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i mentioned earlier that um... tension decided double duty
as our first panel john look for a news also on the panel is uh...
his senate bill w you right now as well
what i didn't tell you about john i've told you that is c_e_o_ of
tutor investments
but i did not tell you as i'm proud to say that he has an m_b_a_ from the
darden school
and in fact half half
and in fact he is currently serving at the chair as the chairman of the board
of trustees of the darden school foundation
so john as serve the school in many different ways and for this conference
the reason i want john to come up now is that he is uh...
heavily responsible for getting out rotor to come here tonight
so let's welcome john backup to dirty south
frank you can do
uh... is so that's a great pleasure to be right before
i had to do salads too had liked it to thank post call on bob
and their respective staffs on february and david
and in particular then land
on john preston from
off from the mcintire school for putting this together this really is alum
what darden mcintyre should be doing to enhance their brand
and and p
and um...
alot for the washington scrolling
in advan mob
as allison are walking into the initiator
this afternoon we looked at insisting that looks at awfully log
a lot like
the orpheum theatre an omaha and for those of you who have
then to the over ten years ago you know exactly what
that is and so uh... we used to go to the meetings when
when uh...
our shareholders could fit into that theater which was probably about the
size maybe a little bit larger course that was before the be shares
on
and so we can
we've been going back for years uh... uh... and watch it
newmark right to exile then and then ultimately the question are
uh... and uh... to carl one dot i look forward to coming
back to this congress and the future in the in jpg
arranged seller so well done
before i can i get to my comments about alice said most of you guys probably no
more than i'll say about her on bed as those in your honor thirty
because she has a facebook fan page and uh...
uh... which i can't i can't view because my kids
won't let me or my wife be on face book so
so you guys already no more than than i do about allison all all attempt to fill
in bob for those of us who are over thirty
forty
sixty on
rarely do practitioners have the opportunity to watch the undisputed
master of their discipline in real time we are truly fortunate to live in the
age of warren buffett as work as rare is to have the work
master chronicled and exacting detail
during their lifetime alice schroeder accomplished
just that with snowball in eight hundred thirty eight pages she
provides unique insight into the in the end of a jewel has largely shaped the
field of value investing over the past three or four decades
for that alice were deeply indebted to you for your work
else's career began in accounting and while working for fast issue drafted
some of the most important
accounting standards affecting the insurance industry
park she sets going moved onto investment banking and ultimately as
many of you know to research at morganstanley where she became
institutional investors top ranked property in cash when sheriff's industry
analyst
he was in that capacity that she met warn and as a result of a strong
neutrals respect
he granted her full access to his papers tues family and france to write
his on about his biography what makes snowball so special in my
opinion or in combination for
distinguishing characteristics first of all alice's very deep
understanding a finance and the insurance industry
secondly the unprecedented access that she had to warn
uh... and its work thirdly her persistence
uh... and attention to detail and fourthly and most importantly the
integrity with which he undertook the task
are based on planned our account was conversations over the
past several years and i can assure you that she was relentless an error
inner verification fact and for those who use read the book or at least
flipped through it that footnotes or certainly testimony to
that not surprisingly on
after a little more than a month on the shelves
on snowball life is now ranked on by amazon is the number one business
publication or business book of two thousand a so
uh... it's getting the recognition it's deserved for those who do abroad at you
you know why uh... so without further ado it's my
pleasure to introduce to you without schroeder
john thank you thank you so much for that wonderful introduction
i'm thank you all for having me here
at the university of virginia and all of the people who are so welcoming it's
really terrific but i a specially when i say thank you john because
he act was very modest in matlab playing up his role but he was one of my
important sources in writing the snowball because of his role it solomon
brothers as the treasurer and i found on one of them
things that occurs when you write a biography is you do get a lot of
conflicting information and diners my sounding board i would
call him and say these two people as said dad this and that which when should
i believe and he would tell me and i don't trust in him so he was an
invaluable resource and also gave me a lot of great tax information
it's a real privilege to come before you tonight to talk about warren buffett
especially at this as time of financial turmoil and crisis as you well know
warren buffet is the only person of our time who's managed to accomplishes where
she was becoming so reg that when he tried to check if the bank that balances
these days it doesn't take had quite a large the check to make the bank
downtown but it's interesting to see that when it does happen it's more about
that that they went to cover the overdraft
but he is really a singular figure in these times and uh... when i started
working on the snowball of course things were very different the internet bubble
had just imploded and uh... it was just after the
aftermath and run and i never anticipated anything like
this occurring but i knew white he was like in of course much of
the importance of your is that his ideas and principles haven't really changed in
fifty years so i thought that writing a book about
who would actually be a fairly simple matter
uh... when you ask where the question he always had the answer
when i would present her with a business problem he always we have the solution
so to jobless just to write it down what i didn't realize was how quickly i
would encounter something costs ever rights law
which is that the cause of problems is solutions
so having ask away questions having listened to his stories and having
gotten all of his solutions very quickly i it was presented with a problem
which was that i had far more solutions material questions answered and i knew
what to do with and i began casting about for a way to
construct a narrative and to come up with
how to put together a book about this man's life
