I worked in the paper and packaging business this past summer and really enjoyed my experience. None of my classmates are interested in the paper business and the company I worked for has not had MBA interns in years. Clearly the paper business has its challenges, but do you see this as an opportunity or a roadblock?
Well, you've got it right that the paper business is challenged. High capital intensity, low margins, cyclical. It is a brutal business; no one cares who made the box their Dell computer came shipped in. In general, commodity businesses, even you're the low-cost producer, are difficult. There are generally two recommendations I offer to college and business school graduates. The most important thing about where you work is that you admire/love it. So it sounds like you liked your experience, and that's great. But we come to my second recommendation, which is to get on the right train; that is, moving in the right direction. There's no course in business school called "Getting on the Right Train", but it's really important. You can be an average passenger but if you get on the right train it will carry you a long way. You want to learn from experience, but you want to learn from other people's experience when you can. Managing your career is like investing - the degree of difficulty does not count. So you can save yourself money and pain by getting on the right train.
What is the value of good leadership skills and ethics in business?
I have seen plenty of people succeed that don’t have either one. And I have also seen an awful lot of people succeed that do; and those are the ones I admire and they are the ones I want to associate with. Honesty is a terrific policy. What do you look back on in terms of whether you have been a success? You have certain things you want to achieve, but if you don’t have the love and respect of peo- ple, you are always a failure. That is the one thing you must earn, it can never be bought. No one that has the love and respect of others is ever a failure.
What advice would you give students who are preparing for a business career?
My advice generally is to sop up everything you can. You’re not going to run out of storage room in your brain, so take advantage of everything that is of interest. You will never have another opportunity like this in your lifetime.
I ask students what they would do, if when they were sixteen, a genie came to them and told them that they could have the car of their dreams. The only catch is that it is the only car they will ever have. I know what I would do; I would study the owner’s manual until I had it memorized, and do everything I could to keep the car in the best shape possible. When you are sixteen, you only have one brain and one body and that is all you are ever going to get.
What advice would you give students who are just starting out in a business career?
I would say, follow what you are passionate about. I think it is crazy to be someplace where you feel your ethics or whatever is out of sync with your work. You really want to be in a place where you jump out of bed in the morning and you are all fired up to get to work. I have always felt that way, basically,
At the Wesco annual meeting last year, Charlie said, "The best way to get success is to deserve success". Do you recall anything from your experience which best demonstrates how you were able to position yourself to deserve success, and do you have any advice for students on how they can position themselves to deserve success as well?
Behaving decent is a large part of it. Out of school I offered to work for Graham for free and he said I was overpriced. I tried to be useful and visible to him. I gave him stock tips and kept up with him. Almost always good things come from good behavior. Don’t keep score in life. Tom Murphy does not keep score. He keeps doing 20 things for me and I can only hope to return the favor. Keeping score is terrible in marriage and terrible in business. I put myself in the seller’s shoes. With most humans there is a great desire to reciprocate. If you do something for them, they will do 2X for you. How rare is it to work during lunch hours and be the first one there in the morning. You’ll get noticed if you do something extra. It’s good to have a willingness to pitch in when you aren’t going to get credit for it. Charlie and I partnered up in 1959. We always both think we’re right. We disagree but we’ve never fought. And we’ve never held past mistakes over each other’s heads. I recommend reading “Poor Charlie’s Almanack”. It’s amazing, has sold 50,000 copies and it’s still sold independently.
What advice would you give the average person in the U.S.?
It’s hard to give advice to someone who might lose their job. My Dad went to work on August 13, 1931 to find out the bank where he worked and held all our money had closed. He had no job and no money and two kids. You want to be as prepared as you can and you just don’t want to have debt. Medical problems cause a lot of the grief and lots of credit card debt. Credit cards are poison. If you make a dollar, only spend 95 cents, not $1.05. You should be ahead of the game all the time rather than behind as it is harder to work your way out of a hole. You want to play the game from strength, and you have to think ahead. People don’t always want to hear advice when things are going well. People risked everything they had and needed for something they didn’t have or need. Charlie once said, “The problem isn’t getting rich, it’s staying sane.
What general advice would you give to students?
