Q: How do you apply psychology to investment decisions? I don't think it's that simple, just pick a product that everybody is optimistic about, like Coca-Cola's. After all, there are a lot of smart people in the investment world, and their way of thinking is obviously the same as what you told us today. When you're picking successful companies, do you consider the failures of other investors in their investment mindset?
Investing is difficult because it's easy to see that some companies are doing better than others. But they're going to rise too high, so all of a sudden, the question of which one should you buy becomes hard to answer.
We've never solved this puzzle. 98% of the time, our attitude towards ** is ......Remain agnostic. We don't know what will happen to GM's stock price compared to Ford? We're always looking for something that we see and feel profitable. Sometimes we look at psychology and more often than not, from other disciplines. And we see very few times – maybe once or twice a year. We don't have a one-size-fits-all approach to judging all investment decisions. We're using a completely different approach. We're just looking for opportunities that we don't have to use our brains to know will make money. As Warren Buffett and I have often said, we can't step over a seven-foot hurdle. We're looking for those one-foot-tall bars that have a good return on the opposite side. So the trick to our success is to do something simple, not solve a problem.
Q: Do you rely on statistical analysis and insight in your investment decisions?
When we make a decision, we certainly think we have a good vision. Sometimes we are really optimistic about an investment project because of statistical analysis. Again, though, we've only found a few such opportunities.
We're just looking for opportunities that we don't have to use our brains to know will make money. It's not enough to have good opportunities, they have to be in areas that we can see, so there have to be opportunities for mispricing in areas that we can see. This kind of opportunity doesn't come up very often. But it doesn't need to come up often, and if you wait for a good opportunity and have the courage and strength to take advantage of it when it comes, how many do you need? Take, for example, 10 of Berkshire Hathaway's most successful investments. We're going to be very rich, if we don't invest in other projects – that money won't be spent in two lifetimes.
So, again, we don't have a one-size-fits-all approach that can be used to judge all investment decisions. If there were, it would be ridiculous. I'm just giving you a way to look at reality in order to get a handful of opportunities to react rationally. If you use this method to engage in a highly competitive activity, such as picking, you will meet many great competitors. So even if we have this method, we don't get very many opportunities. Luckily, that few opportunities are enough.
Q: You seem to think that the high-tech industry is harder to operate — because you said that running a high-tech business requires special talents. But aren't they the same?
For us, the advantage of a low-tech business is that we think we understand it well. This is not the case for high-tech companies. We prefer to deal with businesses that we are familiar with. How can we give up a game in which we have a big advantage and play a game in which we have no advantage or may even be at a disadvantage?
Each of you has to figure out what kind of talent you have. You have to play to your strengths. But if you want to succeed in a field you're not good at, your life could be a mess. I can guarantee that. If that's not the case, then you've won the lottery or have been lucky for something else.
Q: Warren Buffett said Berkshire's investment in an airline was a classic failure. How did you make that wrong decision?
Based on the inevitable inflatability of the common shareholders, we did not buy American Airlines** because the history of the aviation industry is terrible when it comes to taking care of the interests of ordinary shareholders. We are buying preferred stock with a mandatory right of redemption. Actually, we were lending money to American Airlines, so we got this debt-for-equity option.
We're not guessing if it's a good place for shareholders. We're just guessing if it'll be able to stay thriving enough to have the financial resources to repay the loan – with fixed dividends in addition to foreclosures. We don't expect the company to get so bad that we don't have to take the risk of not being compensated for by the high interest rates we get. But as a result, American Airlines was soon on the verge of bankruptcy, it struggled for a few months, and then returned to normal, and in the future we may be able to recover the entire principal and interest. But it's a mistake. (Editor's note: Berkshire did later recoup all of its entire investment in American Airlines.) ）
The history of the aviation industry is terrible when it comes to taking care of the interests of ordinary shareholders. I don't want you to be fooled into thinking that we have any learning or way of doing things that will keep you from making many mistakes. I'm just saying that you can learn to make fewer mistakes than others – and you can correct them more quickly after you make them. But it is impossible to live a prosperous life without making many mistakes.
