"I'd only have two courses" · Transcript

WarrenI had 49, mostly universities, few colleges, that came to Omaha this year. And they asked me what, sometimes they asked me what I'd do if I was running a business school, teaching investments. I'd tell them I'd only have two courses. One would be how to value a business, and the second would be how to think about markets. And there wouldn't be anything about modern portfolio theory or beta or efficient markets. or anything like that. We'd get rid of that in the first 10 minutes. But if you know how to value a business, and you don't have to know how to value all businesses, on the New York Stock Exchange, I don't know, there's 4,000 or 5,000, probably businesses, and a whole lot more on NASDAQ. You don't have to be right on 4,000 or 5,000. You don't have to be right on 400. You don't have to be right on 40. You just have to stay within the circle of competence, the things you can understand and look for things that are selling for less than they're worth. of the ones you can value. And you can start out with a fairly small circle of competence and learn more about businesses as you go along, but you'll learn that there are a whole bunch of them that simply don't lend themselves to valuations, and you forget about those. And I think if accounting helps you in that, you need to understand accounting to know the language of business, but accounting also has enormous limitations, and you have to learn enough to know what accounting is meaningful and when you have to ignore certain aspects of accounting. You have to understand when competitive advantages are durable and when they're fleeting. I mean, you have to learn the difference between a hula hoop company, you know, and Coca-Cola. But that isn't too hard to do. And then you have to know how to think about market fluctuations and really learn that the market is there to serve you rather than instruct you. And to a great extent, that is not a matter of IQ. If you have, if you're in the investment business and you have an IQ of 150, sell 30 points to somebody else because you don't need it. I mean, you need to be reasonably intelligent, but you do not need to be a genius at all. In fact, it can hurt. So, but you do have to have an emotional stability. You have to have sort of an inner piece about your decisions, because it is a game where you get subjected to minute-by-minute stimuli, where people are offering opinions all the time. You have to be able to think for yourself.