Original link: https://ljf.com/2023/07/09/1272/
2017 Daily Journal Shareholders’ Meeting Speech
I would like to work with excellent people rather than mediocre ones.
We don’t know the specific software business, so how can we lead the daily periodical company? We mainly rely on knowing people and doing things well.
To run a company, you know how to delay gratification, and you can run the company better and better. If you know how to delay gratification in life, you will have a good time when you die.
Shareholders: The Daily Journals owns a significant amount of Wells Fargo stock, can you share your thoughts on Wells Fargo?
It set exorbitant sales targets. Under the pressure of fulfilling the targets, many employees are getting deeper and further down the road of fraud and fraud.
Wells Fargo’s biggest mistake was that, after discovering a problem, it only tinkered with it rather than fixing the root cause.
Shareholders: Just now you talked about the incentive mechanism. In your opinion, setting high sales targets was not the main mistake of Wells Fargo. May I ask why this is not a major mistake of Wells Fargo?
Without the test of practice, how do you know whether the goal is high or not? The main mistake of Wells Fargo is not that the goal was set high, but that after something went wrong, it was not corrected in time.
Shareholders: What is the prospect of American Express? Where is its future value? Is it its payment system, or its financial services?
In an unpredictable field, whoever can stick to the right path and who is willing to work hard will have a greater chance of winning. But at the end of the day, these things are still unpredictable, because they change so fast.
Shareholder: Oil and gas exploration and development is a capital-intensive industry. Do you think domestic oil and gas exploration and development is a good business?
I advocate delayed gratification and oppose the unrestrained exploitation of oil and gas resources. Oil and natural gas are not only important fuels, but also important chemical raw materials and indispensable resources for a civilized society.
As for whether oil and gas exploration and development is a good business, I can’t say for sure.
Shareholder: I am 18 years old and am very interested in knowledge of many subjects. In this era that emphasizes specialization, is there a way out for the pursuit of broadness?
For most people, it is still the pursuit of specialization, and it is the right way to have a good skill. Having said that, specialization is of course important, but breadth is also indispensable.
On the one hand, it is necessary to understand the main knowledge of each discipline, so as not to be confined to one’s own professional field; on the other hand, one must focus on one’s main business
Shareholders: My question is about the ensemble effect. You advocate an interdisciplinary way of thinking, and you can always grasp the key to the problem. How did you do it?
There is an important psychological phenomenon that is not mentioned in any textbook. In this phenomenon, three or four mental tendencies operate simultaneously, which I call the ensemble effect.
I put forward the concept of the ensemble effect and the integration of disciplines because of the lack of psychology itself.
Shareholders: You told us that we should take the path of specialization, but we should also devote 10% to 20% of our time to learning some very important knowledge. What is the specific knowledge?
I pay special attention to absorbing the main knowledge of various disciplines, so that I don’t see the forest for the trees.
Shareholders: I have just entered the society and am looking for a suitable career direction, and now I feel a little lost. When looking for a suitable career, I mainly consider from two aspects: one is what job I can do best; the other is what job I can make the greatest contribution to society. Do you think it’s right for me to think so? How do you think a person should choose their career?
How can a person know what he is suitable for? Let me tell you an experience. In my life, I can hardly do anything that I am not interested in. How can a person be successful if he does things that he is not interested in all day long? People must do what they are interested in. We can’t resist our own nature, and we can’t do things that we don’t like in our hearts, no matter how hard we force ourselves. Doing what you are interested in is one of them.
Second, we should give full play to our strengths and do what we are good at. You are only 1.5 meters tall, how can you gain a foothold on a basketball court where there are so many people? Therefore, when choosing a career, you should combine your interests and strengths and consider them comprehensively.
Shareholders: May I ask which industry you are optimistic about? Why?
I don’t have any favorite industries. My favorite job is to do my own thing well. I think what I do is very interesting, I enjoy it, this is the work that God gave me. You should also find the job God has given you and do it well.
Shareholder: What is the most meaningful thing you have done in your life?
For most people, the most meaningful thing to do in life is to start a family and raise children.
