Warren Buffett's Investment Principles Lecture

Introduction to Warren Buffett

• Considered the greatest investor of all time.
• Initial investment of $1,000 in his company would now be worth over $30 million.
• His success attributed to understanding key principles.

Key Hiring Traits

• Look for intelligence, initiative, energy, and integrity.
• Integrity is crucial; without it, intelligence and energy can be harmful.

Investor Behavior

• Investors act based on past performance, often irrationally.
  • Excited during bull markets.
  • Fearful during bear markets.
• This behavior creates huge opportunities for investors.

Investment Strategy

• Cigar Butt Approach: Buying undervalued, overlooked stocks for quick gains.
  • Ineffective for large-scale investments.
  • Transitioned to investing in wonderful businesses at fair prices over fair businesses at wonderful prices.

Understanding Investments

• Invest in businesses you understand.
• Focus on business economics 10-20 years in the future.
• Example: Wrigley’s chewing gum; internet won't change its market.
• Stick to your circle of competence.

Mistakes and Learning

• Mistakes of Omission: Biggest regrets come from not acting on understood opportunities.
  • Example: Missed opportunity with Fannie Mae.
• Emphasizes seizing big opportunities when they arise.

Financial Decision-Making

• Imaginary 20-punch card for life-long financial decisions.
• Encourages thoughtful analysis before investing.

Selling Decisions

• Berkshire doesn’t sell core holdings regardless of offered price.
• Committed to long-term relationships and business health.

Intrinsic Value

• Intrinsic value based on future cash flows discounted to present value.
• Investment based on expected future returns, not market trends.
• Example: Valuation of Coca-Cola based on future cash delivery.

Conclusion

• Buffett's approach involves thorough understanding and long-term vision.
• Intrinsic value guides all investment decisions, avoiding speculation.
• Advocates for simple, understandable investments within one's competence.