It's my honor, as well as my privilege to welcome our Lifetime's best long-term investor, Mr. Warren Buffett. One million. Three million. Seems to be working. I'd like to just say a few words, overwhelmingly, and then the highlight for me will be getting your questions in a few minutes. I want to talk about what's on your mind. I urge you to throw hardballs. It's more fun for me if you put a little speed on the pitches as they come in. I asked about anything except the last week's Texas A&M game. That's off limits.
We have a couple of men here from Suntras. I was just off at the Koch meeting. I sent next to Jimmy Williams there who ran Suntras for many years. He wanted to be sure that I wore this Suntras shirt down here. I've tried to get sponsorship on the Senior Golf Store. I haven't had much luck, but now on the banker's store I'm doing a little bit better. He said I got a percentage of the increase in deposits and gains, though. So I'll go out for Suntras, dear old Suntras.
I would like to talk for just one minute to the students about your future when you leave here. Because you're going to learn a tremendous amount about investments. And you'll learn enough to do well. If all got the IQ to do well, you've all got the initiative and energy to do well, or you wouldn't be here. And most of you will succeed in meeting your aspirations. But in determining whether you succeed, there's more to it than intellect and energy.
And I'd like to talk for just a second about that. In fact, there was a fellow that Peeke Keywood and Omaha used to say that he looked for three things. And hiring people looked for integrity, intelligence, and energy. And he said that the person didn't have the first two that the latter two would kill him. Because if they don't have integrity, you want to dumb and lazy. You don't want him smart and energetic. And I really like to talk about that first one. Because we know you've got the second two.
And to play along with me a little game for just a second, in terms of thinking about that question, you've all been here. I guess almost all of your second year MBAs, and you've gotten to know your classmates. And I think for a moment that I granted you the right to buy 10% of one of your classmates for the rest of his or her lifetime. You can't pick one with a rich father that doesn't count. You've got to pick somebody who's going to do it on their own merit.
And I gave you an hour to think about it. Which one of you got to pick among all your classmates is the one you want to own 10% of for the rest of your lifetime. And are you going to give them an IQ test? Pick the one with the highest IQ. I doubt it. Are you going to pick the one with the best grades? I doubt it. You're not even going to pick the most energetic one necessarily, or the one that displays the most in Michigan. But you're going to start looking for qualitative factors in the addition to, because everybody's got enough brain care and energy.
And I would say that if you thought about it for an hour, and decided who you're going to place that bet on, you'd probably pick the one who you responded the best to. And one that was going to have the leadership qualities. The ones who were going to be able to get other people to carry out their interests. And that would be the person who was generous and honest and gave credit to other people even for their own ideas, all kinds of qualities like that.
And you could write down those qualities that you admire, and so do everyone. Whoever you admire most in the class. And then I would throw in a hooker. I would say as part of only 10% of this person, you had to agree to go short 10% of somebody else in the class. That's more fun, isn't it? And you think, well now who do I want to go short of? And again, you wouldn't pick the person with the lowest IQ or the.
You would start thinking about the person really who turned you off for one reason or another. I mean, that very has various qualities. Quite apart from their academic achievement, but they had various qualities. And the engine shouldn't be around them. And other people didn't want to be around them. And what were the qualities that lead to that? Well, there'd be a whole bunch of things. But it's the person who's egotistic, all the person who's greedy, the person who's slightly dishonest, cuts corners.
All of these qualities. And you could write those down on the right-hand side of the page. And when you look at that, we'll just. I don't know which one I'm using. Can you hear me okay? With us, you have to apply. Yeah. What do I do with it? I just came with. Oh, just came with it, okay. You can see why I avoid technology. That's true.
Chewy government's about as far as I get. As you looked at those qualities on the left and right-hand side, there's one interesting thing about them. It's not the ability to throw a football 60 yards. It's not the ability to run the 100 yard dash and 9 for 8. It's not being the best looking person in the class. There are all qualities that if you really want to have the ones on the left-hand side, you can have them. I mean, they are qualities of behavior, temperament, character that are achievable. They're not forbidden to anybody in this group.
And if you look at the qualities on the right-hand side, the ones that you find turn you off in other people. There's not a quality there that you have to have. If you have it, you can get rid of it. And you can get rid of a lot easier at your age than you can at my age, because most behaviors is habitual. And they say the chains of habit are too light to be felt until they're too heavy to be broken.
And there's no question about, I see people with these self-destructive behavior patterns at my age or even 10 or 20 years younger. And they really are in trap by them. They go around and they do things that turn off other people right and left. And they don't need to be that way, but by a certain point they get so they can hardly change it. But at your age, you can have any habits, any patterns of behavior that you wish. It's simply a question of which you decide.
And when I decide the ones that, I mean, if you like Ben Graham did this, Ben Franklin did it before him. But Ben Graham and his low teens looked around and he looked at the people he admired. And he said, you know, I want to be admired. So why don't I just behave like them? And he found there was nothing impossible about behaving like them. And similarly, he did the same thing on the reverse side in terms of getting rid of those qualities.
So I would suggest that if you write those qualities down and think about them a little while and make them habitual, you will be the one that you want to buy 10% when you get all through. And the beauty of it is you already own 100%. You're stuck with it. You might as well be that person as somebody else. Well, that's a short little sermon. So let's get on to what you're interested in.
And like I say, you can go all over the lot. So I don't know exactly how we're going to handle this, but let's start with a hand here someplace or other. Where do we go with the first one? You know, right here. My thoughts about Japan? I'm not a macro guy. Now I say to myself, I've worked your half of Wakin' Barrow money for 10 years at 1% in Japan now, 1%. And I say to myself, gee, I took Graham's class 45 years ago and I've been working hard at this thing on my life.
Maybe I can earn more than 1%. I mean, work hard at it. 1% annual. It doesn't seem impossible, does it? So I wouldn't want to get involved in currency risk. So I'd have to do it in something that was yen-denominated. So I have to be in Japanese real estate or a Japanese business or something or so on. And all I have to do is beat 1%. That's all the money's going to cost me and I can get it for 10 years.
So far I haven't found anything. It's kind of interesting. The Japanese companies earn very low returns on equity and they have a bunch of businesses that earn 4, 5, 6% 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. Some people do it. In fact, I've got a friend Walter Schloss who worked with Graham at the same time I did.
And it was the first way I went at stocks to buy stocks selling way below working capital. Very cheap quantitative stocks. I call it the cigar butt approach to investing. You walk down the street and you look around for a cigar butt 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 butt stock.
You get one free puff out and then you throw it away and you walk down the street. I'm not wondering. I mean it's not elegant. But if you're looking for a free puff, it works. Those are low return businesses. But time is the friend of the wonderful business. It's the enemy of the lousy business. If you're in a lousy business for a long time, you're going to get a lousy result even if you buy 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 at present now. They may change the culture in some way so that management is getting more stockholder responsive over there and 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 that they achieved. And that's finally caught up with them. So we have so far done nothing there. But as long as money is 1% I'll keep looking.
Yes. You were rumored to be one of the rescue buyers of long-term capital. What was the play there? What did you see? Well there's a story in the current Fortune magazine. One has Rupert Murdoch's picture on the cover that tells the whole story of our involvement. It's kind of an interesting story because it's a long story. So I won't go into all the background of it. But I got the really serious call about long-term capital. About four weeks ago this Friday, whenever it was.
My granddaughter, I got it in the mid afternoon and my granddaughter was having her birthday party that evening. And I was flying that night to Seattle to go on a 12-day trip with Gates on a to Alaska and a private train. All kinds of things where I was really out of communication. But I got this call on a Friday afternoon saying that things were really getting serious there. I'd had some other calls before that the article gets into a few weeks earlier.
I know those people most of them pretty well. A lot of them were Solomon when I was there. And the place was imploding. And the Fed was sending people up that weekend. And so between that Friday and the following Wednesday when the New York Fed in effect orchestrated a rescue effort, but without any federal money involved, I was quite active. But I was having this terrible time because we were sailing up through these canyons which held no interest for me whatsoever in Alaska.