Actually, life is the way it is so that you can deal with mistakes. A common problem for those who go bankrupt is the inability to properly handle psychological denial. You put a lot of energy into something, you put your heart and soul and money into it. The more you invest, the more the principle of consistency will make you think, "Now it has to work." If I put in a little more, it will work. ”
How to deal with mistakes and new situations that change the odds of winning is also one of the things you must know. Life is sometimes like a game of poker, and sometimes you have to learn to give up even if you have a hand you really like. This is where the "deprivation super-reflection syndrome" also arises: if you don't put in a little bit of effort, you're going to lose all your efforts. That's how people go bankrupt – because they don't know how to stop and reflect and say, "I can give up this and start all over again." I'm not going to be obsessed with it – I'll be bankrupt in that case. ”
Q: When Disney bought Metropolitan ABC (Capitalcities), you didn't cash out, but swapped Met's ** for Disney's**, can you talk about how you think about it? There have been reports that you have ever considered receiving cash.
Disney is a great company, but it's also too high. Part of it is in the business of making ordinary movies – that kind of business doesn't appeal to me at all. However, there are some businesses at Disney that are better than a big gold mine. I mean, those tapes ......Disney is a perfect example ...... self-catalysisThey made many films. They own the copyright. The advent of the refrigerator greatly contributed to the development of Coca-Cola, and in the same way, when the videotape was invented, Disney did not need to invent anything new, it just recorded the filmed film into a videotape. Every parent and grandparent wants their offspring to sit at home and watch these tapes.
So the family life of ordinary people has played a role in the development of Disney. The market is hundreds of billions of dollars. Obviously, if you can find it, it's a very good model. You don't have to invent anything. As long as you sit still, the world will carry you forward ......Disney later made a number of good decisions. But Disney's success is indeed very much like what a friend of mine said about an ignorant but successful student: "He was a duck sitting in a pond." People raised the water level of the pond. ”
Eisner and Wells' stewardship of Disney is outstanding. But by the time they took office, the role of those old movie tapes in promoting Disney had already appeared, so they were able to easily revolutionize management. To be fair, they're also very good, creating quite a few new products that have taken the market by storm, such as Pocahonta and The Lion King. In the end, "The Lion King" alone could bring in billions of dollars. By "finally," I mean almost 50 years from now. It's a bit long, but you can make billions of dollars from just one movie.
Q: I'm interested in the shift in your investment strategy, where you started with Benjamin Graham's model, and now Berkshire? Hathaway model. Which model do you think should be adopted for beginners? For example, invest most or all of your money in an opportunity that we think is good, and then leave it untouched for decades? Or is this strategy only suitable for a more sophisticated investor?
Each person must play this game according to his own financial situation and mental qualities. If losses can make you miserable – some losses are unavoidable, it's best to adopt a very conservative investment model and save a little more money. So you have to adjust your investment strategy according to your actual situation and talents. I don't think I can give you a jack-of-all-trades investment strategy. My strategy works for me, but it's partly because I'm good at accepting losses. I can afford to lose mentally. In addition, I didn't lose much. These two factors combine to make my strategy effective.
Q: Everything you say to Warren Buffett seems to make sense, but it sounds similar to what Benjamin Graham said 30 years ago, when he said that the value of ** was overvalued — the Dow was only 900 points at the time. The wealth of the world cannot grow at this rate.
I don't think we see the same thing as him. Graham is remarkable, but he particularly likes the overall market. In contrast, Warren and I always think of the market as unknowable.
On the other hand, for many years, after adjusting for inflation, most** has achieved an average annual return of 10% to 11%, and we have said that these returns cannot last for a very long time. The wealth of the world cannot grow at this rate. Regardless of the performance of Stanford's ** portfolio over the past 15 years, future earnings will certainly be worse than in the past. Maybe it will. But the last 15 years have been a happy time for investors, and such an amazing bonanza effect can't last forever.
Q: I think there's a lot to grasp and a lot to be reasonable. I feel like the system is going to get complicated very quickly – because there are so many different principles.
If you're like me, you're going to find it a little complicated to be interesting. If you want to figure it out effortlessly, maybe you should join some kind of cult that claims to answer everything. I don't think that's a good idea. I guess you have to accept the world – it's just that complicated. Albert Einstein once summed it up well: "Everything should be as simple as possible, but not too simple." ”
I think it's the same with psychology. If there are 20 factors, and they affect each other, you have to learn to deal with them – because the world is so complicated. But if you can solve problems step by step with curiosity, as Darwin did, you won't find it difficult. You'll be amazed at how well you're able to learn.