Original link: https://ljf.com/2023/07/20/1282/
1990 Speech at the Shareholders’ Meeting of Siko Finance
Capitalism is not everything. The capitalist system is an ideal system, but it also has problems that it cannot solve, and sometimes a little socialism is needed.
In my opinion, it is impossible to provide credit endorsement by the government on the one hand and not limit the deposit interest rate on the other hand. Such a system cannot last long because it drives banks and S&Ls to take risks.
For example, under the current accounting policy, the savings industry can still advance certain loan income to profits. If I were to set the accounting policy, I would stipulate that the fee charged when the floating rate loan is issued should not be recorded as profit until the loan is recovered.
The early savings and loan industry was very stable, mainly because the system at that time was good, which limited the damage caused by human factors.
If someone much smarter than you wants to lie to you, no matter how you judge and analyze, it will be difficult not to be deceived.
Warren and I both believe that our “circle of competence” is a very small circle.
We draw a clear line between what we know and what we don’t know, and we only move within the known circle.
When granting a loan, one needs to judge the credit risk, and to do this kind of risk arbitrage, one needs to judge the possibility of the transaction being concluded. Risk arbitrage is essentially similar to making a loan.
In business school, you can learn a lot of knowledge. Business schools teach a lot of useful things. However, there is an important piece of knowledge that is not taught in business schools. Business schools don’t teach students how to tell the difference between a good business, a so-so business, and a bad business.
Business schools should teach more students to look at companies from the perspective of securities analysts and study whether a company is worth buying. After learning to analyze from this perspective, managers will find that many management problems can be easily solved, and they can manage the company better.
Ben Franklin said, “Before you marry, keep your eyes open. After you marry, keep your eyes closed.”
We always keep in mind Lord Keynes’ motto, which is also often quoted by Warren: “Better vaguely right than precisely wrong.” For crucial information, we will try our best to estimate and never rely on accurate partial information to make decisions.
As a large-scale listed financial institution, steadily increasing dividend payouts every year can form a good reputation among shareholders, and then enhance its influence in the whole society. In my opinion, the payout ratio should be kept conservative, but increased every year. Berkshire Hathaway doesn’t pay a dividend, but Freddie Mac isn’t like Berkshire.
Earning every last penny is a mistake banks and S&Ls have made. Today, money market funds are repeating the same mistakes and trying to make as much money as possible.
In order to prevent risks, the rule we have formulated is precisely not to earn the last copper coin.
There is no 100% certainty in the world. There are very few investments that we can call high certainty. The Washington Post and Coca-Cola are the surest bets, and no other investment comes close.
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