Investoid

I was reading an Edmonton Journal article on Saturday that contained some Q&A from the recent Berkshire Hathaway AGM. Warren Buffet and Charlie Munger had some memorable quotes during this session and I thought I’d share a few with you:

“There are more problems with having the wrong managers than having the wrong compensation system.”

The nature of private equity activity is that the score doesn’t get put on the scorecard for a number of years, so the investors won’t leave. What will slow down the activity is if yields on junk bonds became much higher than yields on high grade bonds.

“Investing on paper and investing with real money is like the difference between reading a romance novel and doing something else; there is nothing like having a real experience in investing.”

“It isn’t the derivatives themselves (that will cause a bubble). But the usage of them on an expanding basis in more and more imaginative ways introduces more and more leverage into the system.”

“If we’re in an oil stock it’s because we think it offers value, not because we think the price of oil is going up … We like best those businesses that require very little capital, because you can’t have a business with huge capital expenses year after year and end up with a high return business.”

I think this last quote is the most relevant to helping amateurs with investment selection: Berkshire’s magic formula is based on finding low capital intensive, high cash flow businesses. Typically these types of business will have high dividends and/or stock buybacks and/or strong acquisition growth.

I recently bought The Tao of Warren Buffet for a friend’s birthday and found that there were many good quotes in it about business, investing, and life. While some of the quotes in it are already well documented, there were many that were interesting views on Warren’s overall worldview. If you’re looking for a quick read with profound meaning, I suggest you pick it up.