And the captain would say, you know, if we just steer over here, we might see some bears and whales. And I said, steer where you got a good satellite connection. So it was a picture of the picture where I've got my old faith was going off behind me. And I got my back to it. I'm on the phone, which was the people in the group thought it's got a funny way of working the phone. But we put it a bit on Wednesday morning.
By then I was in Boseman, Montana. And I talked to Bill McDonough the head of the New York Fed, but about 10 o'clock they were having me in the bankers at 10 o'clock that morning in New York. And I caught him. Well, we actually delivered a message when he called me out there in my home, a little bit before 10 New York time. And we made a bid.
It was a, it was because it was being done at a long distance and everything. It was really the outline of a bid. In the end, I was a bid for 250 million essentially for the net assets of, but we would have put in three and three quarters of billion on top of that. And it would have been three billion from purchase half a way, 700 million from AIG and 300 million from Goldman Sachs. And we submitted that.
But we put a very short time Jews on it because when you're bidding on $100 billion, which is a security that are moving around, you don't want to leave a fixed price bid out there very long. And then we were worried about it getting shopped. In the end, the bankers made the deal. But it was an interesting period. The whole one from capital management, and I hope most of you are familiar with it, but the whole story is really fascinating because if you take John Maryweather and Eric Rosenfeld, Larry Hill and Bran, Greg Hawkins, Victor Agani, the two Nobel Prize winners in Merton's Sholes, if you take the 16 of them, they probably have as high an average IQ as any 16 people working together in one business in the country, including at Microsoft or wherever you want to name.
So that incredible amount of intellect in that room. Now you combine that with the fact that those 16 had had extensive experience in the field they were operating. I mean, this was not a bunch of guys who had made their money selling men's clothing and then all of a sudden went into the securities business. They had had in aggregate the 16 and probably had 350 or 400 years of experience doing exactly what they were doing.
And then you throw in the third factor that most of them had virtually all of their very substantial net worth in the business. So they had their own money up hundreds and hundreds of millions of dollars of their own money up. Super high intellect working in a field they knew and essentially they went broke. And that to me is absolutely fascinating.
If I were to write a book it's going to be called Why Smart People Do Dumb Things. My partner says it should be autobiographical. But this might be an interesting illustration and these are perfectly decent guys. I respect them and they helped me out when I had problems with Solomon. So they're not bad people at all. But to make money they didn't have and didn't need they risked what they did have and did need. And that's foolish. That is just plain foolish. I don't make any research or IQ is if you if you risk something that is important to you for something that is unimportant to you, it just does not make any sense.
I don't care whether the odds are a hundred to one that you succeed or a thousand to one that you succeed. If you hand me a gun with a thousand chambers, a million chambers in it and there's a bullet in one chamber and you said put it up your temple. How much do you want to be paid to pull it once? I'm not going to pull it. You can name any sum you want but it doesn't do anything for me on the upside. And I think the downsides fairly clear. So I'm not interested in that kind of a game and yet people do it financially without thinking about it very much.
There was a great book. It was a great title. It was a lousy book written once with a great title. By Walter Gutman, the title was you only have to get rich once. Now that seems pretty fundamental, doesn't it? What is what different? If you've got a hundred million dollars at the start of the year and you're going to make ten percent if you're unleverage and twenty percent if you're leverage ninety nine times out of a hundred, what differences to make at the end of the year, whether you've got a hundred and ten million or a hundred and twenty million? Makes no difference at all.
I mean if you if you die at the end of the year, you know the guy that writes up the story may make a typo. And he may say a hundred and ten, even a hundred and twenty. So you've got nothing at all. You know what? It makes absolutely no difference. Makes no difference to your family. It makes no difference to anything. And yet the downside, particularly managing other people's money, is not only losing all your money, but it's disgrace and humiliation and facing friends whose money you've lost.
I just can't imagine an equation that that makes sense for. And yet sixteen guys with very high IQs who are very decent people entered into that game. And you know I think it's madness and it's produced by an over reliance to some extent on things. You know those guys would tell me back when I was a solemn, you know, that a six sigma event wouldn't you know, wouldn't touch us or a seven sigma event. They were wrong. I mean their history does not tell you the probabilities of future financial things happening.
And they had a great reliance on mathematics. And they felt that the bait of the stock told you something about the risk of a stock. It didn't tell you damn thing about the risk of a stock in my view. And and sigma's do not tell you about the risk of going broke in my view. And maybe an interview now too. But I don't like to even use them as an example because they are, I mean the same thing in a different way could happen to any of us probably.
Where we really have a blind spot about something that's crucial because we know a whole lot about something else. It's like Henry Kaufman said the other days that the people that are going broke in this situation are just two of two types. The ones who knew nothing and the ones that knew everything. It's sad in a way. I urge you in anything. We never basically borrow money. I mean we get flow through insurance business and do things.
But I never borrowed money. I never borrowed money when I had ten thousand bucks basically. Because what difference did it make? I was having fun as I went along. And it didn't mean it was when I had ten thousand dollars or a million dollars or ten million dollars. You know, except if I had no medical emergency or something had come along like that. But I was going to do the same things when I had a lot of money. It's when I had very little money.
If you think about the difference between me and you in terms of how we live, you know, we wear the same clothes basically. Son trust gives me mine but you don't have any. So we wear the same clothes. We all have a chance to drink the juice of the gods here. But we all go to McDonald's or better yet, dairy queen. And we live in a house that's warm and winter and cool in summer. And we watch Nebraska Texas, say, Ed, Edmonton, a big screen.
You see it the same way I see it. We do everything. Our lives aren't that different. You know, you'll get decent medical care or something happens to you. And I'll get decent medical care. The only thing we do is we travel differently. I ride around this little plane. I love it. And that takes money. But if you leave that aside, if you leave that, we travel differently. But other than travel, you know, I would think about it. Think what can I do that you can't do? Now, I get to work in a job that I love. But I'm always working in a job. I love that. I love that. I love that just as much when I went up as a big deal. I made a thousand bucks and I urge you to work in jobs you love.
I mean, I think you're out of your mind if you keep taking jobs that you don't like because you think it'll look good on your resume. I was with the fellow at Harvard the other day who was taking me over to talk. And he was 28 and he was telling me, oh, I've already done a life. And which is terrific. And then I said, what are you going to do next? And he said, well, I said, after I get out my MBA, I think maybe I've got work for management consulting firm because it'll look good on my resume. I said, well, isn't it? I mean, maybe 28, even doing all these things. I mean, you've got a resume that's 10 times as good as I've ever seen it already.
I said, if you take another job you don't like just for you. I said, isn't that like, look like saving up sex for your old age? There comes a time when you ought to just start doing what you know, you know. So I think I got the point across to him. But when you get out of here, take a job you love. Don't take a job that you think is going to look good on your resume. You may change it later on, but you'll jump out a bit in the morning. When I got out of Columbia, the first thing I tried to go to work for Graham immediately, I offered to go to work for him for nothing. He said, I was overpriced.
But I kept pestering him. I went out the all-monger, I sold securities for three years, and I kept writing him and giving him ideas. And finally, I went to work for him for a couple of years. And it was a great experience. I always really worked in a job, I've worked in a job that I would love doing. And you should really take a job that if you were independently wealthy, you would take. That's the job to take, because that's the one that you're going to have great fun. And you'll learn something, you'll be excited about it. And you can't miss. You may go do something else later on, but you'll get way more out of it. And I don't care what the starting salary is or anything of the sort.
I don't know how I got off on that, but there I am. So I do think that if you think you're going to be a lot happier if you've got two X instead of X, you're probably making a mistake. I mean, you ought to find something you like that works with that. And you'll get in trouble if you think that making 10 X or 20 X is the answer to everything in life. Because then you will do things like borrow money when you shouldn't or maybe cut corners on things that your employer wants you to cut corners on. It just doesn't make any sense. You won't like it when you look back on it.
Yeah. Would you talk to the students about the company you think you like? I don't mean things. I mean what makes the company. I like businesses like an understand. We'll start with that. That narrows it down about 90%. I mean, see, there's all kinds of things I don't understand, but fortunately there's enough I do understand it. You got this big wide world out there, almost every company is publicly owned. So 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 something.
