervalued securities.
• 🌐 Buffett acknowledges that the equivalent of Moody's manuals may have changed, but the principle of knowing everything about smaller, lesser-known companies remains relevant.
• 🤝 He shares a personal anecdote about impressing Charlie Munger with his detailed knowledge of obscure companies, which became a point of connection between them.
• 🧠 Buffett reflects on the complexity of the human brain and how people excel when they identify and capitalize on their unique strengths and interests.
• ♟️ He compares the process of finding undervalued investments to other pursuits like playing chess or bridge, where passion and expertise are key to success.
• 🎲 Buffett encourages playing the 'game' of investing with a genuine interest, rather than solely for financial gain.
• 💡 He also advises that finding and investing in a diverse portfolio of undervalued small companies can lead to significant returns.
• 📈 Finally, Buffett seems optimistic about the potential for high returns on investment for those who are deeply engaged and knowledgeable about their investments.

Q & A

What annual return did Warren Buffett claim he could achieve if he started again with under $1 million?

Warren Buffett claimed he could achieve a 50% annual return if he had to start again with under $1 million.

What method did Buffett use to find investment opportunities when he was younger?

Buffett used to go through thousands of pages of Moody's manual and other similar publications to find investment opportunities.

What is an example of a small company that Buffett researched in detail?

Buffett researched the Green Bay and Western railroad company in detail when he was younger.

What is Buffett's advice for someone looking to achieve high returns with a small investment?

Buffett advises to be in love with the subject of investing, to know everything about everything small, and to find something with the potential to earn high returns.

How did Buffett's knowledge of small companies impress Charlie Munger when they first met?

Buffett's detailed knowledge of small companies on the west coast, which Munger thought he would never have heard of, impressed Munger and became an instant point of connection between them.

What is Buffett's perspective on the human brain and its capacity for learning and understanding?

Buffett believes that the human brain is complicated and does its best when a person finds out what they are really suited for and then focuses on that area.

What does Buffett suggest is necessary to be successful in investing?

Buffett suggests that to be successful in investing, one must find the game of investing interesting and be passionate about finding undervalued securities.

What does Buffett mean by 'flipping through 20,000 pages of Moody's manual'?

Buffett refers to the extensive research and analysis he would conduct by reading through detailed financial and company information in publications like Moody's manual to identify potential investments.

What is the significance of the Green Bay and Western railroad company in Buffett's investment strategy?

The Green Bay and Western railroad company is an example of a small, lesser-known company that Buffett studied in depth, demonstrating his approach to finding undervalued companies with potential for high returns.

What is Buffett's view on the importance of passion in the field of investing?

Buffett emphasizes that one must be passionate about the subject of investing, not just the money, and likens it to how a biologist or chess player is driven by the love of their field.

How does Buffett describe the process of finding undervalued securities?

Buffett describes it as a process of expanding one's knowledge in a given area, being excited by the search for undervalued securities, and using opportunity cost as the final arbiter of which method to use.

What does Buffett imply about the current state of investment opportunities with a small amount of money?

Buffett implies that even with a small amount of money, it is possible to find undervalued securities and achieve high returns, but it requires a deep understanding and passion for the subject.

Outlines

00:00

💼 Investment Strategy for Achieving 50% Annual Return

The speaker discusses a hypothetical scenario where they have to start investing again with under $1 million. They emphasize the importance of a deep, passionate interest in the subject of investing, similar to how a biologist or chess player is driven by curiosity and love for their field. The speaker shares their personal experience of meticulously studying the Moody's manual to find undervalued securities, such as the Green Bay and Western railroad company, which was a unique find due to its bond that was actually common stock and vice versa. They highlight the need to be in love with the process of finding these opportunities rather than just the money, and to leverage one's natural inclinations and strengths, as everyone has different areas of expertise and interests.

05:04

🎉 Welcoming Enthusiastic Investors

The speaker acknowledges the dedication of the person asking the question for attending the annual meeting and implies that anyone who makes the effort to attend is likely to have a genuine interest in investing beyond mere games like Bridge or chess. The speaker expresses their appreciation for the attendee's presence and encourages them to return the following year, suggesting a welcoming and supportive community for those interested in investing.

