Warren Buffett's Top Tips for New Investors (MUST WATCH) | Berkshire Hathaway 2010
Summary
TLDRIn 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
📈 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.
🧐 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.
Mindmap
Keywords
💡Investing
💡Buy and Hold
💡Margin of Safety
💡Circle of Competence
💡Durable Competitive Advantage
💡Valuing a Business
💡Market Fluctuations
💡Economic Moat
💡Knowledge Accumulation
💡Risk Management
💡Competitive Strategy
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
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