CategoryWarren buffett

Dividend policy is often reported to shareholders, but seldom explained. A company will say something like, “Our goal is to pay out 40% to 50% of earnings and to increase dividends at a rate at least equal to the rise in the CPI”. And that’s it – no analysis will be supplied as to why that particular policy is best for the owners of the business. Yet, allocation of capital is crucial to business and investment management. Because it is, we believe managers and owners should think hard about the circumstances under which earnings should be retained and under which they should be distributed.
The first point to understand is that all earnings are not created equal. In many businesses particularly those that have high asset/profit ratios – inflation causes some or all of the reported earnings to become ersatz. The ersatz portion – let’s call these earnings “restricted” – cannot, if the business is to retain its economic position, be distributed as dividends. Were these earnings to be paid out, the business would lose ground in one or more of the following areas: its ability to maintain its unit volume of sales, its long-term competitive position, its financial strength. No matter how conservative its payout ratio, a company that consistently distributes restricted earnings is destined for oblivion unless equity capital is otherwise infused.
Restricted earnings are seldom valueless to owners, but they often must be discounted heavily. In effect, they are conscripted by the business, no matter how poor its economic potential. (This retention-no-matter-how-unattractive-the-return situation was communicated unwittingly in a marvelously ironic way by Consolidated Edison a decade ago. At the time, a punitive regulatory policy was a major factor causing the company’s stock to sell as low as one-fourth of book value; i.e., every time a dollar of earnings was retained for reinvestment in the business, that dollar was transformed into only 25 cents of market value. But, despite this gold-into-lead process, most earnings were reinvested in the business rather than paid to owners. Restricted earnings need not concern us further in this dividend discussion.
Let’s turn to the much-more-valued unrestricted variety. These earnings may, with equal feasibility, be retained or distributed. In our opinion, management should choose whichever course makes greater sense for the owners of the business. This principle is not universally accepted. For a number of reasons managers like to withhold unrestricted, readily distributable earnings from shareholders – to expand the corporate empire over which the managers rule, to operate from a position of exceptional financial comfort, etc. But we believe there is only one valid reason for retention. Unrestricted earnings should be retained only when there is a reasonable prospect – backed preferably by historical evidence or, when appropriate, by a thoughtful analysis of the future – that for every dollar retained by the corporation, at least one dollar of market value will be created for owners. This will happen only if the capital retained produces incremental earnings equal to, or above, those generally available to investors.
To illustrate, let’s assume that an investor owns a risk-free 10% perpetual bond with one very unusual feature. Each year the investor can elect either to take his 10% coupon in cash, or to reinvest the coupon in more 10% bonds with identical terms; i.e., a perpetual life and coupons offering the same cash-or-reinvest option. If, in any given year, the prevailing interest rate on long-term, risk-free bonds is 5%, it would be foolish for the investor to take his coupon in cash since the 10% bonds he could instead choose would be worth considerably more than 100 cents on the dollar. Under these circumstances, the investor wanting to get his hands on cash should take his coupon in additional bonds and then immediately sell them. By doing that, he would realize more cash than if he had taken his coupon directly in cash. Assuming all bonds were held by rational investors, no one would opt for cash in an era of 5% interest rates, not even those bondholders needing cash for living purposes.
If, however, interest rates were 15%, no rational investor would want his money invested for him at 10%. Instead, the investor would choose to take his coupon in cash, even if his personal cash needs were nil. The opposite course – reinvestment of the coupon – would give an investor additional bonds with market value far less than the cash he could have elected. If he should want 10% bonds, he can simply take the cash received and buy them in the market, where they will be available at a large discount.
Think about whether a company’s unrestricted earnings should be retained or paid out. The analysis is much more difficult and subject to error because the rate earned on reinvested earnings is not a contractual figure, as in our bond case, but rather a fluctuating figure. Owners must guess as to what the rate will average over the intermediate future. However, once an informed guess is made, the rest of the analysis is simple: you should wish your earnings to be reinvested if they can be expected to earn high returns, and you should wish them paid to you if low returns are the likely outcome of reinvestment.
Many corporate managers reason very much along these lines in determining whether subsidiaries should distribute earnings to their parent company. At that level,. the managers have no trouble thinking like intelligent owners. But payout decisions at the parent company level often are a different story. Here managers frequently have trouble putting themselves in the shoes of their shareholder-owners.
With this schizoid approach, the CEO of a multi-divisional company will instruct Subsidiary A, whose earnings on incremental capital may be expected to average 5%, to distribute all available earnings in order that they may be invested in Subsidiary B, whose earnings on incremental capital are expected to be 15%. The CEO’s business school oath will allow no lesser behavior. But if his own long-term record with incremental capital is 5% – and market rates are 10% – he is likely to impose a dividend policy on shareholders of the parent company that merely follows some historical or industry-wide payout pattern. Furthermore, he will expect managers of subsidiaries to give him a full account as to why it makes sense for earnings to be retained in their operations rather than distributed to the parent-owner. But seldom will he supply his owners with a similar analysis pertaining to the whole company.
In judging whether managers should retain earnings, shareholders should not simply compare total incremental earnings in recent years to total incremental capital because that relationship may be distorted by what is going on in a core business. During an inflationary period, companies with a core business characterized by extraordinary economics can use small amounts of incremental capital in that business at very high rates of return. But, unless they are experiencing tremendous unit growth, outstanding businesses by definition generate large amounts of excess cash. If a company sinks most of this money in other businesses that earn low returns, the company’s overall return on retained capital may nevertheless appear excellent because of the extraordinary returns being earned by the portion of earnings incrementally invested in the core business. The situation is analogous to a Pro-Am golf event: even if all of the amateurs are hopeless duffers, the team’s best-ball score will be respectable because of the dominating skills of the professional.
Many corporations that consistently show good returns both on equity and on overall incremental capital have, indeed, employed a large portion of their retained earnings on an economically unattractive, even disastrous, basis. Their marvelous core businesses, however, whose earnings grow year after year, camouflage repeated failures in capital allocation elsewhere (usually involving high-priced acquisitions of businesses that have inherently mediocre economics). The managers at fault periodically report on the lessons they have learned from the latest disappointment. They then usually seek out future lessons. (Failure seems to go to their heads.)
In such cases, shareholders would be far better off if earnings were retained only to expand the high-return business, with the balance paid in dividends or used to repurchase stock (an action that increases the owners’ interest in the exceptional business while sparing them participation in subpar businesses). Managers of high-return businesses who consistently employ much of the cash thrown off by those businesses in other ventures with low returns should be held to account for those allocation decisions, regardless of how profitable the overall enterprise is.
Nothing in this discussion is intended to argue for dividends that bounce around from quarter to quarter with each wiggle in earnings or in investment opportunities. Shareholders of public corporations understandably prefer that dividends be consistent and predictable. Payments, therefore, should reflect long-term expectations for both earnings and returns on incremental capital. Since the long-term corporate outlook changes only infrequently, dividend patterns should change no more often. But over time distributable earnings that have been withheld by managers should earn their keep. If earnings have been unwisely retained, it is likely that managers, too, have been unwisely retained.
Historically, Berkshire has earned well over market rates on retained earnings, thereby creating over one dollar of market value for every dollar retained. Under such circumstances, any distribution would have been contrary to the financial interest of shareholders, large or small.