I can understand this. I mean, you can understand this. Anybody can understand this. I mean, this is a product that basically hasn't been changed much. I've had it in the cherry. But since 1886 or whatever it was, and it's a simple business. It's not an easy business. I don't want a business. It's easy for competitors. So I want a business with a motor around it. I want a very valuable castle in the middle. And then I want the Duke who's in charge of that castle to be honest and hard working and able. And then I want a big motor 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 car, basically, or per driver. And I can't sell them 20, but they have to buy one. When are they going to buy it on? They're going to buy it based on service and cost. Most people will assume the service is fairly identical among companies or close enough. So they're going to do that on cost. So I got to be the low cost producer. That's my moat. To the extent my costs get further lower than the other guy, I've thrown a couple of sharks into the moat.
But all the time, if you've got a wonderful castle, there are people out there going to try and attack it and take it away from you. And I want a castle that I can understand, but I want to castle with a motor around it. 30 years ago, Eastman Codex moat was just as wide as Colossumote. 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 20 years from now, and you're going to look at 50 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 20 or 50 years ago. What is in your mind 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, Codex had that in spades 30 years ago. They owned that. They had what I call share of mine. Forget about share of market. Share of mind.
They had something in everybody's mind around the country, around the world, with a little yellow boxering that said, Codex is the best. That's priceless. They've lost some of that. They've been lost at all, and not due to George Fisher, or on the Georgia's doing a great job. But they let that moat narrow. They let Fuji come and start narrowing the moat in various ways. They let them get into the Olympics and take away that special aspect. Only Codex was fit to photograph the Olympics. So Fuji gets there and immediately in people's minds Fuji becomes more an parity with Codex.
You haven't seen that with Codex. Coax mode is wider now than it was 30 years ago. You can't see the moat day by day. But every time the infrastructure gets built in some country that isn't yet profitable for Coke but will be 20 years from now, the mode is widening a little bit. Things are all the time changing that mode in one direction or the other. 10 years from now you can see the difference. Our managers are the businesses we run. I've got one message to them, which is to widen the moat.
And we want to throw crocodiles and sharks and everything on gators, I guess, into the moat to keep away competitors. That comes from about through service. It comes about through quality of product. It comes about through cost. It comes about sometimes through patents. It comes about through real estate location. So that's the business I'm looking for. Now what kind of businesses am I going to find like that? Well I'm going to find them in simple products.
Because I'm not going to be able to figure out what the moat is going to look like for Oracle or Lotus or Microsoft 10 years from now. I mean, it gates to the best business man 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 is 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. 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.
因为我无法预测未来十年后,Oracle、Lotus 或 Microsoft 的“护城河”会是什么样。我是说,它对我见过的最优秀的商人来说都是难关。毫无疑问,他们目前处于非常有利的地位。但我真的不知道十年后他们的业务会是什么样子,而我更不知道他们竞争对手的业务在十年后会如何发展。举个我没有投资的例子,我知道十年后口香糖行业会是什么样子。
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 there going to be lots of new products? Is it really, you know, our experiment usually fruit and all those going to evaporate some is going to happen. You give me a billion dollars and tell me to go into chewing gum business and try and they could build them in reglas. 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 can I hurt the guy? Give me 10 billion dollars. Give me 10 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 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 and able management.
And then I can see about in a general way where they're going to be 10 years from now. And if I can't see where they're going to be 10 years from now, I don't want to buy it. Basically, I don't want to buy any stock where 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 okay. 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 they 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 a business. That's what Graham, the most fundamental part of what he taught me. You're not buying a stock, you're buying a part ownership in a business. You will do well if the business does well and if you didn't pay it totally, sell the 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 farms you understand.
It's not complicated. It's not in calling this Graham but I mean it's just pure Graham. I was very fortunate because 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 11 but I was playing around with all this stuff. I had charts and volume and I'm making all kinds of technical calculations and everything. And then I picked up a little book and it just said that you're not buying some little tipper symbol that bounces around every day. You're buying a part of the business.
As soon as I started thinking about it that way, everything else swallowing. Very simple. So we buy businesses we think we can understand. There's no one here that can't understand the Coca-Cola company. I would say there's no one here that can understand some new internet company. 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 an internet company and ask each student to evaluate.
Anybody that gave me an answer I'd flunk. I don't how to do it. But people do it every day. It's more exciting. If you look at it like going to races or something, that's a different thing. But if you're investing, investing is putting out money to be sure of getting more money back later in an appropriate rate. And to do that you have to understand what you're doing it in. You have to understand the business. You can understand some businesses but not all businesses.
Warren, you covered half of it which is trying to understand the business and buying the business. But you also alluded to getting a return on the amount of capital you invest in the business as an investor. And that comes back to what are you paying for the business. How do you determine what you think is fair price to pay for the business? It's a tough thing to decide. But I don't want to buy any business that I'm not terribly sure of.
So if I'm terribly sure of it, it probably isn't going to offer incredible returns. I mean why should something that is essentially a cinch to do well, offer you 40% a year or something like that? So we don't have huge returns in mind. But we do have in mind never losing anything. And I mean we bought C's candy in 1972. C's candy was selling $16 million of candy at $1.95 a pound. And it was making two bits a pound or four million pre-tax. We paid $25 million for it.
It took no capital to speak of. When we looked at that business, basically my partner Charlie and I really decided that there was a little untapped pricing power there. In other words, whether that $1.95 box of candy could just as easily sell for two or two in a quarter. For itself, for two and a quarter, another 30 cents a pound was $4 million eight on 16 million pounds, which on a 25 million purchase price was fine.
We didn't do any, we never hired a consultant in our lives. Our idea of consulting has gotten by a box of candy. Well, what we didn't know was that they had share of mine in California. There was something special. Every person in California had something in their mind about C's candy. And overwhelmingly was favorable. They had taken a box Valentine's Day and given it to some girl, she'd kissed them. If she'd slapped them, we'd have no business.
But as long as she kisses them, that's what we wanted their mind. C's candy getting kissed. And if we can get that in the minds of people, we can raise prices. And I bought that and I brought it in 1972. Every year, I raised the price on December 26th. I raised it the day after Christmas so that everybody could we sell a lot of Christmas. In fact, we'll make $60 million this year.
We'll sell 30 million pounds, make $2 a pound. Same business, same formulas, same everything. 60 million bucks still doesn't take any capital. And we'll make more money 10 years from now. But at that 60 million, we make about 55 million in the three weeks before Christmas. And our company song is What a Friend, we haven't Jesus. I mean, here it is. It is a good business. But the important thing about that business is that think about it a little. People don't buy, most people don't buy boxed chocolates to consume them. So they buy them as gifts. And if you know somebody, somebody's birthday, more likely it's a holiday. It's a Valentine's Day single biggest day of the year. Christmas is the biggest season by far. But women buy for Christmas and they kind of had and buy over two or three big curiots. Men buy on Valentine's Day. They're driving home. We run ads on a radio. Guilt, guilt, guilt. You know the guys are gearing 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.
Valentine's Day is the biggest day. But can you imagine going home on Valentine's Day? And our seized candy is now 11 bucks a pound thanks to my brilliance. And let's say there's candy available at $6 a pound. But you really want to walk in on Valentine's Day and hand. I mean, you like that always favorable images of the seized candy over the years. And she sees you. And that's the way she thinks of you during the rest of the year. You've got a badly and you walk in and say, honey, this year I took the little bit and then hand her a box of candy. I mean, it just isn't our work. So in a sense, it's it's there's untapped prices price. It's it's not price dependent basically. Think of Disney. I mean, Disney is selling. We'll say home videos for I don't know what 16 95 18 95 or whatever. All over the world.
