2016: How should kids think about stocks?

AUDIENCE MEMBER: Hi, Warren. Hi, Warren and Charlie. Great to see you. This is Cora and Dan Chen from Taulguard Investments of Los Angeles.

This annual meeting reminds me of the magical world of Hogwarts, of Harry Potter. This arena is our Hogwarts. Warren, you are our Headmaster and Professor Dumbledore. (Laughter)

WARREN BUFFETT: I haven’t read Harry Potter, but I’ll take it as a compliment. (Laughter)

AUDIENCE MEMBER: Charlie is our Headmaster Snape, direct, and full of integrity.

The magic of long-term, concentrated, value investing is real, yet similar to Harry Potter, the rest of the world doesn’t believe we exist.

Your letter to me has changed my life. Your “Secret Millionaire’s Club” has changed my children’s life. They go to class chatting about investing.

My question is for my children watching at home today and the children in the audience.

How should they look at stocks, when every day in the media they see companies that have never made a dime in their life go IPO?

They’re dilutive and they see a lot of very short-term spin. The cycle is getting shorter and shorter.

How should they view stocks, and what’s your message for them?

Finally, Cora and I would love to thank you in person and shake your hand personally today. I’ll repeat what I said last year: thank you for putting — setting — the seeds for my generation to sit in the shade, and for my children’s generation to sit in the shade with the “Secret Millionaire’s Club.”

I truly walk amongst giants. Thank you.

WARREN BUFFETT: Would you mind repeating the whole thing? (Laughter)

“The Secret Millionaire’s Club,” we want to give great credit to Andy Heyward on that. I think it has helped — I know it’s helped — thousands and thousands of children and Andy — it was Andy’s idea — and it grows in strength.

And having young children learn good lessons, in terms of handling money, and making friendships, and just generally behaving as better citizens is a great objective, and Andy makes it easy for them to do. So, on his behalf, I accept your comments.

You don’t really have to worry about, you know, what’s going on in IPOs, or people making money.

People win lotteries every day, but there’s no reason to have that effect you at all. You shouldn’t be jealous about it.

I mean, you know, if they want to do mathematically unsound things, and one of them occasionally gets lucky, and they put the one person on television, and the million that contributed to the winnings, with the big slice taken out for the state, you know, don’t get on — it’s nothing to worry about.

Just, all you have to do is figure out what makes sense. And you don’t — you look at buying — when you — when you buy a stock, you get yourself in the mental frame of mind that you’re buying a business, and if you don’t look at a quote on it for five years, that’s fine.

You don’t get a quote on your farm every day or every week or every month. You don’t get it on your apartment house, if you own one. If you own a McDonald’s franchise, you don’t get a quote every day.

You know, you want to look at your stocks as businesses, and think about their performance as businesses. Think about what you pay for them, as you would think about buying a business.

And let the rest of the world go its own way. You don’t want to get into a stupid game just because it’s available.

And I’m going to say a little more about that close to the break. But with that, I’ll turn it over to Charlie.

CHARLIE MUNGER: Yeah, well, I think that your children are right to look for people they can trust in dealing with stocks and bonds.

Unfortunately, more than half the time, they will fail, in a conventional answer. So you — they really have to — they have a hard problem. If you just listen to your elders, they’ll lie to you and make — spread — a lot of folly.

WARREN BUFFETT: But they really have an easy problem, in the sense that American business, as a whole, is going to do fine over time. So the only way they can —

CHARLIE MUNGER: But not the average client of a stock broker.

WARREN BUFFETT: Well, we’ll get to that later. (Laughs)

The stockbroker will do fine. The — (laughter)

CHARLIE MUNGER: Yes, that’s true.

WARREN BUFFETT: But, they don’t have to do that and we can talk — I’d rather address that just a little later.

But — just — you don’t want to worry — you don’t want to be — a lot of problems are, as Charlie would say, are caused by envy. You don’t want to get envious of somebody who’s won the lottery, or bought an IPO that went up. You have to figure out what makes sense and follow your own course.