Keywords

💡Annual Return

Annual return refers to the rate of return on an investment over a one-year period. It is a key metric used by investors to evaluate the performance of an investment. In the context of the video, Warren Buffett mentions that he could guarantee a 50% annual return if he were to start investing again with a smaller amount of money.

💡Moody's Manual

Moody's Manual is a comprehensive guide that provides detailed information about various companies, including financial data and analysis. It is used by investors to research potential investments. In the transcript, Buffett talks about going through the Moody's Transportation manual to find undervalued companies, which is an example of his meticulous research approach.

💡Green Bay and Western Railroad Company

The Green Bay and Western Railroad Company is an example of a small, lesser-known company that Buffett researched in his early investing career. The mention of this company in the transcript illustrates Buffett's strategy of looking into overlooked businesses that may offer investment opportunities.

💡Undervalued Securities

Undervalued securities are investments that are believed to be worth more than their current market price, offering a potential buying opportunity for investors. Buffett's strategy often involves identifying and investing in undervalued securities, as indicated by his discussion of finding such opportunities with a smaller investment capital.

💡Opportunity Cost

Opportunity cost is the potential benefit an investor misses out on by choosing one investment over another. It is a concept that helps in making decisions by comparing the benefits of different options. In the transcript, Buffett suggests that opportunity cost would serve as the final arbiter in deciding which investment method to use.

💡Investing Opportunity

Investing opportunity refers to potential investments that could yield a return. The concept is central to the video as Buffett discusses how he would approach investing with a smaller capital base, highlighting the broader opportunities available to investors with limited funds.

💡Love for the Subject

Buffett emphasizes the importance of having a genuine interest and love for the subject matter of investing. He suggests that being passionate about the process of finding undervalued companies and securities is crucial for success, comparing it to how biologists or chess players are driven by their love for their respective fields.

💡Knowledge

Knowledge is power in investing, as it allows an investor to make informed decisions. Buffett talks about knowing everything about everything small, indicating the importance of having a deep and broad understanding of the market and the companies within it.

💡Charlie Munger

Charlie Munger is Warren Buffett's long-time friend and business partner. In the transcript, Buffett recalls how his detailed knowledge of small companies impressed Munger, which led to a strong business and personal relationship. Munger's mention underscores the importance of shared interests and expertise in business partnerships.

💡Los Angeles Athletic Club

The Los Angeles Athletic Club is mentioned as an example of a niche company that Buffett was familiar with, demonstrating his extensive knowledge of various businesses. This example is used to illustrate the level of detail and research Buffett puts into understanding potential investments.

💡Human Brain

Buffett briefly touches on the complexity of the human brain and how individuals excel when they engage in activities that suit their cognitive strengths. In the context of investing, this means recognizing one's natural inclination towards thorough research and analysis of investment opportunities.

Highlights

Warren Buffett guarantees a 50% annual return if starting again with under $1 million.

Buffett would use methods similar to flipping through 20,000 pages of Moody's manual.

He emphasizes the importance of knowing everything about small companies.

Buffett found interesting opportunities in the Green Bay and Western railroad company.

He suggests that a deep interest in the subject is crucial for success.

Buffett believes in the power of expanding one's knowledge in a specific area.

He mentions the value of finding undervalued securities.

Buffett met Charlie Munger by impressing him with detailed knowledge of small companies.

He recalls knowing details about the Los Angeles Athletic Club that Munger thought only he knew.

Buffett compares the process of finding investments to a biologist's search for discovery.

He discusses the complexity of the human brain and its potential when focused on a passion.

Buffett suggests that playing the investment game is more about the process than just the money.

He believes that with $1 million, one could earn 50% a year with the right approach and passion.

Buffett encourages attendees to continue their interest in investing and to come back next year.

He highlights the need for a deep understanding of the investment landscape, referencing the Moody Transportation manual.

Buffett shares his past experiences of discovering unique investment opportunities in railroad companies.

He emphasizes the joy of discovery in investing, similar to how a biologist or chess player finds excitement in their field.

Buffett suggests that the modern equivalent of Moody's manuals would be a valuable resource for investors.