Warren Buffett – How To Invest In Stocks For Beginners (In 2021)

Speaker 1: When you look to the greatest investor of all time, many names come up Peter Lynch, Benjamin Graham, George Soros, Carl Icahn, Ray Dalio, but above all of these names, one irrefutably rises to the top. And that is Warren Buffett, the man who started investing when he was just 11 years old, using it to become one of the wealthiest men in the world in this next clip. I’m going to show you eight tips that Buffett gives to the regular person to invest.

Speaker 2: Well, Japanese companies are in very low returns on equity, and they have a bunch of businesses that are in four or five, six percent on equity. And it’s very hard to earn a lot as an investor when the business you’re in doesn’t earn very much money. Now, some people do it. In fact, I’ve got a friend, Walter Schloss, who worked with Graham at the same time I did. And and it was the first way I went of stocks to buy stocks selling way below working capital. Very cheap quantitative stocks, I call it. The cigar button approach to investing is that you walk down the street and you look around for a cigar but someplace and you find that you see one and it’s soggy and kind of repulsive. But there’s one puff left in it. So you pick it up and the puff is free. I mean, it’s a cigar, but stock. I mean, you get one free puff on it and then you throw it away and you walk on the street. I know what I mean. It’s not elegant, but, you know, if you’re looking for a free puff, it works. Then don’t get a low return businesses. But time is the friend of the wonderful business. It’s the enemy of the lousy business here and a lousy business. For a long time you’re going to get a lousy result even if you buy a cheap if you’re in a wonderful business for a long time, even if you pay a little too much going in, you’re going to get a wonderful result if you stay in a long time. I find very few wonderful businesses in Japan now. They may change the culture in some way so that that that managements get more stockholder responsible. Where they earn returns are higher. But at the present time you’ll find a very lot of low return businesses. And that was true even when the Japanese economy was booming. I mean, it’s amazing. They had an incredible market without incredible companies. They were incredible in terms of doing a lot of business, but they weren’t incredible in terms of the return on equity and that they achieved. You talk to the students of companies that you like. I don’t mean I mean what makes the company now that you like. I like I like businesses. I can understand. We’ll start with that. That narrows it down to about 90 percent. I mean, all kinds of things I don’t understand. But fortunately, there’s enough I do understand you got this big wide world out there. Almost every company is publicly owned. So you got you got all American business practically available to you. Now, to start with, it doesn’t make sense to go with things that you think you can understand, but you can understand some things. I can understand this. I mean, you can understand how anybody can understand this. I mean, this is a product that basically hasn’t been changed, much like out of the cherry, but, you know, since eighteen, eighty six or whatever it was. And it’s a simple business. It’s, it’s not an easy business. I don’t want a business.

It’s easy for competitors. So I want a business with a moat around it. I want a very valuable castle in the middle. And then I want to I want to I want the Duke who’s in charge of that castle to be honest and hardworking and able. And then I want a big moat around the castle. And that moat can be various things. The moat in a business like our auto insurance business at Geico is low cost. I mean, people have to buy auto insurance, so everybody’s going to have one auto insurance policy per per car, basically, or per driver. And and I can’t sell them twenty, you know, but they have to buy one. When are they going to buy it? I’m not going to buy it based on service and quash. Most people will assume the service is fairly identical among companies are close enough. So they’re going to do it on cost. So I got to be the low cost producer. That’s my MO to extend my cost, get further lower than the other guy. I’ve thrown a couple of sharks into the moat now, but all the time. If you’ve got a wonderful castle, there are people out there are going to try and attack it, take it away from you. And I want a castle and I can understand, but I want a castle with a moat around it. Thirty years ago, Eastman Kodak smolt was was just as wide as Coca Cola smoked. I mean, if you were going to take a picture of your six month old baby and you’re going to want to look at that picture twenty years from now, you’re looking at fifty years from now and you’re never going to get a chance. I mean, you’re not a professional photographer so that you can evaluate what’s going to look good. Twenty or fifty years ago, what is in your mind about that? About that photography company is what counts because they are promising you that the picture you take today is going to be terrific to look at 20 or 30 or 50 years from now about something that’s very important to you, maybe your own child or whatever it may be.

Well, Kodak had that in spades thirty years ago. They owned that. They had what I call share of mine. Forget about share market share mine. They have something in everybody’s mind around the country, around the world, little yellow box or in the said, Kodak is the best. That’s priceless. They’ve lost some of that. They’ve been lost at all. And it’s not new to George Fisher. Ron George is doing a great job, but they let that moat narrow. They let Fauji come and start narrowing the moat in various ways. They let him get into the Olympics and take away that special. Aspects only only Kodak was fit to photograph the Olympics, so Fuji gets there and immediately in people’s minds, Puji becomes more and a parody with with Kodak. We haven’t seen that with cockups motors wider now than it was 30 years ago. You can’t see them day by day. But every time, you know, the infrastructure gets built in some country that isn’t yet profitable for Coke, that will be 20 years from now. The mold is widening a little bit that things are all the time changing that mold in one direction. Another 10 years from now, you can see the difference, our managers or the businesses we run.

