During this interview at the 25th Anniversary of The Economic Club of Washington, D.C, Warren Buffett reflects on his early investment in Berkshire Hathaway, describing it as a poor decision based on buying undervalued but mediocre companies, which he likened to “cigar butts” with one puff left.
He explains that he views stock purchases as owning entire businesses, emphasizing the crossover benefits between being an investor and a businessperson. At that stage, Berkshire managed 75 companies with 270,000 employees, operated from a single-floor office with just 24 staff.
Buffett spends his time reading extensively and searching for one good idea annually. While unsolicited suggestions rarely succeed, he notes that he only needs one good opportunity each year.
Here’s an excerpt from the interview:
Buffett: It was really dumb. Yeah. [Laughter.] I mean, it was what I used to call Graham’s approach on buying very cheap stocks that weren’t very good companies “cigar butts” because it would be like walking down the street and finding a cigar butt that there was one puff left in, and it didn’t cost anything, and it was kind of disgusting, but it didn’t cost anything. [Laughter.] But I thought Berkshire Hathaway was that kind of a company. [Laughter.] And it wasn’t much of a puff either. [Laughter.]
Rubenstein: So, you know, your company is named Berkshire Hathaway. Did you ever think of changing the name?
Buffett: No. I don’t do much of that. [Chuckles.]
Rubenstein: OK. So when you started, you originally were buying stocks, you picked stocks. But then you started buying whole companies.
Buffett: Yeah.
Rubenstein: Was that a different skill set? And how did you learn to buy and operate these companies?
Buffett: Well, when I buy 100 shares of XYZ Company, I look at it as buying a whole company. And so I’ve always looked at buying stocks as buying businesses, so it really wasn’t a different situation. Now, if I owned the stock, I couldn’t change managements, which I could if I owned the whole company. But it was basically the same approach. I’m a better investor because I’m a businessperson, and I’m a better businessperson because I’m an investor. They cross over.
Rubenstein: But today, Berkshire Hathaway has how many different companies that are part of the –
Buffett: Got about 75, but some of those own more companies.
Rubenstein: So you have 75 companies. You have about…
Buffett: 270,000 employees.
Rubenstein: 270,000. How do you manage it all? You have a very small office. How many people do you have in your office managing all this?
Buffett: Well, we’re now up to 24. We’re on one floor. We’re never going to leave one floor. I tell them they can hire all the people they want, but we’re not going to leave one floor. So if they want people sitting on their lap, go to it, you know. [Laughter.]
Rubenstein: So do you sit in your office during the day looking at new ideas for companies? Is that how you spend your time or –
Buffett: I like to read a lot. So I read a lot. I read newspapers, and I read all kinds of financial information. And basically, I’m looking for one good idea a year.
Rubenstein: And do people send you letters over the transom. Do any of those ideas ever work?
Buffett: Occasionally, but not very often. But I only need one a year.
You can watch the entire interview here:
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