I am reading the annual letters to shareholder from warren buffet again. Anyone wanting an education on investing should read and re-read these letters. Found several great quotes/ ideas which I will be sharing over a few posts.

On Temperament
“Our advantage, was attitude: we learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.  We have no idea how long the excesses will last, nor do we know what will change the attitudes of government, lender and buyer that fuel them.  We do know that the less the prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs”

On buying businesses
“ I’ve said many times that when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.  After many years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers.”

On Capital allocation
“And, despite the age of the equipment, much of it was functionally similar to new equipment being installed by the industry.  Despite this “bargain cost” of fixed assets, capital turnover was relatively low reflecting required high investment levels in receivables and inventory compared to sales.  Slow capital turnover, coupled with low profit margins on sales, inevitably produces inadequate returns on capital.  Obvious approaches to improved profit margins involve differentiation of product, lowered manufacturing costs through more efficient equipment or better utilization of people, redirection toward fabrics enjoying stronger market trends, etc.  Our management was diligent in pursuing such objectives.  The problem was that our competitors were just as diligently doing the same thing.
     Accounting consequences do not influence our operating or capital-allocation decisions.  When acquisition costs are similar, we much prefer to purchase $2 of earnings that is not reportable by us under standard accounting principles than to purchase $1 of earnings that is reportable.  This is precisely the choice that often faces us since entire businesses (whose earnings will be fully reportable) frequently sell for double the pro-rata price of small portions (whose earnings will be largely unreportable).  In aggregate and over time, we expect the unreported earnings to be fully reflected in our intrinsic business value through capital gains”

