1995: Is Buffett's investing style still 15% Phil Fisher and 85% Ben Graham?

AUDIENCE MEMBER: Yes, Neil McMahon (PH), New York City, also a Sequoia shareholder.

Ben Graham investing encouraged turnover. Looking at Berkshire’s holdings, concentration and long-term, are you still a 15 percent Phil Fisher and 85 percent Graham?

WARREN BUFFETT: I don’t know what the percentage would be. I’m a hundred percent Ben Graham in those three points I mentioned earlier, and those really count.

I am very — I was very influenced by Phil Fisher when I first read his two books, back around 1960 or thereabouts. And I think that they’re terrific books, and I think Phil is a terrific guy.

So, I think I probably gave that percentage to — I think I first used it in Forbes one time when Jim Michaels wrote me. And I think I, you know, it was one of those things. I just named a number.

But I think I’d rather think of myself as being a sort of a hundred percent Ben Graham and a hundred percent Phil Fisher in the points where they don’t — and they really don’t — contradict each other. It’s just that they had a vastly different emphasis.

Ben would not have disagreed with the proposition that if you can find a business with a high rate of return on capital that can keep using more capital on that — that that’s the best business in the world. And of course, he made most of his money out of GEICO, which was precisely that sort of business.

So, he recognized it, it’s just that he felt that the other system of buying things that were statistically very cheap, and buying a large number of them, was an easier policy to apply, and one that was a little more teachable.

He would’ve felt that Phil Fisher’s approach was less teachable than his, but his had a more limited value because it was not workable with really large sums of money.

At Graham-Newman Corp — Graham-Newman Corp was a closed-end fund — oh, it was technically an open-end fund, but it had $6 million of net worth. And Newman and Graham, the partnership that was affiliated with it, had 6 million. So, you had a total pool of 12 million.

Well, you could go around buying little machine tool companies — stocks in machine tool companies, whatever it might be, all statistically cheap. And that was a very good group operation.

And he had — you have — if you own a lousy business, you have to sell it at some point. I mean, if you own a group of lousy businesses, you better hope some of them get taken over or something happens. You need turnover.

If you own a wonderful business, you know, you don’t want turnover, basically.

Charlie?

CHARLIE MUNGER: What was interesting to me about the Phil Fisher businesses is that a very great many of them didn’t last as wonderful businesses.

One of his businesses was Title Insurance and Trust Company, which dominated the state of California.

It had the biggest title plant, which was maintained by hand, and it had great fiscal solvency, and integrity, and so forth. It just dominated a lucrative field.

And along came the computer, and now you could create, for a few million dollars, a title plant and keep it up without an army of clerks.

And pretty soon, we had 20 different title companies, and they would go to great, big customers like big lenders and big real estate brokers, and pay them outlandish commissions by the standards of yore, and bid away huge blocks of business.

And in due course, in the State of California, the aggregate earnings of all the title insurance companies combined went below zero — starting with a virtual monopoly.

WARREN BUFFETT: From what looked like a monopoly.

CHARLIE MUNGER: So, very few companies are so safe that you can just look ahead 20 years. And technology is sometimes your friend and it’s sometimes your bitter enemy.

If Title Insurance and Trust Company had been smart, they would’ve looked on that computer, which they saw as a cost reducer, as one of the worst curses that ever came to man.

WARREN BUFFETT: You can — it probably takes more business experience and insights, to some degree, to apply Phil Fisher’s approach than it does Graham’s approach. If you —

The only problem is, you may be shut out of doing anything for a long time with Ben’s approach, and you may have a lot of difficulty in doing it with big money.

But if you strictly applied, for example, his working capital test to securities, you know, it will work. It just may not work on a very big scale, and there may be periods when you’re not doing much.

Ben really was more of a teacher than a — I mean, he had no urge to make a lot of money. It did not interest him. So he was — he really wanted something that he thought was teachable as a cornerstone of his philosophy and approach.

And he felt you could read his books sitting out here in Omaha and apply — buying things that were statistically cheap, and you didn’t have to have any special insights about business or consumer behavior, or anything of the sort.

And I don’t think there’s any question about that being true, but I also don’t think you can manage lots of money in accord with it.