Yang Linhua, Yan Meng
Omaha, Nebraska.
On the eve of the annual, globally renowned Berkshire Hathaway Annual Meeting, this quiet American town welcomed a group of important guests: 100 top students from MBA programs at prestigious U.S. universities. Their host was none other than "the Sage of Omaha," revered by Americans as "the most respectable man after one's father" — Warren Buffett.
Before treating the students to his favorite steaks, Buffett engaged in a closed-door dialogue with these "futures of America," marked by candor and heartfelt exchanges reminiscent of Steve Jobs' famous speech at Stanford. Here, what mattered wasn't specific investment strategies but rather "life choices and experiences."
"I hope you recognize that both written and oral communication skills are extremely important. If I could give you one piece of advice, it would be to work hard on improving these skills. I believe each of you has a great future ahead, and right now, I'd willingly pay $100,000 for just 10% of your future cash flow." In other words, Buffett believed that each person present would earn at least $1 million in the future: "But if you can elevate your verbal and written communication skills to another level, you can increase your own value by at least 50%."
In his hometown of Omaha, this greatest investor of all time drives an unluxurious car and appears quite ordinary. However, through investments in stocks and foreign exchange markets, he ranks among the wealthiest people in the world.
In 2010, Buffett ranked third on the Forbes list with a net worth of $47 billion. With Berkshire Hathaway's impressive 2009 performance report, his stock-picking strategy and investment targets have once again sparked a wave of imitation in the U.S. market.
Buffett summarized his investment philosophy into three points: viewing stocks as many small business units; regarding market fluctuations as friends rather than enemies (profits sometimes come from loyalty to friends); and purchasing stocks at prices lower than what you can afford. In other words, his basis for buying stocks is assuming that the stock market will close the next day or remain closed for five years.
From the perspective of value investment theory, once one sees market fluctuations as opportunities for profit, investing becomes speculation. "Nothing affects investment more than a gambling mentality." Today, Buffett's advocated "value investment theory" has swept the world, but in reality, few people can consistently adhere to it like he has for decades.
Like most accomplished elderly Americans, two things are very important to the 80-year-old Buffett: one is "philanthropy," and the other is "legacy."
As spring began in April, our special correspondent participated throughout in this dialogue about how this elder views himself in greater detail and experience.
"The Biggest Mistake You Can Make"
Q: Have you ever experienced any setbacks, and how do you view these failures?
Buffett: Definitely. For example, I used to be extremely afraid of public speaking and expressing myself, and I always considered it a problem. After graduating from high school, I once enrolled in Carnegie's Public Speaking training class and had already written out a $100 check (for payment), but when I got to the door, I became scared and didn't go in. Later, after much thought at home, I realized that if I couldn't overcome this fear, it would become a major obstacle in my life. So, I went back and signed up for the class.
I think people shouldn't be afraid of making mistakes. None of the mistakes I've made in my life have ultimately not turned into something good. For example, my fear of public speaking actually made me take it seriously, so I really enrolled in a course and deliberately trained myself. Now, this has become one of my strengths.
If I hadn't trained well in this area, I probably wouldn't have even dared to propose to my wife and ask her to marry me. Therefore, there are always some positive things hidden behind bad or failed events. You must believe that "faith" (Faith) is very important. You should believe in something, and eventually, these bad things or temporary failures will resolve themselves into good outcomes.
Sometimes, life truly reflects the saying "a blessing in disguise." When I was young, I dated the prettiest girl in our state, but it didn't work out. I heard she later divorced three times, and if we had been together then, I can't imagine what the future would have been like. So, in fact, the biggest mistake you can make, the most important decision in your life, is who you marry. Only in choosing your future partner, if you really make the wrong choice, will it cost you a lot. And this loss isn't just financial.
Q: How do you currently view your competitive advantages and strengths?
Buffett: Actually, I know nothing about company operations. Sometimes when I go to the factory, I can't even find the men's restroom. (laughs) But I am very clear about my strengths. For me, the two most important aspects of investment are: first, finding a "moat" (Moat). This is also one of my personal philosophies. A "moat" means that the company or business I invest in is one that competitors find difficult to enter and compete with, like a moat around a castle. I build very high walls, and others can't easily breach them. This is one of the crucial standards I consider when deciding whether to invest in a company.
The second point is having "untapped pricing power." This means that I can choose not to raise prices now, but I can do so at any time. First, I buy the company, and then I increase the price afterward. This pricing power hasn't been fully utilized or maximized yet.
For example, I once invested in a chocolate company called "See's," which is a very famous chocolate brand in the U.S. People often buy chocolates during Valentine's Day or holidays, and frequently, it's men buying them for their wives or lovers. Usually, when they buy every year, they don't remember how much they spent on chocolates the previous year. I think this is a great business. I have a "magic mirror" at home, and every year before Valentine's Day, I say to the magic mirror, "Magic mirror, magic mirror, how much can I raise See's chocolate prices this year?" The advantage of this business is that it raises prices every year without affecting its sales volume.
"Unchanging Things Amidst Change"
Q: What do you look for in a company when choosing an investment?
Buffett: I'll mention one point: "brand association." For example, when I invested in Coca-Cola, it evokes happiness. So Coca-Cola advertising during the Olympics aligns with our brand image; similarly, when I invested in Gillette, a shaving razor brand with an 80%-plus global market share representing "transition to manhood," it advertises during American baseball series because many young boys watch. Every day, I think about how a product and company can win over consumers' psychology, which is the most important aspect—winning over consumer psychology means winning the market.