On Intelligent Investing
1. that you should look at stocks as part Ownership of a business,

2. that you should look at market fluctuations in terms of his “Mr. Market” example and make them your friend rather than your enemy by essentially profiting from folly rather than participating in it, and finally,

3. the three most important words in investing are “Margin of safety” – which Ben talked about in his last chapter of The Intelligent Investor – always building a 15,000 pound bridge if you’re going to be driving 10,000 pound trucks across it.

On Investing strategy
“     Our equity-investing strategy remains little changed from what it was years ago:  “We select our marketable equity securities in much the way we would evaluate a business for acquisition in its entirety.  We want the business to be one (a) that we can understand; (b) with favorable long-term prospects; (c) operated by honest and competent people; and (d) available at a very attractive price.”  We have seen cause to make only one change in this creed: Because of both market conditions and our size, we now substitute “an attractive price” for “a very attractive price.”
     But how, you will ask, does one decide what’s “attractive”?  In answering this question, most analysts feel they must choose between two approaches customarily thought to be in opposition:  
“value” and “growth.”  Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing.  We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago).  In our opinion, the two approaches are joined at the hip:  Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.
     Whether appropriate or not, the term “value investing” is widely used.  Typically, it connotes the purchase of stocks having attributes such as a low ratio of price to book value, a low price-earnings ratio, or a high dividend yield.  Unfortunately, such characteristics, even if they appear in combination, are far from determinative as to whether an investor is indeed buying something for what it is worth and is therefore truly operating on the principle of obtaining value in his investments.  Correspondingly, opposite characteristics – a high ratio of price to book value, a high price-earnings ratio, and a low dividend yield – are in no way inconsistent with a “value” purchase.
     Similarly, business growth, per se, tells us little about value.  It’s true that growth often has a positive impact on value, sometimes one of spectacular proportions.  But such an effect is far from certain.  For example, investors have regularly poured money into the domestic airline business to finance profitless (or worse) growth.  For these investors, it would have been far better if Orville had failed to get off the ground at Kitty Hawk: The more the industry has grown, the worse the disaster for owners.
Growth benefits investors only when the business in point can invest at incremental returns that are enticing – in other words, only when each dollar used to finance the growth creates over a dollar of long-term market value.  In the case of a low-return business requiring incremental funds, growth hurts the investor. “

Article on the gates / Buffett visit to University of nebraska. Some excerpts below



By Dick Piersol
Microsoft chairman Bill Gates, left, and billionaire investor Warren Buffett participate in a question and answer session with students at the University of Nebraska-Lincoln’s College of Business Administration, Friday, Sept. 30, 2005. (AP)
Lincoln Journal StarAs recollections of Tommy Lee’s visit fade like a cheap tattoo, the University of Nebraska-Lincoln refreshed its celebrity appeal on Friday with an appearance by the goalposts of capitalism.The world’s two richest beings — Microsoft chairman and chief software architect Bill Gates, a Harvard dropout, and his bridge-playing buddy Warren Buffett, the investment industry’s biggest rocker, chairman of Berkshire Hathaway and a UNL grad — communed with business students at the Lied Center.
In a two-hour question-and-answer session to be televised next year by NET, the Nebraska public television network, the wealthiest of America’s good ole boys answered unscripted questions in a relaxed setting for an audience of about 1,800, mostly students from the UNL College of Business Administration.The university warmed up and amused the audience with filmed introductions: TV’s Judge Judy adjudicated a disputed $2 bet between the two moguls she described as “elderly delinquents.” California Gov. Arnold Schwarzenegger ran Buffett through enforced calisthenics. And entertainer Jimmy Buffett performed a vocal duet of “Ain’t She Sweet,” with the richer Buffett on ukulele.Then the featured guests got down to business, starting with ethics in business during challenging times, how they enforce their own sense of integrity in their organizations and ranging beyond to a variety of topics.Buffett said he sends a letter every couple of years to 40 or so Berkshire company managers to let them know they can afford to lose money but not their reputation.“I ask them how they would feel about any given action if it were to be written up in the local newspaper by a smart but pretty unfriendly reporter,” Buffett said.Nobody in the friendly audience asked about Berkshire’s latest brushes with the law, for example, the Securities and Exchange Commission’s September notice to Berkshire that the SEC is considering civil charges against Joseph Brandon, chief executive of Berkshire’s General Re, for potential violations of securities law.Questions ranged then to public policy, specifically the income tax, and whether it ought to be flattened.