People and we'll say particularly mothers in this case have something in their mind about Disney. I mean, every person is room when you say Disney has something in their mind about it. I say universal pictures. You don't have anything in your mind. You know, if I say 20th century Fox, you don't have anything special in your mind. If I say Disney, you've got something in your mind. And that's true around the world. Now picture yourself with a couple young kids. You know, who you want to put away for a couple hours every day. You know, peace of mind. And you know, if you get a one video, they'll watch it 20 times. So you go to the video store, wherever you buy the video. Are you going to sit there and premiere? You know, 10 different videos and watch them each for an hour and a half to decide which one your kid should watch? No, I mean, let's say there's one there for 16 95 in the Disney's there for 17 95. You know, if you take the Disney video, you can be okay.
So you buy it and you don't have to make a quality decision on something that you don't want to spend the time to do. You can get a little bit more money if you're if you're Disney and you'll sell a lot more videos. It makes it a wonderful business. Makes it very tough for the other guy. How would you try to create a brand dream works is trying, but how would you try to create a brand that competes with Disney around the world and to replace the concept that people have in their minds about Disney with something that says universal pictures? You know, so that the mother's going to walk in and pick out a universal pictures video and preference to a Disney. It's not going to happen. Coca-Cola is associated with people being happy around the world where every place they're happy where Disney world or Disneyland with the world cup will be at the Olympics where every place where people are happy.
Happiness and cocoa together. Now, you give me, I don't care how much money and tell me that I'm going to do that with RC Cola around the world and have five billion people that have a favorable image in their mind about RC Cola can't get done. You know, and you can fool around with the, you can do anything you want to do. You don't have price discounts on weekends and everything, but you're not going to touch it. And that's what you want to have in a business. That's the most. And you want that most to widen. And if you're C's candy, you want to do everything in the world to make sure that the experience basically of giving that gift leads to a favorable reaction. That means, that means what's in the box. It means the person that sells it to you because all our business is done when we're terribly busy.
I mean, people come in in those weeks before Christmas or Valentine's Day, they're long lines. So at five o'clock in the afternoon, some woman is selling the last person, the last box of candy. And that person's been waiting in line for maybe 20 or 30 customers. And if the salesperson smiles at that last customer, our mode is widened. And if she snarls at them, our mode is narrowed. And we can't see it going on every day, but that's the key to it. I mean, it's the total part of the product delivery is having everything associated with it. Say C's candy and something pleasant happening. And that's what business is all about.
Yeah. The best buys the questions whether I ever bought a company where the numbers told me not to and how much is qualitative and how much is quantitative. The best buys have been when the numbers almost tell you not to. I mean, because then you then you feel so strongly about the product and not just the fact that you're getting a use to garb at cheap. And I know that it's compelling. I mean, I owned a windmill company at one time. So I, you know, windmills are cigar butts believe me.
I bought a very cheap. I bought it at a third of working capital and we make money out of it. But there's no repetitive money to be earned. I mean, there's a one time profit and something like that. And it's just not it's not the thing to be doing. I went through that phase. I mean, I bought street curd companies and all kinds of things. But in terms of the qualitative, I probably understand the qualitative the moment I get the phone call. I mean, almost every business we bought has taken five or 10 minutes.
I mean, in terms of analysis. And we bought two businesses this year. General re is, you know, 18 billion or something deal. I've never been to their home office. I hope it's there. There could be just a few guys and say, well, what number should we send but this month? I can see it coming in once a month. Well, we've got 20 billion in the bank this month instead of 18 billion or something. But I've never been there. And before I bought executive jet, which is fractional ownership of of of jets.
And before I bought it, I'd never been there. I bought my family a quarter interest in the program three years earlier. And I've seen the service and seen the develop. And I got the numbers. But if you don't know enough to know about the business instantly, you won't know enough in a month or two months. I mean, you have to have sort of the background of understanding and knowing what you do understand and don't understand. And that that is the key. It's defining what I call your circle of competence.
And everybody's got a different circle of competence. The important thing is not how big the circle is. The important thing is staying inside the circle. And if that circle has only got 30 companies in it out of thousands on the big board, why should I, which 30 they are? You're okay. And you should know those businesses well enough so that you don't need to read lots of work. Now, I did a lot of work in the earlier years just in getting familiar with businesses.
And the way I would do that is I would go out and use what Phil Fisher called the scuttle butt approach. I'd go out. I talked to customers. I talked to to to maybe ex employees. In some cases, I talked to suppliers. Everybody. Every time I'd see somebody in an industry, let's say I was interested in the cold industry, I go around and see every coal company. And I'd ask every, every CEO, if you've got only by stock in one coal company that wasn't your own, which one would it be? And why?
And you piece those things together and you learn a lot about the business after a while. And finding is you get very similar answers as long as you ask about competitors. And I would say if you got a silver bullet, and you put it through, they had a one competitor, which competitor and why? You'll find out who the best guy in the industry is in that case or the one that's coming up. And there's a lot of things you can learn about a business.
I've done that in the past on the businesses that I feel I could understand. So I don't have to do much of that anymore. It's a nice thing about investing is you're not going to learn anything very new. I mean, you can do it if you want to. But if you learned about regularly showing them 40 years ago, you still understand regularly showing them. It's not that not a lot of great insights together and the sort as you go on. So you do get a database in your head.
I had a guy Frank Rooney who ran Melville for many years. His father-in-law died on company called HH Brown, a shoe company. And he put it up with Goldman Sachs, but he was playing golf with a friend of mine here in Florida. And mentioned to this friend, the guy said, why don't you call Warren? He called me at the end of the golf match. In five minutes, I basically had a deal. But I knew Frank and I knew the kind of business. I sort of knew the basic economics of a shoe business. And so I could buy it. And quantitatively, I got to decide what the price is. But you know, that's either yes or no. I mean, I don't fool around a lot when negotiation. So if they name a price that makes sense to me, I buy it. If they don't, I was happy that day before. So I'll be happy that day after without owning it.
Yeah. And co-evolves, and also the drop-and-atch vacations in terms of current future earnings like for quarter-earnings. And one of the fact that co-cats a lot of their profits coming up outside the United States, I think the Asian crisis is going to take that co-cats a lot of business. The question is about the Asian crisis and how it affects the company like Coat that recently announced that the earnings, actually they just announced their third quarter earnings. A few weeks ago, they tip people off that they were going to be lower than the fourth quarter. Well, basically I love it, but because the market for co-cola products is going to grow far faster over the next 20 years internationally than at well in the United States.
It'll go in the United States, not a per capita base. That's going to grow faster elsewhere. So the fact that it's going to be a tough period for who knows, three months or three years. But it won't be tough for 20 years. I mean, people are still going to, you know, they're going to work productively around the world. And they're going to find that this is a bargain product in terms of the portion of their working day that they have to give up in order to have one of these or better yet five of them a day like I do. It's a, you know, this is a product in 1936 when I first bought six of those for a quarter and sold them for a nickel each. It was in a six and a half ounce bottle and you paid a two percent deposit on the bottle.
That was a six and a half ounce bottle for a nickel at that time. It's now a 12 ounce can, which if you buy it on weekends or if you buy it in bigger quantities, so much money doesn't go to the packaging. You essentially can buy the 12 ounces for not much more than 20 cents. So you're paying not much more than twice the per ounce price of 1936. It is a product that's gotten cheaper and cheaper and cheaper and relative to people's earning power over the years and which people love in 200 countries. You have the per capita use going up every year for products with over a hundred years old and the dominates the market.
I mean, that is unbelievable. One thing that people don't understand is one thing that makes this product is where tens and tens of billions of dollars is one simple fact about, about really all colas, but we'll call it Coca-Cola to the moment. I have to be in any way I like. Cola has no taste memory. You can drink one of these at nine o'clock, eleven o'clock, three or five o'clock. The one at five o'clock will taste just as good to you as the one you drank early in the morning. You can't do that with cream soda, root beer, orange, great. You name it. All of those things accumulate on you. Most foods and beverages accumulate on you. You get sick of them after a while.
And if you, if you eat, I mean, we get these people go to work for us and see these candy and we tell them you don't have a candy they want. The first day they go crazy. But after a week, they're eating about the same amount they need if they're buying it because chocolate accumulates on everything accumulates on there is no taste memory to Cola. And that means that you get people around the world that are heavy users that will drink five a day or die a coat maybe seven or eight a day or something this or they'll never do that with other products. So you get this incredible per capita consumption, the average person in this part of the world.