Shareholders: These days, index funds are getting bigger and bigger. In the future, if there is another financial crisis, is there a possibility of liquidity problems? In the wake of the financial crisis, is it possible that there will be a divergence between the price of index funds and the value of the stocks they hold?
The size of S&P index funds accounts for about 75% of the total market size. As far as S&P index funds are concerned, there will be no serious divergence between price and value.
With S&P index funds here, it will become increasingly difficult to actively manage large-scale funds.
Let me manage a large amount of money, let me outperform the index, I can’t do it. Berkshire has grown to such a large scale today, and it may have made a total of about 100 decisions. On average, it makes two investment decisions every year. Berkshire’s success stems from 50 years of persistence. During the 50 years, an average of two decisions were made each year.
Shareholders: My first question is: When you first made an investment, what was the book or experience that influenced you the most?
When it comes to getting money, there are no easy recipes. Be an honest and upright person, get up early every day, keep studying every day, and pursue the concept of delayed gratification all your life. In the end, you must be a winner in life.
As for how to educate children, I think teaching by example is better than teaching by words. If you want your children to learn well, you must first learn by yourself.
Shareholders: You said, “Any year, if you don’t overthrow your own prejudices, may be a wasted year.” As we all know, Warren has a hard time quitting his habit of picking up cigarette butts. You helped him make the switch and start investing in better quality companies. Of all the stereotypes you have changed, which one is the most difficult to change?
Sometimes, being old-fashioned is a good thing, for example, in a marriage, being old-fashioned is good for keeping the marriage stable. However, in many cases, we should abandon old and wrong ideas.
Many people have a very bad habit. They always like to express their opinions endlessly. Wrong ideas, the more you talk about them, the more you believe them. You first have an idea in your mind, and then express this idea in words, and after speaking, you will believe this idea even more. Keep talking, every time you say it, your brain will believe it more.
We should develop a good habit of consciously clearing up wrong thoughts. That’s what I do, and I often give myself pep talks and encourage myself to clear out wrong thoughts.
Shareholders: You mentioned “delayed gratification” several times today. May I ask when should we suffer for the future? When should we live in the moment and enjoy ourselves in time?
I don’t think one should squander one’s body, nor should one squander one’s money.
Although it is a capitalist system, there is a limit to making money. Sometimes, there is still a bottom line.
Shareholders: Warren has said that if he manages a small sum of money, say, $10 million, he is guaranteed a 50% annual compound rate of return. May I ask how the specific investment is done? Please give a few more examples, the more detailed the better.
In fact, in the investment process of my life, I have encountered very few good opportunities. Don’t think there are too few good opportunities. As long as you seize a few big opportunities, it is enough. This is my experience. After finally waiting for a good opportunity, you must dare to make a big bet. This is my investment method.
This is the way people live, there can’t be a million good opportunities waiting for you.
“Am I willing to hold a concentrated portfolio?” Of course I would. Take the investment of the Munger family as an example. The Munger family only invested in three stocks: some invested in Berkshire; These three blocks are the most important, and the others are piecemeal investments. Do I feel safe to invest in this way? Are safety and profitability guaranteed? The answer is yes. A lot of people have a lot of stocks in their portfolios, and they can’t remember which stocks they own, and they don’t understand the stocks they own.
Can others invest as intensively as I do? Of course, it is better to invest like me. Is it okay to only hold three stocks? Which of these three funds, Opener, Berkshire, and Li Lu, will not work? If any one of these three investments is singled out, the possibility of failure is close to zero. Combining these three investments, the probability of failure is even lower.
I found that if I am prepared to invest for 30 to 40 years and hold stocks for three to four years on average, I only need to hold no more than three stocks to achieve a good rate of return.
All my life I’ve been talking to the ancients. The wisdom of the sages and sages is beyond the reach of many contemporary people. In the dialogue with the sages and sages, we can learn a lot. It’s very easy for you to meet them, you don’t need to go to and fro, just open a book, and they will come to you. I suggest that you make friends with the sages and sages. I have benefited a lot from my dealings with them. I can’t learn much from many of you here, but Adam Smith taught me a lot.