One student asked what field of work the two might have chosen if they were 20 years old again.Gates answered medical science and biology. The Bill and Melinda Gates Foundation has devoted billions of dollars to solving health problems in developing nations.Buffett chose journalism, and said in a sense, he is a reporter.“I assign myself a story, what is this company worth and why?” he said. Buffett owns a big piece of the Washington Post and told the audience his parents met at the university when his father was editor of the Daily Nebraskan. His mother was the daughter of an editor.

A classic !!

http://www.maoxian.com/archive/20030108.html

The other day i posted a link for a talk which buffett gave in omaha. One of the question was on his opinion of the telecom industry. He said that he cannot predict the future of industry ( said he does not even know the complete history) and the industry has too much change (which is bad for the investor)

This had me thinking and then i came across this article below in economist (link given , i have added on a portion of the article as it could have some copyright issues ). On reading this article, i think one would tend to agree with buffett. It is very difficult to really predict the long term business model of the telecom industry. Today VOIP is the killer app , tomorrow it could be something else ….

http://www.economist.com/business/displayStory.cfm?story_id=4232442

Established telecoms companies are fighting an increasingly bitter battle against innovative attackers

That is because IPTV forms part of a larger, and quite desperate, defensive strategy now being adopted by telecoms firms against fierce attacks on multiple fronts. On one front are cable giants, such as America’s Comcast, which are luring customers with an enticing “triple-play bundle” of TV, broadband and telephony services. On a second front are mobile-phone operators, which young customers in particular are increasingly using to “cut the cord” from their fixed-line company.

But arguably most dangerous of all is the third front, where traditional telecoms firms are under attack from voice-over-internet-protocol (VOIP) providers, which use the internet to carry conversations that would previously have taken place via a conventional phone. TeleGeography, a research firm, estimates that the number of subscribers to VOIP services such as Vonage, which lets users plug their traditional phones into a gadget connected to the internet, will grow from 1.8m at the start of this year to 4m by the end of December in America alone; by 2010, it projects over 17m American subscribers. This does not count the world’s largest VOIP provider, Skype, which uses a small and simple software application to let users make free calls between computers—so far, it has been downloaded 141m times.

Hanging on the telephone

Traditional telecoms firms are doing their best to respond to these threats by adopting internet technologies themselves. This week, VSNL, the top operator in India for international calls, said it would buy Teleglobe, the world’s largest international wholesale VOIP carrier. Every big telecoms firm is investing to migrate from old, circuit-switched networks to new internet-based ones, with Britain’s BT probably moving fastest. The threat from VOIP would then be neutralised, as the telecoms firms themselves would be providing it. Even so, VOIP makes already grim revenue forecasts for old-style telecoms firms look truly depressing (see chart).

Found these excerpts on the fool.com website.

This speech is useful in resovling some question we all have as investors
– how do i accumulate a decent nest egg
– what to focus on when analysing a business (important and knowable)
– how to investigate / research a company


The first section of the speech I have quoted was Mr. Buffett’s answer to the moderator’s question on how individuals can grow their investment portfolio. I think this is the first time I have heard of him using the snowball analogy.

Mr. Buffett: “The first thing to realize is that it takes a long time. I started when I was eleven. Accumulating money is a little like having a snowball going downhill, it’s important to have a very long hill. I’ve had a fifty-six year hill. It’s important to work in sticky snow and you need a little snowball to start with, which I got from delivery the post actually. It’s better if you’re not in too much of a hurry and keep doing sound things.”

“The biggest thing I’ve had going for me is that we have never had big loses. I think almost everyone on Wall Street has had winners that were comparable to what we’ve had at Berkshire Hathaway but we have tended to avoid the losers and we have done that by trying to stick in what I call my circle of competence. I think that is the biggest thing in business, figuring out where you are good and where you are not. It doesn’t make any difference how big the circle is the important thing is that you know where the perimeter is. You can have a very small circle but if you stay within that circle you’ll do fine. It’s like Tom Watson said, “I’m no genius but I’m smart in spots and I stay around those spots.

