2009: How should investors think about volatility in Berkshire's stock portfolio?

CHARLIE MUNGER: Take Wells Fargo. I think Wells Fargo’s going to come out of this mess way stronger. The fact that the stock at the bottom tick scared a lot of people, I think will prove to be a very temporary phenomenon.

WARREN BUFFETT: Yeah. Wells Fargo got down below — actually, ticked below $9 a share at a time when spreads on business were never better, when depositing flows were never better, when their advantage in relation of costs of funds versus other large banks had never been better.

But you know, in a market that was terrified, it — literally, I had a class meeting that day, and it was the only time any of those classes have ever got me to name a stock. But they actually pushed me.

And somebody there with a BlackBerry, or whatever those instruments are that they carry around these days, checked the price and it was below $9. And I said, if I had to put all my net worth in one stock, that would’ve been the stock.

The — their business is — you know, the business model is fabulous.

And it, you know, when would you get a chance to buy something like Wachovia, which had the fourth largest deposit base in the United States, and bring that in? And then start getting the spread on assets versus liabilities that Wells gets and build the relationships they have. It’s a great business opportunity.

Wells Fargo will be better off — unless they have to issue a lot of shares, which they shouldn’t — Wells Fargo will be a lot better off a couple of years from now, than if none of this had happened.

And I think that’s true of some of other businesses as well. But you — you know, you have to be prepared. You can’t let somebody else get you in a position where you have to sell out your position.

Leverage is what causes people trouble in this world. So you don’t — you never want to be in a position where somebody can pull the rug out from under you. And you also never want to be emotionally in a position where you pull the rug out from under yourself.

I mean, you don’t want to have other people force you to sell and you don’t want to let your own fears or emotions to cause you to sell at the wrong time.

I mean, why anybody sells Wells Fargo at $9 a share when they owned it at $25 and the business is better off, is one of the strange things about the way markets behave. But people do it. And they get very affected by looking at prices.

If they own a farm like I do, you know, 30 miles from here, they don’t get a price on it every day. You know, they —

I bought that farm 25 years ago. And you look to the production of corn. You look to the production of soy beans and prices and cost of fertilizer and a few things. And you look to the asset itself to determine whether you made an intelligent investment. You have your expectations about what the asset will produce.

But people in stocks tend to look at the price. So they let the price tell them how they should feel or — that’s kind of crazy in our view.

We think you should look at the business just like you’d look at the apartment house that you bought or the farm you want. They let the fact that a quote is available every day turn into a liability rather than an asset.

And all I would say there is you better go back and read chapter 8 of “The Intelligent Investor,” where it tells you how to think about the market. And it will do you more good than learning what modern portfolio theory is all about.