Shareholders: In 1973, you lost 30% of your partner’s money while managing it. In 1974, you lost another 30%. In two years, the loss was more than half. What happened at that time? What did you learn from it?
Investing requires a bit of tolerance. Investing is a long-term business. Now that you are ready for long-term investment, when you encounter a 50% drop, you have to stand firm and don’t be scared to the shit. Let me tell you from my personal experience, cultivate yourself well, and when you encounter a 50% drop, you must achieve “Mount Tai collapses before you and your face remains unchanged”. (applause)
Don’t think about how to escape the crash. What should come will always come. If you don’t come, it can only mean that you are not hard enough.
Shareholders: About 10 years ago, you once talked about Warren Buffett. You said that after the age of 65, Warren’s investment skills became more profound. Can you elaborate on how Warren got better as he got older and how he did it? You said that Warren is a super learning machine. We know that by running Diversified Retailing, Warren learned how hard it is to do business in retail. Please tell us some specific examples, how Warren improved his risk awareness and investment vision. Thanks.
No matter what you do, always be full of love, study eagerly, and unremittingly polish your skills. Over time, you will naturally reach a level that ordinary people cannot achieve.
The advantage of investing in this business is that you can live and learn.
Now, now we bought Exxon. Do you know why Warren bought Exxon? He was simply substituting Exxon for cash. In the past, we did not allocate cash-like assets. Now, Berkshire has too much cash, so we have allocated cash-like assets like Exxon in the short term. This way of investing is very different from Warren’s early investment style. Warren has changed. When it comes to buying airline stocks, Warren changes. Warren changed when he bought Apple.
We keep saying, “We don’t understand high-tech companies”, “High-tech companies are not within our circle of competence”, “Airline business is the worst business in the world”, and now what you see from the overwhelming news is, Berkshire bought Apple and airlines. It’s not that we’ve gone crazy, it’s that Berkshire’s investing has become more difficult, and we’ve had to adapt as best we can. Whether it is investing in Apple or investing in airlines, we are not fully sure. We can only say that there is a slight chance of winning. This is already the greatest advantage we can strive for, and we must accept this reality.
When looking for a partner, you have a high vision, and people may not necessarily take a fancy to you. It is better to choose the best one among the people who are willing to marry you, which is more practical. In many cases, how much advantage you can gain is not up to you, you can only let nature take its course.
Shareholder: My question is about Lee Kuan Yew. You are full of praise for the economic miracle created by Singapore. You also said that Deng Xiaoping learned from Singapore’s experience in economic development and led China to realize reform and opening up. Today, India also has a prime minister who cares about the people, and he also hopes to lead India to economic take-off. How do you see the development prospects of India? Thanks.
In a very short period of time, Lee Kuan Yew transformed Singapore into a modern nation. Lee Kuan Yew created a miracle in human history.
China’s rise is an even greater miracle.
The Chinese leaders at that time were very pragmatic. They saw that the Chinese in Singapore were very rich, while the Chinese were poor. This gave them a lot of inspiration. A Chinese leader once said: “It doesn’t matter whether the cat is black or white, as long as it catches mice, it is a good cat.”
I have busts of two people in my house, one of them is Benjamin Franklin and the other is Lee Kuan Yew.
India was asked in the question just now. I prefer Chinese culture, Indian culture is like a quagmire, dragging India down so that it cannot develop. India’s caste system is deeply rooted, India’s population problem is difficult to solve, and India has absorbed the dross of Western democratic systems. It is difficult to do something in India, and corruption in India is also a chronic disease. India wants to learn from Lee Kuan Yew, but it is not easy to learn.
India learns from our democratic system, learns our dross, and allows the ignorant people to make noise, and nothing can be done. India is in a cocoon. I am not optimistic about the prospects of India. India cannot learn from Lee Kuan Yew.
Shareholders: China is the largest economy in the world, China has a savings rate as high as 30%, and China has great investment potential. If a Chinese person plans to invest in US stocks, what advice would you give him?