”“Well that is what I try to do in investments. I try to stick with companies that I can understand. You don’t always have huge winners that way but you’ll almost never lose any significant money. So come back and see me in 56 years and tell me how it worked.

”The second section of the speech is important because it provides us with an understanding of exactly what ideas of Mr. Graham actually caught the interest of Mr. Buffett. I also find it interesting that another great investment mind besides Mr. Graham found that technical analysis is useless. Another idea that he brings up in this section is how knowledge builds on itself. I think that is especially true for investors that already think of the investment process correctly but could present problems to those that follow technical analysis or believe in the EMT.

Mr. Buffett: “Well, the biggest thing was picking up a book when I was nineteen by Benjamin Graham called the Intelligent Investor. I had been interested in stocks since I was six or seven and I’d charted and done all this technical analysis, it was a lot of fun but it wasn’t very profitable. I read the Intelligent Investor and it really had three important ideas in it: Think of a stock as part of a business, don’t think of it as some little ticker symbol moving around but think of it as actually buying a piece of a business just like you’d buy a service station or a dry cleaning establishment in your hometown. Instead you’re buying one-onehundredth of a percent of General Motors.”“Think of what you understand about the business and how you can value it. If it’s one you can’t understand then go onto the next one. His second concept of your attitude toward stock market changes is prices so that he said the stock market was there to serve you not to instruct you. So essentially he said that when a stock goes down that is good news if you know what you’re doing because it just means that you can buy more of a business that you like even cheaper.

“Finally the concept of a Margin of Safety which he said if you were driving a car or a truck that weighs 9800 pounds and you see a bridge that says limit 10,000 pounds you go look for another bridge that says 20,000 pounds and you only buy securities when you think they are substantially below what you think they are worth. Those concepts all made sense to me.” “Those fundamental principles applied in various ways are the key to it [investing]. I’ve had an additional advantage in that I have been in both business and in investments so I have actually seen businesses.

”“Owning See’s Candies, which we bought in 1972, really taught me a lot about the value of brands and what could be done with them so I understood Coca-Cola better when it came along in 1988 then if I had never been in Sees. We’ve got a profit of close to $10 billion dollars in Coke now a significant part of that is attributable to the fact that we bought Sees Candy for $25 million dollars in 1972.

”“The nice thing about investments is that knowledge accumulates on you and if you understand a business or industry once you are going to understand it for the next fifty years. There may be whole big areas you don’t understand, like technology would be with me) but once you understand candy you understand candy.

”The following quote, in my opinion, is a little plug in favor of focus investing.

Mr. Buffett: “When I miss on a business that I can understand, that I know about, and I don’t so something big, doing something small is a great sin in my view. [Those situations] have cost us billions of dollars literally”.

This next answer provides investors with a compelling way to think about investing. His advocating on focusing on the real issues and ignoring the items that don’t matter in the overall equation is a great repudiation of the investing theories behind momentum market players.

Mr. Buffett: “Well, if I could do it would eliminate a lot of other problems. I wouldn’t have to sit and think about whether Coca-Cola had a decent business or Gillette or something of the sort. It’s just that I don’t know how to do it and in business you’re looking for things that are important and knowable. If they’re not important than forget them and if they’re not knowable forget them but if they are important they are knowable and then the question is can you find things that are important and knowable? And you can but predicting the market is one that may be important but in my view is not knowable and I don’t know anyone who has made large amounts of money by predicting the market. If you can’t do it then you don’t want to let it interfere with something you can do.

”“Coca-Cola went public in 1919 or 1920 at $40 a share. It went to $19 within the year. It lost over 50% of its value, sugar went up in price and there were some other things. Now if you thought the market was there to instruct you might think this was a terrible business and I’d better get out of it. Or if you thought you saw the Great Depression coming or World War II, or all of these things you could sit there and think about all kinds of things. The important thing was to recognize what Coca-Cola was so if you put $40 dollars or $19 dollars at the start of that year it would be worth about $5 million now. That is what you really want, the big idea that you can understand.

”In the following answer Mr. Buffett explains how investors can use their own circle of competence in the investment process. I think you’ll enjoy the investigative reporter analogy.