I would like to talk for just one minute to the students about your future when you leave here. Because you will learn a tremendous amount about investments, you all have the ability to do well; you all have the IQ to do well. You all have the energy and initiative to do well or you wouldn't be here. Most of you will succeed in meeting your aspirations. But in determining whether you succeed there is more to it than intellect and energy. I would like to talk just a second about that. In fact, there was a guy, Pete Kiewit in Omaha, who used to say, he looked for three things in hiring people: integrity, intelligence and energy. And he said if the person did not have the first two, the later two would kill him, because if they don't have integrity, you want them dumb and lazy.
We want to talk about the first two because we know you have the last two. You are all second-year MBA students, so you have gotten to know your classmates. Think for a moment that I granted you the right--you can buy 10% of one of your classmate’s earnings for the rest of their lifetime. You can't pick someone with a rich father; you have to pick someone who is going to do it on his or her own merit. And I gave you an hour to think about it.
Will you give them an IQ test and pick the one with the highest IQ? I doubt it. Will you pick the one with the best grades? The most energetic? You will start looking for qualitative factors, in addition to (the quantitative) because everyone has enough brains and energy. You would probably pick the one you responded the best to, the one who has the leadership qualities, the one who is able to get other people to carry out their interests. That would be the person who is generous, honest and who gave credit to other people for their own ideas. All types of qualities. Whomever you admire the most in the class. Then I would throw in a hooker. In addition to this person you had to go short one of your classmates.
That is more fun. Who do I want to go short? You wouldn't pick the person with the lowest IQ, you would think about the person who turned you off, the person who is egotistical, who is greedy, who cuts corners, who is slightly dishonest.
As you look at those qualities on the left and right hand side, there is one interesting thing about them, it is not the ability to throw a football 60 yards, it is not the ability the run the 100 yard dash in 9.3 seconds, it is not being the best looking person in the class, they are all qualities that if you really want to have the ones on the left hand side, you can have them.
They are qualities of behavior, temperament, character that are achievable, they are not forbidden to anybody in this group. And if you look at the qualities on the right hand side the ones that turn you off in other people, there is not a quality there that you have to have. You can get rid of it. You can get rid of it a lot easier at your age than at my age, because most behaviors are habitual. The chains of habit are too light to be felt until they are too heavy to be broken. There is no question about it. I see people with these self-destructive behavior patterns at my age or even twenty years younger and they really are entrapped by them.
They go around and do things that turn off other people right and left. They don't need to be that way but by a certain point they get so they can hardly change it. But at your age you can have any habits, any patterns of behavior that you wish. It is simply a question of which you decide.
If you did this... Ben Graham looked around at the people he admired and Ben Franklin did this before him. Ben Graham did this in his low teens and he looked around at the people he admired and he said, "I want to be admired, so why don't I behave like them?" And he found out that there was nothing impossible about behaving like them. Similarly he did the same thing on the reverse side in terms of getting rid of those qualities. I would suggest is that if you write those qualities down and think about them a while and make them habitual, you will be the one you want to buy 10% of when you are all through. And the beauty of it is that you already own 100% of yourself and you are stuck with it. So you might as well be that person, that somebody else.
First of all, I'd say marry the right person. And I'm serious about that.It will make more difference in your life. It will change your aspiration, all kind of things. It's enormously important who you marry. Beyond that, I would say that do what you would do if you were in my position, where the money means nothing to you. At 79, ... I work every day. And it's what I want to do more than anything else in the world. The closer you can come to that early on in your life, you know the more fun you're going to have in life and really the better you're going to do. So don't be driven where you think the last dollar is presently or anything of that sort. And then also go to work, if possible, for an organization or an individual that you admire. I mean I offered to go to work for Ben Graham because there was nobody I admired more in the business than him. I didn't care what he paid me. When he finally did hire me in 1954, I moved from Omaha to New York and I didn't know what I was getting paid until I got my first paycheck. But I knew I wanted to work for Ben Graham. And I knew I would jump out of bed every morning and be excited about what I would do and I would go home at night smarter than I was in the morning. Go to work at a job that turns you on and a person that turns you on and institution.back to the questions.