that would be meaningful and present a set of ideas an eye had a few tense that
that failed i thought you might like to hear about them so here's here's my
first time shot at it with the story began with a journey
through the life of a seventy eight-year-old man he traveled back
through the decades tracing and incurring a common trait that lies at
the core of the most powerful investment philosophies teachings and models in the
world what you will learn today is the single
secret underline a lot of the snowball a set of principles based on the most
powerful line in the universe all that warren buffett ever
accomplished or a change in the business of life withstand info accordance with
this most powerful law using this simple universal lot the
snowball offers the knowledge of how to create
intentionally intentionally and effortlessly and joyful life
this is the secret the secret to everything
the secret to unlimited happiness love health and prosperity
this is the law of attraction the secret of warren buffett
okay well i passed on that idea i thought it was not you could put
somebody else
went there so my next attempt
in a snowball section kicks off in modern day new york where a bloodstained
copy of the intelligent investor is found symbolically wait at the foot of
the new york stock exchange to the quest for the holy grail of
investing led to asserts that span the globe from london to los angeles leaving
a gruesome trailing interview subjects behind as evidence
the result was an exhaustively researched page turner about a secret
investing cult cover-ups of ancient mistakes and savage vengeance against
those who tried to capture the holy grail for themselves
in the end i found the grail guarded by an ancient seventy eight-year-old
heretic buried deep in a maze of files under a
pyramid intuit plaza i love that idea of the contract with
this guy named aaron brown who went ahead and use it before i got there
so i was sore however that somewhere hiding in cuba plaza there was a holy
grail because i spent two thousand hours with warren buffett i did get to go
through all his files and i got to ask him all of the
questions and business problems that i wanted to
and i thought you know there have to be a holy grail because biet heard from so
many investors a little bit of uh... the retention rate not be the right word
but we weren't always says that it's very
simple there's a few simple principles and if you are only working with a
smaller amount of money he could earn fifty percent return to gear
i've had a lot of people say to me you know i am working with a smaller amount
of money if it is really that simple why am i not
earning fifty percent returns here so the question is
is it just that warren buffet is a genius
is it just that we're all down or is the truth somewhere in between
and i think the truth is somewhere in between
i was sure that hiding somewhere in his office was the holy grail and in fact
while more and isn't brilliant and he has definitely different from everybody
else there is something more to it because
but he does have a way of making the difficult look easy
and he also has a hard time are understanding or perhaps even admitting
how hard he works it's sort of like asking a fish to
describe water and there's some concepts that are so
ingrained in him so embedded in hand that he doesn't really
understand them himself he's he's just a they've been there for so long for
example
uh... take the role that he follows about asset turnover
quote no real investor likes to trade
is never pleasant apart probably forever from an old friend unquote
okay well that probably sounds like something that word i would say right or
it sounds like something that they gramm would say
but it's not that is one of the call buying
salesmanship by townsend
which were in red when he was seven years old
so six and he asked me is that for christmas by the way
and whenever you read the book especially as a child he met you usually
read them for five times in a recent so some of these ideas have been so
ingrained in him from an early age it's
hard to know whether they're in a weathered he invented number whether he
picked them up from sources like this when he was very young
but he got a lot of reinforcement in a very early age now for those of us who
didn't the question is you-know-what warrant papers and mental files will
help us the better investors even though we can't be the next warren buffett
arab i did find something so let's first start with reviewing their spore
concerts that you hear over and over
that are kind of the basics of value investing and they are intrinsic value
and especially applying the filters are qualitative investing concept to
intrinsic value second ignoring them
mister market manic depressive behavior third is the performance dragnet of too
much turnover in too much
diversification and four is stabbed and gramm margin of safety concept which
arguably is the most important idea ever developed in investing
uh... and all of these are very important but when i studied and spent
so much time with worry about that when i actually saw is that
he intense and applies his investing he uses these concepts but when he actually
does is a little bit different i'd like to do is take you out a little bit of
using a specific investment that he i did not write about in the book
it was cut for length
and idle straits principles that i talk about in the book
but it's a little bit too technical it too high a level two have been uh... put
into the snowball which is for more of a mass audience
and dot
also just as an overly anxious to say that
so much and warren success has come
brown
justin training himself into good habits and it's worth two saying that because
you know
and he he always says that the change of habit them
you know artsy like to be felt until they're too heavy to be broken and he's
talking about bad habits
but it was aristotle who said that we are what we repeatedly do
and that excellence is not an act but i have enabled mourned is a creature of
habit pays the ultimate creature of habit his first habit
wise u_n_ irate over and over in the book
about the fact that he was at the
securities exchange commission digging up documents before they were
electronically available he was down at the state insurance
commissioner in the bells of the
basement looking up the files
he was aren't knocking on doors of businesses talking to the managements
when they were saying your past galway he was thinking again motives around the
state buying up shares of national american insurance
you he was always thinking and working and a lot of his work was not obvious it
was not repetitive a routine when he was doing which he was always thinking what
more can i do
and special or can they do to get it has on the other guy
importantly and a lot of people will point out that a lot of what he did you