Mr. Buffett: “Well, it is interesting that you mention reporting because Bob Woodward I think back in 73 or 74 when I first got interested in the post we had lunch at the Madison and he was saying what he might so with his money and I said Bob why don’t you assign yourself a story, get up an hour early every morning and work on a story you’ve assigned yourself. Now a sensible story to assign yourself would be what is the Washington Post Company worth. Now if Bradley gave you that story to work on what would you do for the next week or two? You go around and talk to people at Rand Television stations, Brokered Television Stations [?] bought them, and you would try to figure out what are the key variables in valuing a television station and you would look at the four that the Post has and apply those standards to that.”


“You would do the same thing to newspapers. You would try to figure out how the competitive battle between the Star and the Post was going to come out and how much difference the world would might be if the Post won that war then it was at the present time and what Newsweek. All of these things are a lot easier than the problems Woodward would usually be working on. Usually people wouldn’t want to talk to him but on this subject they would be glad to talk to him and then I said when you get all through with that add it up, divide by the number of shares outstanding. All he had to do was assign himself the right story and I assign myself stories from time to time.”

“I may assign myself the story about how Diary Queen works and I can figure that out a lot easier than I can figure out what an Intel is worth. It is reporting. A is getting into fairly simple businesses so there aren’t huge numbers of unknowables and then it is going around and talking to suppliers, its talking to competitors, maybe talking to ex-employees.” “One question I would always ask in the past, when I worked harder at this, I would go around and talk to everyone in an industry and say if you had to buy one of your competitors stocks, if you had to go away for ten years and had to buy one of your competitors stocks, which would it be and why? And if you do this enough times, it’s like reporting, it starts fitting together. It’s not really a complicated proposition.”

The last answer that I he gave in response to a student’s question related back to what Mr. Buffett feels is important for investors to take away from the teachings of Mr. Graham.Mr. Buffett: “Graham emphasized the quantitative in buying stocks below working capital and that sort of thing. I don’t regard that as the important part of his teaching. I really regard those principles of looking at the stock as a business, the margin of safety and those things so in that respect I’m pure Graham from those building blocks the quantitative parts I have changed some from but Graham wasn’t as interested in business as I am actually I mean I find it fun to go in and look at a business and try to determine what makes it tick or not tick and Graham looked at it as something we could do in an office looking at a bunch of numbers and he was very successful but he really believed in the used cigar butt approach to investing.”

Over the past few years i have gathered a good amount of material such as speeches, articles etc on investing greats such as warren buffett, charlie munger, graham and others.

i have added a new section on the sidebar which will provide links to these useful resources. I am now in the process of adding to the links and would be updating it on a regular basis.

i would be able to share only those resources for which i have a link and it is not copyrighted. For some stuff like buffett’s letter to partners, which cannot be shared , I would not be able to post any links.

So stay tuned !!

found this classic lecture at this link …enjoy !!

http://www.tilsonfunds.com/BuffettNotreDame.pdf

A free link to the video was posted at www.fool.com by a board member. i have put the link below

http://tinyurl.com/c85or
several very interesting comments by buffett

1. why smart people do dumb things – buffett discussed about the LTCM episode. how a bunch of very smart people with very high IQ and knowledge, managed to blow up everything they had. i like the statement – ‘why risk what you have and need for what you dont have and dont need’ ? i think this statement is very important to an investor. just think about it …if i am well off , why do i need to risk my networth for a few extra percentage points and if i am poor , i cannot afford to do it. i guess it makes sense to invest conservatively (in companies with strong competitive advantage )

2. buffett discusses at length the economics of coke / see’s and p&g. this was in response to a question on what is it he looks in a business. buffett discusses in detail about the what qualitative factors one should look for in a business. One new point which struck me and kept me thinking is buffetts reference to the pricing power of a company. companies with strong pricing power like coke tend to have a very formidable competitive advantage. in comparison commodity companies have poor or no pricing power (except during supply shortage )

3. buffett also discussed about reit investment and how although the discount to book looks enticing , but is justified due to inability of such companies to move / sell the big amount of real estate on their books

4. buffett talks of various other topics (which he has repeated in several other forums) , like developing good habits (example of taking a 10 % option on your classmate ), not prediciting the market etc

5.buffett also talk of the ‘important and knowable’ v/s ‘important and unknowable’ , when some one asked his opinion on interest rates. he pointed out that is better to focus on the first and get into good companies than worry about the second and let go of opportunities.

a very good speech and worth the 1.5 hours (in addition it is free)