What graduate school would you recommend and whom would you recommend to study with in the area of investments?
I would recommend Bruce Greenwald, Columbia University. He brings practicality into the studies. University of Florida and the University of Missouri have a good curriculum. It is always good to check with recent graduates.
[Charlie Munger: There are courses at Stanford with Jack MacDonald. They are a clan of their own and they are right but you learn a lot about things that Warren and I do not believe.]
What's the best way to prepare for the future?
Imagine that you had a car and that was the only car you'd have for your entire lifetime. Of course, you'd care for it well, changing the oil more frequently than necessary, driving carefully, etc. Now, consider that you only have one mind and one body. Prepare them for life, care for them. You can enhance your mind over time. A person's main asset is themselves, so preserve and enhance yourself.
Importance of maths? Why does math reflect reality?
It’s just the way it is. If you want to understand science, you have to understand math. In business, if you’re enumerate, you’re going to be a klutz. The good thing about business is that you don’t have to know any higher math.
It may be an advantage not to know it.
[Charlie Munger: Yes, it is. If you know it, you feel the need to use it.]
Are there any up-and-coming role models we should study?
You don’t have to study anyone new. Just study people like Tom Murphy and Don Keough [of Capital Cities/ABC and Coca-Cola, respectively]. If you learned the management lessons of Tom Murphy, you don’t need to learn any other lessons.
[Charlie Munger: We’re not following the examples of any 40-year-old investors.]
I didn’t know there were any 40-year-old [hedge-fund managers] – I thought they were all 25. [Laughs]
Can you comment on the student visits to Berkshire? and more widely on investment education?
I will have in this school year close to 40 schools visit. They usually double up, because 20 days is about all I can handle. They offer good ideas and I’m offering two B shares, not the usual one, if I buy a company they recommend – a special one-time offer!
Twenty-five years ago, schools tended not to stray too far from the efficient-markets orthodoxy that not only wouldn’t do students any good, but might even get them in trouble. I think it’s better today. Prof. Hirschey has done a great job at [the University of Kansas]. Missouri, Florida, Columbia [Bruce Greenwald and others], Stanford [Jack McDonald] – a lot of schools – have people in those departments who are doing a great job.
My experience with the students is that they generally have their heads screwed on right.
I enjoy all the students coming out, but they all think they’re going to get rich by following in our footsteps. It troubles Charlie even more than I how much brainpower is going into money management.
An awful lot of students say they want to run a hedge fund. It’s hard to imagine a world in which everyone’s running a hedge fund. I don’t know what we’d do for clothing and food.
[Charlie Munger: I’ve heard that one-half of the students at elite schools want to go into private equity or hedge funds. They want to keep up with their age cohorts at Goldman. This can’t possibly end well in terms of meeting these expectations.]
What should I do with my life?
We prefer questions that are harder. [laughter]
What advice would you give to the quieter, introverted population, in order to raise their visibility and gain the recognition they deserve?
Warren Buffett: I avoided all classes that had public speaking; I got physically ill if I had to speak. I signed up for a Dale Carnegie course. I gave them a check for $100, and then I went home and stopped payment on the check. I was in Omaha, and finally took $100 cash to Wally Kean. I took that Carnegie course, and then I went to the University of Omaha to start teaching— knowing I had to get in front of people. Ability to communicate in writing and speaking—it is under- taught—and enormously important. If you can communicate well, you have an enormous advantage. Force yourself into situations where you have to develop those abilities. It helps to do it in front of similar people to start. At Dale Carnegie—they made us stand on tables. I may have gone too far. You are doing something very worthwhile if you are helping introverted people get outside of themselves.
Charlie Munger: It is a pleasure to have an educator come along who is doing something simple and important rather than foolish and unimportant.
Warren Buffett: I hope he won’t name names [laughter].
I’m 12 years old. There are a lot of things they don’t teach you in school. What things should I be looking into?
Warren Buffett: I’d read a daily newspaper. You want to learn about the world around you. Bill Gates quit at letter P in the World Book Encyclopedia. Just sop it up, and find what is most interesting to you. The more you learn, the more you want to learn. It is fun.
Charlie Munger: My suggestion is that the young person asking the question has already figured out how to succeed in life.