I disagree with your assumption. If I were a Chinese and had the qualities necessary to do a good job in investing, such as being smart, self-disciplined, etc., I would invest in China, not in the US. China has a lot of “low hanging fruit” and some companies in China have deep moats.
A good opportunity is right in front of you, why bother to look far away? According to the current stock market conditions, smart people are more likely to succeed in investing in China.
Shareholder: What is your latest view on China’s development?
I am optimistic about investment opportunities in China, because there are many very good companies in China, and the prices are very cheap. Chinese people have the quality of hard work and hard work, they work very hard. China’s system provides it with a strong impetus for development. The Chinese government is sincerely helping enterprises develop. The Chinese government is much stronger than the Indian government, and the Indian government’s governance ability is too poor.
China’s rise is self-reliance, they save half their income, and they’re especially good at delaying gratification. China’s achievements are admirable, and China’s approach is very effective. I have a very good impression of China.
China also has a problem. The problem with the Chinese is that they gamble too much, and they are especially superstitious about luck. People who believe in luck are ignorant. Do not believe in luck, but in probability. This phenomenon may be derived from Chinese culture. Many Chinese people are very superstitious and addicted to gambling. This is one of the ills of the Chinese people.
Shareholders: You gave a presentation on the psychology of human misjudgment. You have a deep awareness of human psychological biases. How do you select and employ people? You and Mr. Buffett selected managers with both ability and political integrity. How did you do it?
We’ve been very lucky to have been able to work with great people. Why can we join hands with excellent people? I often say that there is only one way to find a good partner, and that is to be worthy of it. In the same way, to find excellent people to work with, you must first be an excellent person yourself.
When hiring managers, we often find that the first candidate stands out and leaves the rest of the candidates far behind.
Shareholders: In a person’s lifetime, the world will undergo great changes. When I get to your age, is there anything that will stay the same? What do good business in the future have in common with good business today?
The only constant is the word “difficult”. You’ll experience loved ones leave this world, you’ll take some hard hits, you’ll taste the pain. A person’s life is ninety-nine and eighty-one difficult. At the end of my life, I found that everything was in vain. No matter how hard you try, life is doomed to end in failure. Once you realize this truth, you will understand what life is like a dream. Kittens and puppies don’t know what fate is, we are different, we can understand the fate of life like a dream.
If we are optimistic about our destiny, we can face life with a positive attitude, and live out our own value in our limited life.
It is precisely because of difficulties that we have a lot of fun and experience the joy of overcoming difficulties.
I have discovered a truth in this life. We have endured hardships and sufferings together, and we have worked hard together. The friendship formed in this way is the closest. This kind of friendship cannot be established in a stable and prosperous life.
In adversity, we are tired of coping and struggling, but adversity is the best way to exercise willpower, shape friendship and breed success. Only by working together in adversity can people build a friendship of sharing weal and woe, which is precious. In the face of difficulties, I still have a point of view. Difficulties in life come one after another, and each difficulty is a test for us and an opportunity for us to express ourselves. I suggest that everyone face difficulties with this attitude.
Shareholders: You told us that we must control our emotions, be strict with ourselves, and face difficulties with a correct attitude. Please tell me more in detail, let us further understand your spiritual world, how do you overcome difficulties? How to meet the challenges of life?
A person who has the ability to pursue reason, but does not pursue reason, is morally flawed.
To become a more rational person, to become a more complete human being, is the moral duty of every human being. While improving ourselves, we cannot be indifferent to our fellow man.
Shareholders: My question is about circles of competence. How do you know the boundaries of your circle of competence? Will the size of the circle of competence change? If it changes, is it getting bigger or smaller?
On the one hand, there are some things that we think we know, but we don’t actually know; on the other hand, in complex activities, the experience that worked in the past may become invalid over time. Due to the existence of these two kinds of uncertainty, it is difficult to recognize one’s own circle of competence. The laws of physics are constant, but human experience needs to change as civilization develops. We need to overcome these two kinds of uncertainties and strive to recognize our circle of competence.
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