Well, maybe a little north here drinks about 64 ounces of liquid a day and you can have all 64 ounces of that. The coke and you will not get set up with coke if you like it to start with and the least, but if you get with almost anything else, you eat just one product all day. You'll tend to get a little sick of that after a while and it's a huge factor. So today over one billion eight ounce servings of Coca-Cola products will be sold in the world. And that will grow year by year. It'll grow in every country virtually and it'll grow on a per capita basis and 20 years from now it'll grow in a lot faster internationally than in the US.
So I really like that market market better because there is more growth there over time. But it will hurt them and it is hurting them in the short term right now. But that doesn't mean anything. I mean that Coca-Cola, public and I think it's 1919. It's not sold for $40 a share. It went back before that as a candor family and they went back. They bought it for $2,000 the whole business as a candor back in the late 1880s and a couple of purchases. So now it goes public in 1919. $40 a share. One year later it's selling for $19. Go on down 50% of one year. And you might think that's some kind of disaster. And you might think that sugar prices increased and the bottles were rebellious and a whole bunch of things. You could always find a few reasons why that wasn't the ideal moment to buy it. Years later you'd have seen the Great Depression and you'd have seen World War II and you'd seen sugar rationing and you'd seen thermonuclear weapons. And the whole thing, there's always a reason.
But in the end if you'd bought one share for $40 and reinvested the dividends it'd be worth about $5 million now. And that factor so overrides anything else. I mean if you're right about the business you'll make a lot of money. And the timing part of it is very, is a very tricky thing. So I don't worry about any given event if I've got a wonderful business, you know, whether what it does to the next year or something of this sort. You know, price controls have been in this country at various times and that's, that's followed up even the best of businesses. I mean I wouldn't be able to raise the price on December 26th of the season. He's candy if we had price controls and we've had them in this country. But that doesn't make it a lousy business if that happens to happen because you're not going to have price controls forever. We had them in the early 70s.
So it, the wonderful business. You know, you can figure out what will happen. You can't figure out when it will happen. You don't want to focus too much on when you want to focus on what. If you're right about what you don't have to worry about one very much. Is there an area I'm missing back there any place? I'm not focusing all of them on one place. I may get this gentleman over here. The question is about my business mistakes. How much time do you have? The interesting thing about the mistakes is that investments, at least for me and for my partner, Shirley Munger, the biggest mistakes have not been mistakes of commission. They've been mistakes of omission. We knew enough about the business to do something and for one reason or another we set their sucking our thumbs instead of doing something.
We've passed up things where we could have made billions and billions of dollars. From things we understood, we don't understand. In fact, I could make billions out of Microsoft. There's meaning because I never understand Microsoft. If I can make billions out of healthcare stocks, I should make it. I didn't. When the Clinton healthcare program was proposed and they all went into tank, we should have made a ton of money out of that. I could understand it. I should have made a ton of money out of Fannie Mae back in the mid 80s. I understood it and I didn't do it. Those are billion dollar mistakes or multi billion dollar mistakes that generally accept the counting principles don't pick up.
The mistakes you see, we made a mistake buying US air preferred some years ago. I had a lot of money around. I make mistakes when I get cash. Charlie tells me to go to a bar instead. I hang around the office and I got money in my pocket. I do something dumb. It happens every time. I bought this thing. Nobody made me buy it. I now have an 800 number I call every time I think I'll have buying stock in an airline and they talk me down. I say, I'm worn, I'm an aeraholic. Keep talking, don't hang up. Don't do anything rash. Finally, I get over it. I bought it. It looked like we were going to lose all our money in that. We came very close to losing all our money. We said we deserved the loss of our money.
We bought it because it was an attractive security but it was not an attractive business. I did the same thing with Solomon. I bought an attractive security in a business that I wouldn't have bought the equity in. You can say that that's one form of mistake. Buying something because you like the terms when you don't like the business that well. I've done that in the past. Probably do it again. The bigger mistakes though were the ones of omission. I did. Back when I had the 10,000 bucks I put 2000 dollars of it into a Sinclair server station which I lost. My opportunity cost now is about 6 billion right now. Probably a big mistake. It makes me feel that my Berkshire goes down then because the cost of my Sinclair station goes down too. My 20% opportunity cost.
I will say this. You talk about learning from mistakes. I really believe it's better to learn from other people's mistakes as much as possible. We don't spend any time looking back at Berkshire. I've got a partner, Charlie Munger. We've been pals for 40 years. We never had an argument. We disagree on things a lot. But we don't have arguments about it. We never look back. We just figure there's so much to look forward to that there's just no sense thinking about what we might have. It just doesn't make any difference. You can only live life forward. You can learn something from the mistakes.
The big thing to do is stick with the businesses you understand. If there's a generic mistake of getting outside of your short-go components and buying something to somebody, tips you on it or something in an area you don't know anything about, you should learn something from that. You stay with what you can figure out yourself. You really want your decision making to be by looking in the mirror and saying yourself, I'm buying 100 shares of General Motors at 55 because. It's your responsibility if you're buying it. There's got to be a reason. If you can't state the reason, you shouldn't buy it.
Because somebody told you about it at a cocktail party, not good enough. It's got to be something. It can't be because of the volume. The chart looks good on it or anything like that. It's got to be a reason you'd buy the business. That we stick to pretty carefully. That's one of the things Ben Graham taught me. The question about what's going to happen to interest rates, where are we going to work? I don't think about the macro stuff. What you really want to do in investments is figure out what's important and knowable. If it's unimportant or unknowable, you forget about it.
What you talk about is important, but in my view, it's not knowable. Understanding Coca-Cola is knowable or wriggly or Eastman code actor. I mean, you can understand those business. That's knowable. And whether it turns out to be important depends on where your valuation leads you in the current price and all of that. But we have never either bought a business or not bought a business because of any macro feeling of any kind. We don't read things about predictions about interest rates or business or anything like that because it doesn't make any difference.
I mean, let's say in 1972 when we bought C's candy, I think maybe Nixon put on the price controls a little bit later. Let's say we'd seen that. But so what we missed the chance to buy something for 25 million, that's earning 60 million, pre-tax now. We don't want to pass up the chance to do something intelligent because of some prediction about something that we're no good at anyway. So we just don't we don't read or listen to or do anything in relation to macro factors at all. Zero.
And the typical investment counseling organization goes out and they bring out their economist, they try to make this big macro picture and then they start working from there on down. In our view, that's nonsense. And if Alan Greenspan was on one side of me and Bob Rubin on the other side, they're both whispering in my ear exactly what they're going to do the next 12 months would make any difference to me in what I pay for executive jet or general insurance or anything else I do.
Yep. Well, what's the benefit of being an outer counter as opposed to being in Wall Street? I worked in Wall Street for a couple of years and I like, I've got my best friends actually on both coasts and I like seeing them and I get ideas when I go there. But the best way to get the think about investments is to be in a room with no one else and just think. And if that doesn't work, nothing else is going to work.
And the disadvantage of being in any kind of a market type environment in Wall Street would be the extremes that you get over stimulating. You think you have to do something every day. I mean, a Canberra family paid $2,000 for this company and you don't have to do much else if you pick one of those and the trick then is not to do anything else, even not the sell it in 1919, which they the family did later on it.
So what you're looking for is some way to get one good idea a year and then write it to its full potential. And that's very hard to do in an environment where people are shouting prices back and forth every five minutes and shoving reports under your nose and all that. Because Wall Street makes its money on activity. You make your money on inactivity. I mean, if everybody in this room trades their portfolio around every day with every other person, you know, you're all going to end up broke and the intermediaries going to end up with all the money.
On the other hand, if you all on stock and in a group of average businesses and just sit here for the next 50 years, you'll end up with a fair amount of money and your broker will be broke. So his activity is he's like a doctor who gets paid out how often it gets you to change pills. I mean, basically, I mean, he gives you one pill and it cures you the rest of your life. And he's got one sale, one transaction and that's it. But if he can convince you that changing pills every day is the way the great health. It'll be great for him and the prescriptionists and you'll be out of a lot of money and you won't be any healthier. A lot worse off financially. So you want to stay away from any environment that stimulates activity and Wall Street would have the effect of doing that.