I have four children. Can you give them advice about keeping up with the Joneses?
Warren Buffett: Just keep up with the Buffetts. [laughter] We’ve always been fans of living within your means and income. You’ll have a lot more income later on. They will follow the example of their parents. You shouldn’t increase your cost of living without improving your standard of living. If you go too tough on children, they go crazy later on. There are plenty of people I don’t advise to save. If you already have money in a 401(k) and Social Security and have a little left over, who is to say you should give up taking your children to Disney World and the associated happiness now for a 30-foot boat later vs. a 20-foot boat later. There are benefits to spending now. It is not always better to save 10% than 5%, but definitely better than spending 105%. You need to live a life that is true to yourself. We don’t encourage extreme frugality. You are not a better or worse person if you live differently from your neighbor.
Charlie Munger: The best method is to train your child.
What exactly does it mean to be financially successful? How can one properly prepare themselves for the economic future?
Financially successful can mean many things. I believe a good definition is having sound financial habits which will enable you to have enough money to meet all your needs, as well as, unexpected events which might appear. One can best prepare themselves for the economic future by investing in your own education. If you study hard and learn at a young age, you will be in the best circumstances to secure your future. Somebody is sitting under a tree in the shade today, because somebody planted a seed long ago.
I started babysitting and I am really happy to get the money and put it in my saving's account but I want a raise. How should I ask?
Write down all of the reasons why you believe you deserve a raise. Some of the things which will be important to demonstrate are reliability, honesty, and dependability. You might also be able to demonstrate that other people in the neighborhood are being paid more than you for the same service. Then go visit your employer and present your case. The better prepared you are to present your position, the more likely you will be successful. Good luck!
How can I figure out what to be in life if there are so many choices?
Excellent question! My suggestion is to find something you enjoy. It doesn’t matter what it is. You can be a banker, a police officer, a doctor or a railroad engineer. Whatever you choose, if you enjoy what you do, you will never look at it as work!
My mom says I should save my money, but I want to buy a video game. What do you think?
Your mom is trying to teach you a very valuable lesson in business: the importance of saving. No business can grow and be successful if they spend their money as fast as they make it. And even if you only save a little bit, over time it will grow and grow and soon you'll be able to buy as many video games as you want! In the meantime, what about finding a part-time job or asking your parents if there are extra chores you can do at home to earn some extra money?
I teach at a community college in Florida, teaching students to invest in themselves. Financial independence and freedom. Slow and steady wins the race. Law of reciprocity. Etc, etc, etc. What else should I be doing?
Warren Buffett: [Laughing] I’m ready to hire your entire class right now. The most important investment is in themselves. Potential horsepower is rarely achieved. Just imagine you are 16 and your parents are going to give you the car of your choice. But the catch is that it is the only car you would get for the rest of your life. How would you choose to proceed? Of course, you will read the manual 5 times. How would you treat it? You’ll keep it garaged, change the oil twice as frequently as you’re supposed to, and keep rust to a minimum because you know it needs to last a lifetime. I tell students that you get only one body and one mind. You’d better treat them the same way. It’s hard to change habits at age 50 or 60. Anything students do to invest in body and mind is good, particularly in the mind. We didn’t work too hard on bodies around here. It pays off in an extraordinary way. The best asset is your own self. You can become, to an enormous degree, the person you want to be. When I talk to university classes, I ask them to buy one classmate to own [his or her earnings] for the rest of their life. They would pick the person not with the highest IQ, but the ones who are the most effective; the ones you want to be around. These people are easy to work with, generous, on time, don’t claim credit, help others. Those are good habits to develop. Leaders are effective because people want to be around them.
Charlie Munger: I have a specific suggestion that I would add to your extensive repertoire. I would teach them to avoid being manipulated by vendors and lenders by using their own tricks against them. Cialdini has a new book—it is called Yes! It is not as good as Influence, but I recommend it and recommend adding both of those books to your repertoire.
What advice do you give to young entrepreneurs? I am starting a business, and I want it to be successful. Aristotle, when asked definition of wealth, said it is he who spends less than he earns.