I’ve got one message to them know, which is to widen the moat. And we want to we want to throw crocodiles and sharks and everything else, gators, I guess, into the moat to keep away competitors. And that that’s comes about through service. It comes about for quality of product that comes about through cost. It comes about somebody through patents that comes about from real estate location. So that’s the business I’m looking for now. What kind of businesses am I going to go find like that? I’m going to find them. I’m going to find them in simple products because I’m not going to be able to figure out what the most going to look like for Oracle or Lotus or Microsoft 10 years from now. I mean, Gates is the best businessman I’ve ever run into. And, you know, they’ve got a hell of a position, but I really don’t know what that business going to look like 10 years from now. And I certainly don’t know what his competitors businesses are going to look like 10 years from now. I’ll name one I don’t own. I know what the chewing gum business is going to look like 10 years from now. I mean, the Internet is not going to change how we chew gum and nothing much else is going to change how we chew gum and then are going to be lots of new products. Is it really in our experiment, usually fruit and all those going to evaporate. So it’s going to happen. You’ll give me a billion dollars and tell me to go into chewing gum business and try and they could build them in Wrigley’s. I can’t do it. And that’s the way I think about business. I say to myself, give me a billion dollars and how much going to hurt the guy. Give me ten billion dollars. Give me ten billion dollars. And how much can I hurt Coca-Cola around the world? I can’t do it. Well, those are good businesses. Now give me some money and tell me to hurt somebody and in some other fields and I can figure out how to do it. So I want a simple business.

Easy to understand. Great economics now, honest, enable management. And and then I can see about in a general way where they’re going to be ten years from now. And if I can’t see where they’re going be ten years from now, I don’t want to buy it. Basically, I don’t want to buy any stock. Or if they close the New York Stock Exchange tomorrow for five years, I won’t be happy owning it. I buy a farm and I don’t get a quote on it for five years and I’m happy if the farm does OK. If I buy an apartment house, don’t get a quote on it for five years. I’m happy if the apartment house produces the returns that I expect. But people buy a stock and I look at the price the next morning and they decide whether they’re doing well or not doing well. It’s crazy because they’re buying a piece of the business. That’s what Graham the most fundamental part of what he taught me. And I’m buying a stock. You’re buying you’re buying a part ownership in the business. You will do well if the business does well. And if he didn’t pay a totally silly price and that’s what it’s all about. And you ought to buy businesses, you understand, just like if you’re buying farms, you ought to buy farm. You understand it’s not complicated. It’s not in calling us Graham Buffett. I mean, it’s just pure Graham.

I was very fortunate because I, I picked up a book when I was 19. I got interested in stocks when I was about six or seven. And I bought my first stock when I was eleven. But I was playing around with all this stuff and I had charts and volume. And I’m making all kinds of technical calculations, everything. And then I picked up a little book and it just said that you’re not buying some little ticker symbol. It bounces around every day. You’re buying you’re buying a part of the business. And soon as I started thinking about it that way, everything else followed. Very simple. So we buy businesses. We think we can understand there’s no one here that can understand the Coca-Cola Company. I would say there’s no one here that can understand some new Internet company. And I said at the annual meeting this year that if I were teaching a class in business school on the final exam, I would pass out the information on the Internet company and ask each student to value. And anybody that gave me an answer, I’d flunk.

I don’t know how to do it, so we don’t have huge returns in mind, but we do have in mind never losing anything. And I mean, we bought See’s Candy in nineteen seventy two. See’s Candy was then selling 16 million pounds of candy at a dollar ninety five a pound and it was making tubists a pound or four million pretax. We paid twenty five million dollars for it and it took no capital to speak up when we were took that business. Basically my partner Charlie and I really decide whether it was a little untapped pricing power there. In other words, whether that dollar ninety five box of candy could just as easily sell for two or two and a quarter could sell for two and a quarter, another 30 cents a pound, which was four million, eight on 16 million pounds, which on a twenty five million purchase price was why we didn’t do any you know, we’ve never hired a consultant in our lives. I mean, our idea of consulting is go out and buy a box of candy, you know. But what we did know was there was they had share of mine in California. I mean, there was something special. Every person in California has something in their mind about See’s candy and overwhelmingly was favorable. They take taken a box, you know, Valentine’s Day. And some girl, she kissed them. If she’d slap them, you know, we’d have no business. But but as long as she kisses him, you know, that’s that’s what we want in their mind. See’s Candy getting kissed. And if we can get that in the minds of people, we can raise prices. And and I bought that and I bought it in nineteen seventy two. We’ve raised every year. I raise the price on December twenty six, raise it the day after Christmas so that everybody because we sell a lot of Christmas, we’ll make sixty million dollars this year. We’ll sell thirty million pounds. Make two dollars a pound. Same business, same formulas, same everything. Sixty million bucks still doesn’t take any capital and we’ll make more money ten years from now. Go to that sixty million. We make about fifty five million in the three weeks before Christmas. And our company song is what a friend we have in Jesus. I mean is. It is a good business. But the important thing about Christmas is the biggest season by far. But women vie for Christmas and they plan ahead and buy over two or three week period men by on Valentine’s Day. They’re driving home. We run ads on the radio, you know, guilt, guilt, guilt, guilt. And all the guys are veering off the freeway. Right. And they won’t dare go home without a box of candy when we get through with them on our radio ads so that Valentine’s Day is the biggest day. But can you imagine going home on Valentine’s Day? And our See’s Candy is now 11 bucks a pound. Thanks to my brilliance and MSRA, there’s no candy available at six dollars a pop. But you really want to walk in on Valentine’s Day and hand. I mean, you have got all these favorable images of the season, Candy, over the years. And she sees you and that’s the way she thinks of you during the rest of the year. I’ve got a badly and you walk in and say, honey, this year I took a little bit and then hand her a box of candy. I mean, it just isn’t our work.

Speaker 1: Following simple tips such as these and sticking to the basics has been the key to Buffett’s high investing returns. As Buffett’s right hand man, Charlie Munger, says, we have a passion for keeping things simple. Thank you, Warren Buffett, so much for teaching us all how to become better investors. May you have many more years to impart your wisdom.

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