For instance, I prefer industries like beer or razors because, in these sectors, there are basically no "generic brands" or off-brand products that pose significant threats to branded goods. Thus, the industry's sustainability is stronger, and typically, these branded products have higher "moats" and are less likely to be attacked by others. In contrast, my See's chocolate business is more susceptible to competition from off-brands. I rely on husbands who buy off-brand chocolates telling their wives, "Dear, I bought a bargain..." (laughs)
Q: Why don't you invest in technology companies? Nowadays, there are many tech companies, and they develop quickly.
Buffett: It's not my forte. The person who understands technology companies most deeply might not even rank in the top thousand or ten thousand worldwide. I clearly understand my own strengths. There are thousands upon thousands of companies in the world, and I generally categorize them into three types: "good companies," "bad companies," and "difficult companies."
Good companies and bad companies are ones I can discern within half a day, but those that I can't figure out in half a day, I won't force myself to spend over half a month trying to understand. I won't waste a lot of time on companies I can't "figure out." I'm not a genius, but I am smarter and more insightful in certain areas than others. The most important thing for a person is to stay within their areas of strength and not wander into other fields unnecessarily. You need to have "focus" and "stay around."
Another example is the gum business. No matter how fast the world develops or how rapidly technology advances, the demand for gum will not change. Even my friend Bill Gates agrees with this. I always look for "unchanging things amidst change" in my investments, which helps reduce risks.
Q: Many people's emotions are influenced by external factors when making investments. For example, the company you invested in might have undergone significant fluctuations, or you see others making a lot of money. Over the years, how do you generally control your emotions and make rational investments?
Buffett: Effective emotional control could increase my investment returns by another 30%. (laughs) Indeed, this is very important, and I benefit from staying in the small town of Omaha, which is relatively unaffected by outside influences. There aren't many fancy restaurants or big shopping malls here, and it's very quiet.
I think that when you go into the office every day to look at and analyze information and data, one crucial point is to maintain a stable mood and a clear mental framework. The same fact might lead to different interpretations depending on your emotional fluctuations, so the most important thing is to maintain "stability."
I believe that a good investor must have two qualities: first, a certain level of intelligence (fortunately, it doesn't require a lot of intelligence) (laughs); and second, your temperament and personality must suit this job—you need to be able to maintain a relatively stable mood.
"They're Crazy"
Q: What are your thoughts on the U.S. government's economic policies after the financial crisis?
Buffett: The financial crisis had some very negative effects. At the time of the financial crisis, people cared less about individual creditworthiness and quality. Your own credit and quality became less important; what mattered more was how others perceived your credit and quality. That was a very panicked time, and no one truly had the time to think about a company's capabilities and values, such as whether the company would have the ability to repay me in the future. You might have a good credit record, but if I were a bank, I simply wouldn't trust you, and you wouldn't be able to prove anything to me.
My views on the U.S. government's economic policies after the financial crisis are that the U.S. government should adopt some more aggressive tax policies; otherwise, it would be difficult to sustain. Take our company, for example. Our employees' annual salaries range from $60,000 to $800,000, and on average, they pay 34% income tax, while I only pay 16% tax because much of my income comes from investments, which are taxed at a lower rate. If your income is salary-based, the income tax rate is higher. But even I feel that paying such a low amount of tax is insufficient.
Q: What are your thoughts on China now, and have you considered more investments in China?
Buffett: I've always had great confidence in China. I believe China's growth is not a fleeting illusion but a real, sustained phenomenon. China has very smart, hardworking people, and the U.S. also has very diligent people. However, in the past 50 years, the U.S. has developed much faster than China because it had a better system that could fully unleash people's potential. But I see that China now also has a fairly good system that can fully unleash people's potential. This is an incredible force, and it's immense.
What I mean by systemic differences is whether you encourage inherited industries or royal children versus encouraging those who truly work hard, allowing truly excellent people to gain opportunities. From this perspective, China still has more human potential to unlock. Bill Gates and I visited China for the first time in 1995. In these 15 years, China's entire economy has experienced tremendous growth. There may be some minor setbacks along the way, but I believe that China's future growth is undeniable, and this growth mainly stems from fully unleashing human potential.
I have mainly invested in two companies in China. One is PetroChina, and the other is BYD. When I invested in PetroChina, I didn't look at the stock price. I usually don't look at stock prices first because I want to avoid being influenced. First, I reviewed PetroChina's basic information and made my own valuation, then found that the company was worth $100 billion, but the market value reflected by PetroChina's stock at the time was only $35 billion, meaning it could triple in value. So, I bought the maximum allowable limit set by the Chinese government. Once, PetroChina even sent someone from their investor relations department to talk to me because I was a large buyer, but actually, I didn't understand anything they said (laughs). A year and a half ago, I invested in BYD. BYD has many technical engineers, and their CEO, Wang Chuanfu, is an extraordinary person. I am very optimistic about their management team.
Q: How do you view the current Sino-U.S. relationship, including VAT invoices?
Buffett: I feel that there is a group of people within the U.S. government intentionally using China as a "scapegoat," which is absolutely insane and irrational. Ultimately, I believe that all people around the world should hope for China to become more prosperous. Think about it, does anyone wish for a country that accounts for about 20% of the world's population to remain poor forever, especially if that country possesses nuclear weapons? Is that the kind of world we want?
I believe the biggest danger in the future world is if third-world countries or rogue nations or a small group of people possess nuclear weapons or biochemical weapons. Therefore, if people in other parts of the world can improve their living standards, it benefits everyone equally and is a good thing.
My feeling is that within the next year, there might be a group of people in the U.S. government who try to amplify this issue for political purposes, seeking scapegoats. I hope that you younger generations treat these issues with your own "filters" and not be easily swayed by such things.