I would I used one I want to go back about once every six months and I'd go back a whole list of things I wanted to check out one way or another companies I wanted to see and I would I would get my money's worth out of those trips. But then I go back to one thing about it. Yeah. So you invest your value way only sure if the virtual pathway or Microsoft don't paint it. Yeah, well, the question but Berkshire halfway because it wasn't about evaluating Berkshire went doesn't pay any difference and it won't pay any difference either. It's a promise I can keep.
The all you get with Berkshire, you stick it in your safe deposit box and then every year you're going to found a one. You know, you take it out and you put it back and I mean, there's enormous psychic reward in that you don't underestimate it. But the real question is whether we can keep retaining dollar bills and turning them into more than a dollar at a decent rate and and that's what we try to do and and and surely I have our our money in it to do that. That's all we'll get paid for doing. We won't take any options. We won't take any salaries to the big up or anything.
We'll ride around in the plate. But that's what we're trying to do. It gets harder all the time. The more money we manage the harder it is to do that and we would do way better percentage wise with Berkshire. It was one one hundredth the present size. But it is it is run for its owners. But it isn't run to give them dividends because so far every dollar that we've earned and could have paid out. We've turned into more than a dollar. It's worth more than dollar to keep it and therefore be silly to pay it out. Even if everybody was tax-free that owned it it would have been a mistake to pay dividends at Berkshire because so far the dollar bills retained have turned into more than a dollar.
But there's no guarantee that that happens in the future and at some point the game runs out on that. But it is the goal of I mean that is what the business is about. We're not nothing else about the business. Do we judge ourselves by we don't judge it by the size of its home office building or you know anything of the number of people working around it. We got twelve people at headquarters. We got 45,000 employees at Berkshire and twelve people at headquarters thirty five hundred square feet and we won't change it.
So we will judge ourselves by the performance of the company and that's the only way we'll get paid. But believe me it's a lot harder than it used to be. There's anything way in the back because I want to make sure I'm not missing people back there that I haven't called. Okay then we'll go to the well how about way over there on the aisle. What makes me decide to invest what? One of your investments has reached its full potential as you said earlier that you missed the last part of it.
Oh, rich and full potential. Well ideally you buy in business is where you feel that will never happen in terms of. I mean I don't think I don't buy coke with the idea that it's going to be out of gas in ten years you know or fifteen years it. I mean there could be something happen but I would think the chances are almost nil. So what we really want to do is buy businesses that we would be happy to own forever. It's the same way I feel about people buy Berkshire.
I want people to buy Berkshire to plan the whole of forever. They may not for one reason or another but I want them at the time they buy it to think they are buying a business that they're going to own forever. And I don't say that's the only way to buy things it's just that that's the group I want to have joined me because I don't want to have a changing group all the time. I measure Berkshire by how little activity there is in it.
If I had a church and I was the preacher and half the congregation left every Sunday I wouldn't say oh this is marvelous because I have all this liquidity among my members. There's terrific turnover you know. I would rather get a church where all the seats are filled you know every Sunday by the same people. We look at the businesses we buy we want to buy something that we're really happy to own virtually forever and we can't find a lot of those.
And back when I started I had way more ideas than money so I was just constantly having to sell what I thought was the least attractive stock in order to buy something that I just discovered that looked even cheaper. But that's not our problem really now and so we hope we're buying businesses that we're just as happy with five years from now as now. And if we ever found some huge acquisition you know then we'd have to sell something maybe to make that acquisition but that would be a very pleasant. Puzzle problem that have we never buy something with a price target in mind. I mean we never buy something at 30 saying if it goes to 40 will sell it or 50 or 60 or 100. We just don't do it that way anymore than when we buy a private business like Sees Candy for 25 million we don't say ourselves if it ever if we ever got an offer 50 million for this business we'd sell that.
That's just not the way to look at the business. The way to look at the businesses is this going to keep producing more and more and more money over time. And the answer to that is yes you don't need to ask any more questions. There is yeah way back there. So what do you think of the same thing with mine? Who's the database and where I think you saw it and similarly the long term capital? And how did you go up and down?
Well Solomon like I say I went into that because it was a 9% security in 1987 September 1987. The Dow was up 35% that year we sold a lot of stuff and I had a lot of money around it. It looked to me like we were never going to do a chance to do anything. So I took an attractive security form in the business I would never buy the common stock of. And I went in because of that and I think that's generally a mistake. It worked out okay finally on that but it's not what I should have been doing.
I either should have waited in which case I could have bought more Coca-Cola a year later or thereabouts. Or I should have even bought Coke at the prices it was selling at then even though it was selling at a pretty good price at the time. So that was a mistake. I'm long-term capital that's we have learned other businesses that are associated with securities over the years. And I mean one of them is arbitrage. I've done arbitrage for 45 years and grammed it for probably 30 years before that. And that's a business unfortunately I have to be near a phone for and I have to really run out of them or the office myself because it requires being more sort of market attuned.
And I don't want to do that anymore so unless a really big arbitrage situation came along that I understood I won't be doing much of that. But I've probably been in 300 arbitrage situations at least in my life maybe more. And it was a good business, perfectly good business. Long-term capital has a bunch of positions. They got tons of positions but the top 10 are probably 90% of the money that's at risk. And I know something about those 10 positions. I don't know everything about them by a long shot.
But I know enough where I would feel okay at a big discount going in and we would have the staying power to hold it out. We might lose money on something like that. But the odds are with us. That's a game that I understand. There's a few other positions we have that aren't that big because they can't get that big. But they involve, they could involve yield curve relationships or on the run off the run governments or things like that. There are just things you learn over time if you're around securities markets.
They're not the base of our business. Probably on average they've accounted for a half a percentage point of our return a year or three quarters of a percentage point of a year of our return. They're little pluses that you get for actually having just been around a long time and learning a little bit about. First arbitrage, not the first arbitrage I did, but one of the first arbitrage I did involved the company where you they were offering cocoa beans in exchange for their stock.
That was in 1955. I bought the stock, turned to the stock, got warehouse certificates for cocoa beans and they happened to be a different type they were trading their cocoa change. But there was a basis differential in my favor and I sold them. That's just something that I was around at the time so I learned about. Hasn't that cocoa bean deal since? 40 odd years. I've been waiting for another cocoa bean deal. I haven't seen it. But it's there in my memory if it ever comes along.
And that long term capital is that on a big scale. Yep. The question is about diversification and I've got to do a answer to that. If you are not a professional investor, if your goal is not to manage money in such a way as you get a significantly better return than the world, then I believe in extreme diversification. I believe 98 or 99% may be more than 99% of people who invest should extensively diversify and not trade. That leads them to an index fund type of decision with very low cost. All they are going to do is own a part of America and they made a decision and only part of America is worthwhile. I don't call it without at all. That is the way they should approach it unless they want to bring an intensity to the game to make a decision and start evaluating businesses.
But once you are in the business of evaluating businesses and you decide that you are going to bring the effort and intensity and time involved to get that job done, then I think that diversification is a terrible mistake and to any degree. And I've got to ask that question when I was at Suntrust the other day. And if you really know businesses, you probably shouldn't know more than six of them. I mean, if you can identify six wonderful businesses, that is all the diversification you need. And you're going to make a lot of money and I will guarantee you that going into a seventh one is going to, rather than putting more money in your first one, it's got to be a terrible mistake. Very few people have gotten rich on their seventh best idea. But a lot of people have gotten rich on their best idea.
So I would say that for anybody working with normal capital who really knows the businesses they've gone into, a sixth is funny. And I'd probably have half of it in what I like the best. I don't diversify personally. All the people I know that have done well, we mentioned Walter Schloss here, and Walter diversifies a lot. He owns a little of everything. I call him Noah. He's got two of everything. Yeah. I differentiate the color of the colors of the world from the Proctor Gamble. Well, Proctor Gamble is a very, very good, does a strong distribution capability. Lots of brand names and everything. But if you ask me, are going to go away for 20 years, to put all my families net worth in one business.
