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On Thursday evening, Columbia Business School's Seminar on Value Investing welcomed Warren Buffett as the guest speaker. I was lucky enough to worm my way into it. Here are my notes. (I don't claim that everything is completely accurate, but I think I captured at least the proper meaning of everything).

15. In an investment partnership, how does lack of managerial control (over the firms you invest in) influence decisions)?

We have very little influence anyway, even as a director, so it is not a big deal. Very rarely can you change the course as a director and you can't attempt to very often. Someone invited to parties will find he is no longer invited if he is constantly belching at these parties. [<- Terrible paraphrase. More or less the same quote as he used at the annual meeting 2 years ago.]

Even with 100% owned companies, we accept decisions that we would not have made ourselves. In the long run, they probably balance out to be at least as good as what we would have done. More importantly, it allows the managers to treat the companies as “their” businesses. Do you think Al Ueltschi, who owns $1 billion in BRK stock, is going to want to keep running his business if I'm over his shoulder making decisions?

16. Why don't you sell things when they hit extremely high prices?

We're not selling a See's Candy for any amount of money, even if someone offered us 3-4 times its value. Why? It's a quirk of ours. We don't get many opportunities to form associations with good people. When we forge an association, we don't like to ruin it by turning it over to someone else. Small equity pieces are a different matter.

With Buffett Limited Partnership, it was a different matter. It was WEB's job to make the most money possible. Now it's his job to run a business in an agreeable way that hopes to perform well. It's no longer the goal to wring every last dollar out of every situation.

Also talked of the benefits of having a reputation for not selling. [Same masterpiece discussion as recorded elsewhere.] When someone builds a business, they're building their own masterpiece. If we purchase that painting, we're offering to hang it, not buy it and quickly sell it to someone else. I tell the prospective seller they can choose to hand it over to BRK, where I will never tell them to add more blue paint or less red paint, but simply hang it. Consider BRK the Metropolitan Museum. Your alternative is to hang it in a porn shop. [I must be delirious. Did he really say this or am I just imagining this whole conversation?]

17. Interest rates are extremely low. What's the lowest benchmark you set?

Good question. I want 13% pre-tax. Over the last couple of years, we made about 8-10 acquisitions, and I think they'll work out to 13% pre-tax. There have been times where the interest rate was 20%, and 13% would be unacceptable. But the opposite doesn't hold. I can't go arbitrarily low with a required return. I'd rather have short-term returns of 1 ¾% than buy stocks or companies returning 8-9% because I'm going to be holding on to those forever. Those returns are fine now, but enough acquisitions like that and you end up with a very average business.

So, in this low-interest environment, we have a lot of money in bonds right now. Either we expect to get more good opportunities or the environment will change.

By the way, the environment will change.

The financial markets have a long history of doing crazy things. You are all young, you'll see those things repeated. [Tells a story about how he has a very old newspaper clipping of a brewer/investor who drowned himself in a vat of hot beer because of troubles arising from excessive margin use.] Those things will happen again. You'll have a lot of opportunities to get rich, even if the environment doesn't look like it right now.

18. Describe the H&R Block competitive advantage.

They had a disappointing quarter several years ago, but their franchise was not impaired. The market drove the price down.

Everyone knows H&R. You think of tax preparation, you think of H&R. How many people here can name the #2. Not many. [Apparently Cendant owns it.] How much would it take to topple them? The only thing to kill it would be a radical change in the tax laws (e.g., a move to a consumption tax).

We were willing to buy the entire firm at 75% more than what we paid for the piece we bought. [I think he said large insider ownership prevented it, but I'm not sure.]

19. Greenwald: Last question – We moved away from using the first edition of Security Analysis. What are we missing by not using that?

The historical perspective. People will continue to do dumb things.

“History may not repeat itself, but it rhymes.” (Twain?)

The first edition is good for a sense of history.

[At this point, he kind of wrapped up.] There are 3 things that are key:
1. Margin of safety (Finova deal) is absolutely essential.
2. Look at a stock as a business. “I spent 8 years buying stock without thinking of it that way.” [“I started at age 11 – I don't know why I started so late.”]
3. Develop the proper attitude towards the market. It is there to serve you, not instruct you. Too many people are instructed by the market.
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