2016: How does Buffett "think ahead of the crowd?"

AUDIENCE MEMBER: Hey, Warren and Charlie. Thank you so much for your generosity and sharing your life’s accumulation of knowledge and financial capital to the progress of humanity. Thank you for that.

And Berkshire managers, thank you for building important companies and stewarding our financial futures. Thank you, guys.

This is Bruce Wang from MICROJIG, traveling west from Orlando, Florida.

Last year, you kindly shared with me the importance of getting the best reputation you can and behaving well. This year I’d like to ask and preface with, Bill Gates wrote, “Warren’s gift is being able to think ahead of the crowd. It requires more than taking his aphorisms to the heart to accomplish that, although Warren is full of aphorisms well worth taking to heart.”

And he also added that, “I’ve never met anyone who thought in business in such a clear way.”

Warren, what elusive, yet obvious to you, truth has allowed you to think ahead of the crowd and build a clear mental framework to produce a historically significant institution powerhouse brand?

And, Charlie, same to you, what obvious truth presents itself so clearly to you, but many would fervently disagree with you upon?

WARREN BUFFETT: I think I got the question, and I — you know, I owe a great deal to Ben Graham in terms of learning about investing.

And I learned a — I owe a great deal to Charlie, in terms of learning a lot about business.

And then I’ve also been around — I mean, I spent a lifetime, you know, looking at businesses and why some work and why some don’t work.

You know, as Yogi Berra said, you can see a lot just by observing. And that’s pretty much what Charlie and I have been doing for a long time.

And you do — I mentioned pattern recognition earlier — you know, there’s — you — and I would say it’s important to recognize what you can’t do. So we have — we may have tried the department store business and a few things, but we’ve — we’ve generally tried to only swing at things in the strike zone, and our particular strike zone. And it really hasn’t been much more complicated than that.

You do not need — you don’t need the IQ in the investment business that you need in certain activities in life. But you do have — you do have to have emotional control.

I mean, we see very smart people do very stupid things, and it’s fascinating how humans do that. Just take the people that get very rich and then leverage themselves up in some way that they lose everything.

I mean, they are risking something that’s important to them for something that isn’t important to them.

Well, you can say, you could figure that one out in first grade, but people do it time after time.

And you see that constantly, self-destructive behavior of one way or another. I think we’ve probably — and it doesn’t take a genius to do it, but I think we’ve sort of avoided the self-destructive behavior.

Charlie?

CHARLIE MUNGER: Well, there’s just a few simple tricks that work — work well, and particularly if you’ve got a temperament that has a combination of patience and opportunism in it.

And I think that’s largely inherited, although I suppose it can be learned to some extent.

Then I think there’s another factor that accounts for the fact that Berkshire has done as well as it has, is that we’re really trying to behave well.

And I had a great-grandfather. When he died, the preacher gave the talk, and he said none envied this man’s success, so fairly won and wisely used. That’s a very simple idea, but it’s exactly what Berkshire’s trying to do.

There are a lot of people who make a lot of money and everybody hates them, and they don’t admire the way they earned the money.

And I’m not particularly admirable of making money running gambling casinos. And, you know, we don’t own any. And we’ve turned down businesses, including a big tobacco business.

So, I don’t think Berkshire would work as well if we were just terribly shrewd, but didn’t have a little bit of what the preacher said about my grandfather, Ingham.

We want to have people think of us as having won fairly and used wisely.

It works. (Applause.)

WARREN BUFFETT: And we were very, very lucky to be born when we were and where we were. And I mean, we — you could’ve dropped us at some other place in time or some other part of the world, and things would’ve turned out —

CHARLIE MUNGER: And think of how lucky you were to have your Uncle Fred. Warren had an uncle who was one of the finest men I ever knew. I used to work for him, too. You know, a lot of people have terrible relatives. (Laughter.)

WARREN BUFFETT: That’s not an unimportant point. Just yesterday, we had a meeting of all my cousins and a whole bunch that we just get together at the annual meeting time. There are probably 40 of us or 50 of us there.

And they were pulling out some old pictures, and four — I had four aunts, they are all in these pictures — and every one of them — you know, I mean, you were so lucky to have one like that, and I had four. I mean, they just were — in every way they reinforced a lot of things that needed some reinforcement in my case.

CHARLIE MUNGER: I wish you’d had a couple more. (Laughter.)

WARREN BUFFETT: But —

CHARLIE MUNGER: We’d be doing even better.

WARREN BUFFETT: But, he mentioned my Uncle Fred, but my Aunt Katie worked in the store, too. My Aunt Alice worked in the store, and they just — you just couldn’t have been around better people. I think Charlie would agree with that.

CHARLIE MUNGER: Yeah. Well, we were very lucky.

WARREN BUFFETT: Yeah. My grandfather was a little tough, however. Tell them what my grandfather used to do when he paid you on Saturday, Charlie.

CHARLIE MUNGER: Well, that was very interesting. Warren’s a Democrat, but he came from different antecedents. I worked for his grandfather, Ernest, and he was earnest. (Laughs)

And when they passed Social Security, which he disapproved of because he thought it reduced self-reliance — and he paid me $2 for 10 hours work, there was no minimum wage in those days — on Saturday, and it was a hard ten hours.

At the end of the ten hours, I came in and he made me give him two pennies, which was my contribution to Social Security. (Laughter)

And he gave me two $1 bills and a long lecture about the evils of Democrats, and the welfare state, and a lack of self-reliance, and it went on and on and on and on.

So, I had the right antecedents, too. I had Ernest Buffett telling me what to do.

WARREN BUFFETT: OK. Enough family history.

CHARLIE MUNGER: I haven’t overstated that, have I?

WARREN BUFFETT: No, you haven’t overstated it at all. (Laughs)

CHARLIE MUNGER: You can’t believe what people — and he thought he was doing his duty by the world to do that.

WARREN BUFFETT: But we were lucky then. The people we were around when we were young, we were very lucky.