But I would have Proctor Gamble or Coke. Actually, Proctor Gamble is a little more diversified among product line. But I would feel sure of Coke than Proctor Gamble. I wouldn't be unhappy if somebody told me I had to own Proctor Gamble during that 20-year period. I mean, that would be in my top 5% because they are not going to get killed. But I would feel better about the unit growth and the pricing power of a Coke over 20 or 30 years than I would about a Proctor Gamble. Right now, the pricing power might be tough. But you think a billion servings a day. It's an extra penny. $10 million a day. We own 8% of it. That's $800,000 a day for Berkshire Hathaway.
Another penny out of the stuff. Doesn't seem impossible, does it? I mean, it's worth another penny. It doesn't, right now, it's a mistake you're trying to get in most markets. But over time, Coke will make more preserving than it does now. 20 years from now, guarantee it will make more preserving. It will be selling a whole lot more servings. I don't know how many. I don't know how much more, but I know that. PNG's main products. I don't think they have the kind of dominance. And they don't have the kind of unit growth, but they're good businesses. I would not be unhappy if you told me that I had to put my family's net worth in PNG.
And that was the only stock I could own. I would, you know, I might prefer some other names, but there aren't a hundred other names I would prefer. Yeah. McDonald's, the question is about McDonald's and going away for 20 years. McDonald's has got a lot of things going for it, and particularly abroad again. I mean, their position in abroad in many countries is stronger relatively than here. It's a tougher business over time. People do not want to eat, I'm, the exception of the kids when they're giving away any banking or something.
People do not want to eat at McDonald's every day. I mean, if people are drinking Coke today, they drink five of them today. They'll probably drink five tomorrow. The fast food business is tougher than that. But if you had to pick one hand to have in the fast food business, which is going to be a huge business world wide, you'd pick McDonald's. I mean, it has the strongest position. It doesn't win taste tests, you know, with adults. I mean, it doesn't very well with children. And it does fine with adults, but I mean, it is not, it's not like it's a clear winner.
And it's gotten into the game in recent years of being more price promotional, and, you know, you remember the experiment a year ago or so. And so it's gotten more dependent on that rather than just selling the product by itself. I like the product by itself, so I feel better about Gillette if people buy the mock free because they like the mock free than if they got a beanie baby with it, you know, I mean, and so I just think it's fundamentally just stronger product if that's the case. And, and, you know, it probably is. We own, we own a lot of Gillette and, and you can sleep pretty well at night if you think of a couple of billion men with their hair growing under faces. You go to, you know, they're going all night while you sleep, you know.
And women have two legs, I think it's even better. So it's, it's these county sheep. And those are the kind of business. But if you think, you know, what promotion am I going to put out there against Burger King next month? You know, and what if they sign up Disney and I don't get Disney? And, I mean, that is, I like the, I like the products that stand alone, absent promotion or price appeals, although you can build a very good business based on that.
And McDonald's is a terrific business. It's not as good a business as, as cold, but that, you know, they're really hard or hardly any. It's a very good business. And if you bet on one company in that field aside from Dairy Queen, of course, we bought Dairy Queen here a while back this way, plugging it shamelessly here.
Yeah, way back there. What do I think of what? The electric utility industry? Well, I've thought about that a lot because you can put big money in it. And, and I've even thought of buying entire businesses. There's a fellow in Omaha, actually, that's done a little bit through Cal energy. But I don't quite understand the game in terms of how it's going to develop with the regulation. I mean, it's, it's got, I can see how it destroys a lot of value for the high cost producer.
You know, once they're not protected by monopoly territory. And I don't for sure see how, who benefits and how much. I mean, obviously the guy was very low cost power. Some guys got hydro power, you know, a two cents a kilowatt or something like that. It's got a huge advantage, but how much of that he's going to get to keep and everything or how extensively he can, he can send that outside his natural territory. I haven't been able to figure that out with a, so that I really think I know what the industry is going to look like in 10 years.
But it is something I think about and if I ever develop any insights, you know, the call for action, I'll, you know, I will act on it. But it because I think I can understand the attractiveness of the product and it's all that all the aspects of certainty of, of user need and, and, and the fact that it's a bargain and all of that. I understand I just don't understand who's going to make the money in 10 years from now on. And that keeps me away.
Yeah. Do you think that the market is capable of the large cap to chip stocks over small caps? The question is large caps versus small caps and why large caps over one. I don't know the answer to that. We don't think we don't we don't care whether somebody's large cap giant cap, middle cap, small cap, micro cap, and doesn't make any difference.
I mean, the only question is, is can we understand the business? Do we like the people running it and does itself replace the attractive from our mic? My personal standpoint, running Berkshire now because we've got pro forma for Jen Rave. I don't know what we have maybe 75 or 80 billion dollars to invest in. I only want to invest in about five things. So I'm really limited to very big companies.
But if I were investing a hundred thousand dollars, I wouldn't care whether something was large cap or small cap for anything. I would just look for businesses I understood.
但如果我要投资十万美元,我不会在意某个公司是大盘股还是小盘股。我只会关注那些我能理解的业务。
Now, I think that on balance large cap companies as businesses have done extraordinarily well the last ten years and way better than people anticipated they would do. I mean, you really have American business earning close to 20% on equity and that's something nobody dreamed of and that's being produced by very large companies and aggregates.
I mean, I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that's why I think that
我的意思是,我认为这就是原因。
because I think that's why I am. I haven't started be کی think that I can do that if I don't.速 that if I're trying to deploy a couple of stories series about talking about something not really so, really Teisha, Justice, and the parting by Ben Banexcito was it was really pretty nice and I don't think that's what I used to do today, and I did nothingmontress. the first thing you know, so if you don't—my point of view would be depends on how it looks, how you look for things that are going to beAH, and what are real estate is primarily private, without any break. Securitization of real estate and what is your insight into the industry?
因为我觉得那就是我的原因。我没有开始,因为我认为如果不尝试的话,我可能无法做到。有时我试图发表一些关于某个话题的系列故事,谈论的内容并不是特别明确,真的很难理解。Ben Banexcito写的《Teisha, Justice, and the Parting》真的很不错,这不是我今天习惯做的事情,我也没有做任何令人敬畏的事情。我的意思是,一切取决于你的看法,以及你如何看待即将发生的事情。房地产主要是私有的,没有中断。房地产的证券化是什么?你对这个行业有什么见解?
Yeah, you know, I'm really saying, I've been in securitization, enormous securitization of the debt to a real estate. And that is one of the items right now that is really clogging up the capital markets. I mean, the mortgage-backed securities are, they're just not moving. In commercial mortgage-back, not residential mortgage-backed. So that's, but I think you're directing your question at equities, probably. And the equities, if you leave out, the corporate form has been a lousy way to own equities. I mean, you've interjected a corporate income tax into something that people individually have been able to own with a single tax. And by having the normal corporate form, you got a double taxation in there.
You really don't need with a estate. And it takes away too much of the return. Reeds have an effect created a conduit so that you don't get the double taxation. But they also generally have fairly high operating expenses. And if you get real estate, let's just say you can buy fairly simple types of real estate, on an 8% yield, or thereabouts. And you take away maybe close to one or one, maybe even one and a half percent by the time you come stock options and everything. It's not a terribly attractive way, don't it? Maybe the only way a guy with $1,000 or $5,000 can own it. But if you have $10 million, you're better off owning the real estate properties yourself and seeking some intermediary in between that will get a sizable piece of the return for himself. So we have found very little in that field.
You'll see an announcement in the next couple of weeks that may be live, whatever. Telling you're on one thing. So I want you to think I was double crossing you up here, but generally speaking, we've seen very, very little in that field that gets us excited. There are people, sometimes get very confused about, they'll look at some huge land company. I'll take one that's, that won't evoke any emotional reactions on the part of anybody. Like Texas Pacific Land Trust, which has been around over 100 years, and got a couple of million acres in Texas. And they'll take the, they'll sell 1% of their land every year and they'll take that as a pie and everything and come up with some huge value compared to the market value.