Warren Buffett: I predict you are going to build one. If you start with that principle you enunciated, and there are similar principles. There is nothing like following your passion. Managers -- some went to business school, some didn’t. The common factor is they love what they do. You have to find that in life. It was dumb luck my Dad was in securities business. I got entranced with that. If you find something that turns you on, you’ll do well in it. There isn’t that much competition. There won’t be many that run faster than you in the race you ELECT to run. If you haven’t found it yet, keep looking. We had 70 managers, and some didn’t go to high school. Mrs B didn’t do a day of school in her life. NFM is 78 acres, 400m of sales, largest furniture store in USA, with $500 of capital paid in. She couldn’t read or write and never went to school a day in her life. In her 90’s she invited me over to her house for dinner, which was very unusual. The couches and tables in her house - they all had price tags – it made her feel at home! “The power which resides in him is new in nature, and none but he knows what that is which he can do, nor does he know until he has tried.” Emerson. Find your passion and don’t let anything stop you.
What's a good thing to buy and than sell for a profit? For example candy or something in that nature?
I always advise people to get involved in a business they understand. Whether it is candy, car washes or lemonade, doesn't matter. When you buy something and sell it for a profit, you need to make sure that you are adding value to justify the increased price. That is where the profit will come from. If you start a lemonade stand for example, you can buy your lemons and your sugar and materials for a certain cost. When you make them into lemonade, you will charge more than your original cost because your labor has created a new product from the original materials. Do something you know and like, and it will never be work.
I want to start my own business, what should I do? A car wash?
The most important thing is that you find something you enjoy doing. If you're not happy doing your job, you won't be successful. If you enjoy washing cars, that can be a terrific way to earn some extra money. Whatever you do, be sure to provide a good service at a fair price.
What are the best ways for a 10-year-old to earn money?
That was a subject I gave a lot of thought to when I was 10. You’re probably a little young to deliver papers. I got half my capital from that – I liked it because I could do it by myself. You can do it when you’re 12 or 13. I tried 20 different businesses by the time I got out of high school. The best was a pinball-machine business, but I wouldn’t recommend it now.
I saw a study that correlated business success with a range of variables like grades, parents, whether one attended business school – and they found it correlated best with the age at which you first started in business. You see this in athletics and music as well.
Look for what people don’t want to do for themselves. Ask around, see what other kids have done. A paper route is a good idea.
If some people in debt worked an extra one-and-a-half hours a day, they could pay off their debt.
Munger: When I was young, I read The Richest Man in Babylon, which said to under-spend your income and invest the difference. Lo and behold, I did this and it worked. I got the idea to add a mental compound interest too, so I decided I would sell myself the best hour of the day to improving my own mind, and the world could buy the rest of the time. It sounds selfish, but it worked.
If you become very reliable and stay that way, it will be very hard to fail in doing anything you want.
Partly because of marrying well, I am able to manage the money of my husband and myself full time. I wanted to ask a diversification question. Each of us has a traditional and a Roth IRA. Should the assets in those accounts be separated, or managed as a single entity?
Warren Buffett: Sounds like your marriage will last. Think of it as one unit. Don’t worry about the location of assets. Just look at the whole picture. Don’t treat them as separate pots. I don’t think about what entities things are in. With that, I’ll turn it to our marital expert, Charlie Munger.
Charlie Munger: Taxable income may be more suitable for a tax-deferred account. Apart from that, put it all in one pot.
Imagine you are investing with small sums of money at 30 years old, with your first $1 million. Your savings can cover expenses for 18 months. You are not a full-time investor. What advice do you have, please be as specific as possible. What asset classes and what percents?
Warren Buffett: Put it all in a low cost index fund. Vanguard. Reliable, low cost. If you’re not professional, you are thus an amateur. Unless bought during strong bull market, that investment would outperform bonds over a long period of time and I would forget it and go back to work.
Charlie Munger: The great horde of professionals are taking croupier profits out of the system, and most of them are pretending to be experts. If you don’t have prospects as a professional investor, do an index fund.
Warren Buffett: No one will give you that advice since it doesn’t make anyone money. You will get a good return. Why should you expect more than that when you don’t bring anything to the party?
© 1996- The Buffett