But that's nonsense if you really own the property. I mean, you can't move. You can't move 50% of the properties or 20% of the properties. It's way worse than a no-look with stock. So you get these, I think you get some very silly valuations placed on a lot of real estate companies by people that don't really understand what it's like to own one and try to move large quantities of property. It reads the behave terribly in the market this year, as you know. And it's not at all inconceivable. They would become a class that would get so unpopular that they would sell a significant discounts from what you could sell the properties for. And they could, they could get interesting as the class then.
And then the question is whether the management would fight you in that process because they would be giving up their income stream for managing things and their interests might run counter to the shareholders on that. I've always wondered about the REITs that say, you know, our assets are so wonderful and they're so cheap and then they got themselves stock. I mean, there's a contradiction in that. If they say our stock at 28 is very cheap and then they sell a lot of stock at 28 less than underwriting commission, doesn't, you know, they're either, there's a disconnect there. And so, but it's a feel we look at. I mean, Charlie and I can understand real estate. And we would be open for very good transactions periodically.
And if there was a long-term capital management situation and translated to real estate, you know, we would be open to that trouble to so many other people would be too that it would be unlikely to go at a price that would really get us excited. Way back there. Let us stand in your theory that sort of a down market is good for net saver. You can sort of give us your thoughts as to where the market feels like it's down with trend and just all the rough and the loss of the hand robbers.
Well, yeah, I've got no idea where the market's going to go. I prefer it going down, but I haven't, you know, my preferences have nothing to do with it. The market knows nothing about my feelings. That's one of the first things you have to learn with a stock. You buy 100 shares of general motor. Now, all of a sudden you have this feeling about general motors. I mean, if it goes down, you may be mad at it and you may say, well, if it's just up to what I paid for, you know, my life will be wonderful again. Or if it goes up, you may say, how smart you were and how you and general motors have this love affair in them. You've got all these feelings. Stock doesn't know you on it. Stock just sits there. It doesn't care what you paid. It doesn't care that you're older or anything. So any feeling I have about the market is not reciprocated.
I mean, it is the old one. Yeah. Yeah. It is very cold shoulder we're talking about here. And anybody that is going to be in that set of, probably everybody in this room is more likely to be a net buyer of stocks over the next 10 years and they are in that seller. So every one of you should prefer lower prices. I mean, if you're going to be a net eater of hamburger in the next 10 years, you want hamburger to get on unless you're a cattle producer. And if you're going to be a buyer of Coca-Cola and you don't own Coke stock, you hope Coke to the price of Coke goes down. I mean, you're looking for it to be on sale this weekend at your supermarket. You want it to be down on the weekends, not up on the weekends when you're going to tend the supermarket. Your stock exchange is a big supermarket of companies. And you're going to be buying stocks. What do you want to have happen? You want those stocks to go down, way down.
And you know, you will make better buys then. And later on, 20 years from now, 30 years from now when you're in a period when you're dissipating or when your air is dissipating for you, to your bought. I mean, then you may care about higher prices. But I find people, that was one of the, there's a chapter eight in Ben Graham's Intelligent Fester about the attitude towards stock market fluctuation. And that and the chapter 20 on the margin of safety are the two most important essays ever written on investing as far as I'm concerned. Because when I read chapter eight, when I was 19, I figured, you know, I mean, what I just figured out what I just said, but it's obvious. I didn't figure it out myself though. It was, it was exciting to me. I've probably gone another hundred years if I hadn't written. Still thought it was good when my stocks were going up.
Now, we want, we want things to go down. But I have no idea what the stock market's going to do. I never do, never will. It's not something that I think about at all. When it goes down, I feel, I look harder at what I might buy that day. Because I know there's more likely to be some merchandise there that I can use my money effectively. OK, Warren, we'll take one more question from the audience. OK, I'll let you pick who gets it. You can be the guy. Yeah. OK. Thank you. One second. One second. All right, back there. OK. If you leave your game, starting your life again, then what would you like to do with the world to have your life?
Yeah, I would say, and this is going to sound disgusting. The question is, what would I do if I were going to live over again and have a happier life? Well, I don't think I might do a selected gene pool where people lived to be 120 or something that I came from. But I've been extraordinarily lucky. I mean, I use this example. I'll take a minute or two because I think it's worth thinking about a little bit. Let's just assume that it was 24 hours before you were born. And a genie came to you. And he said, he said, herb. You look very promising. And I've got a big problem. I've got to design the world in which you're going to live. And he said, I've decided hell with it. It's too tough.
You designed it. So you've got 24 hours. You figure out what the social rules should be, the economic rules, the governmental rules. And you're going to live under those. And your kids are going to live under. Their kids are going to live under. And you say, I can design anything. And genie said, yeah, you can do it. And you say, well, there must be a catch. He says, well, there is a catch. You don't know whether you're going to be born black or white, rich or poor, male or female, infirm or able body, brighter, retarded. All you know is you're going to take one ball out of a barrel that's got 5.8 billion. You're going to participate in what I call the Ovarian Model. You're going to get one ball out of there.
And that is the most important things that are going to happen to you in your life. Because that is going to control whether you're born here in Afghanistan or whether you're born with IQ 130 or an IQ of 70. It's going to determine a whole lot. And you're going to go out of the world, and you're going to have that ball. What kind of a world do you want it to design? Well, I think that's a good way to look at social questions. Because not knowing which ball you're going to hit, you're going to want a ball that you're going to want a system, design a system that's going to produce lots of goods and services. Because you're going to want people on balance to live well. And you're going to want it that produces more and more. So your kids live better than you do. And your grandchildren are better than the kids. But you're also going to want a system that if it does produce lots of goods and services, does not leave behind a person that accidentally got the wrong ball and is not well-wired for this particular system.
See, I'm ideally wired for the system I fell into here. I mean, I came out and I've got something that enables me to allocate capital. Nothing so wonderful about that. If all of us were stranded on the Desert Island, we all landed there. We're never going to get off of it. The most valuable person would be the one that could raise the most rice over time. And I could say, why can't I allocate capital? How about paying me a bill? And you wouldn't get very excited about that. So I am in the right place. But Gates says, if I've been born a few million years ago, I've been some animals lunch. He says you can't run very fast. You can't climb trees. You're not doing anything. Just been chewed up in the first day. So he says, you're lucky. You're born today. And I am.
But the question, getting back, one question you can ask yourself incidentally, here is this barrel with 5.8 billion balls. Everybody in the world. If you could put your ball back. And then they took out at random 100 other balls. And you had to pick one of those. Would you put your ball back in? Now, those 100 balls that you're going to get out, roughly five of them will be American. So there's 95 versus 5. So you only have five balls. If you want to be in this country, you only have five balls now left. Half of them are going to be women. Half of them are going to be men. I'll let you all decide how you vote on that one. Half of them are going to be below average intelligence. Half are going to be above. You want to put your ball back? Most of you, I think, will not want to put that ball back to get 100.
So what you're saying is I'm in the luckiest 1% of the world right now. Sitting in this room, top 1% of the world. Well, that's the way I feel. And I've been lucky to be born where I was because it was 50 to 1 against me in the United States when I was born. Lucky with parents, lucky with all kinds of things, then lucky to be wired in a way that in a market economy pays off like crazy for me. Doesn't pay off for somebody. It's absolutely as good a citizen as I am. Leading Boy Scout troops, teaching Sunday school, whatever, raising fine families. But it just doesn't happen to be wired in the same way I am. So I've been extremely lucky.
So I would like to be lucky again. And if I'm lucky, then the way to do it is to play out that game and do something and enjoy all your life and be associated with people you like. I only work with people I like. I don't, if I could make $100 million by buying a business with some guy that caused my stomach to turn, I'd say no. Because I say that's just like marrying for money, which probably isn't a very good idea in any circumstances. But if you're already rich, it's crazy, right? I am not going to marry for money. So I would really do almost exactly what I've done except I don't want to get a bought the US Air. Thanks.