can't do these days because neither the information is so available
electronically that everybody has it
or it's insider information that would be illegal to use
but the principle of the hard work that he'd dead is still the same that you
know i was talking to somebody earlier and we were just sort of
talking and offered how hard worrying about that worked
and the fact that
you know most people would not work about obsessively
but for those few who do there are several ward
and the main thing that he worked at was learning
the guidance as charlie munger puts it alerting machine
and his learning has been cumulative it's been a tremendous advantage to him
in business he's got this mental file cabinet that's been built up starting
when he was a very small child sitting in his stockbroker father's office
reading the financial statements and descriptions and study of thousands of
businesses in dozens in the even hundreds of industries
over and over and over this is really wide when people call him
with a business proposition he could take as her know instantly because he's
got that file cabinet in his mind that is so deep
it does help to have a photographic memory or near photographic memory which
he has but at the same time yet that knowledge that doubt learning
is the second part of what makes you more about that
amped and a learning was cumulative i think
that's worth mentioning to that he's chosen to learn in the fields where the
knowledge ads in bills on top of each other
and so i think we could all be better investors
them for doing that well after this point there's not any
great mystery to it i think everybody knows that word perfect has armed or
everyone who's with us nobody knows how hard he's works and how much learning
success that i would like to talk about and
focused a little bit differently than he
normally explains the way he invests and that is handicapping compound the margin
of safety these are three concepts that work
together he uses them in a slightly different way
than he would think of describing them publicly they're all discussed in the
book and i'd like to take you through little case study
on an investment called mccartney town car company
this is a private investment that he did his personal per phone leo and just kind
of show you how i saw him invest based on his personal files and
you know what he actually does and then all update that to the present
day this company wasn't al correo that
i_b_m_ and as you all know in the nineteen
fifties warranted not use computers he was very aware of them i_b_m_ was the
only computer company of any size or importance at that time
because he wanted to create a business he thought i deal with slowly
bureaucratic and warren told hurricane fred not to
invest in control data he said to them
don't do it who needs another computer company
knows are sort of his famous last words
they invested and control data anyway and they made the huge amount of money
and what was notable about this incident is that weren't on the night i mean
that's because he actually know a lot about i_b_m_ he'd been studying i_b_m_
since nineteen fifty two it had been in court embroiled in antitrust case for
being a monopoly
and act more instead of his financials even though by then he'd already
declared i_b_m_ outside his circle of confidence
and he felt that even though i_b_m_ might have to be broken up on sunday
that its monopoly was so overwhelming and you of course he likes monopolies
businesses that to compete with that would probably be
futile so
what happened was that i_b_m_ did actually sell with the justice
department
and as part of that settlement it was required to divest of a business
making tab cards now i can't really see a very well but
there must be a few people who could throw their hands up in the air they're
old enough to know what a tab cartus can anybody
anybody know attack rnas yes i see two people ok that gets me
uh... okay so it's have cartus before computers were digital
daiwa actually read off of punch cards they were called marks tent cards
and these were big decks of cards go ahead holes punched in them
we you invest in this company and would you come in with us and warren said
rusk that could make it just there is any chance that any significant
weren't starts with what could go on and hear he said
a start-up business competing with ibm could fail nope sorry and he didn't
think another thing about it
but way needs and john cleary went ahead anyway they started at this business and
within a year they were pretty thirty five million tab card's amount
so that at that point they need to buy more carol presses they came back to
warren and they said we need weenie money would you like to come in
okay so now warren is intersted
because the catastrophe risk element of the equation is gone they are competing
successfully against i_b_m_ so yassin the numbers and they explain
to him they are turning their capital over
seven times a year ad so as carol press cost seventy eight
thousand dollars everytime day rev set of cards through
internet capital over they're making over eleven thousand dollars
so they're basically their gross profit on
i'd year unimpressed is enough to buy another printing press
at this point warrants very intersted their nap profit margins are forty
percent it's like the most profitable business that he's ever had the
opportunity to invest in notably people are now bringing weren't
special deals its nineteen fifty-nine he's been in business for two-and-a-half
years running a partnership
wire they doing that it's not because they know he's a great stock picker they
don't know that he hasn't yet made that record it's
because he knows so much about missus and because he started so early that he
has a lot of money so this is something intersting about
warren buffett by nineteen fifty nine people were already bringing him special
deals like they're still doing today with goldman sheet
he decided that he would come and and invest in this company make on your
temper company interestingly he did not take weighing
and john's word for it because the numbers they gave him a really enticing
now here's here's another point of departure from what almost anybody else
our new is an analyst would have created a model for this company
data in the future weren't didn't do that in fact
with a horse he figured out the one or two factors that could make the poor
making to cost advantage continue to work
he could from every competitor they had and he filled pages with little hen
and then he made a yes no decision he's he looked at it they were getting thirty
on a million of sales so that's one of the story numbers
and then he said to himself i want
okay so what do you did what he did is he incorporated his whole earnings model
i want fifteen percent onto my details y fifteen percent because one it's not
that's what all these everyone in he's happy with that
think that that's another important lesson because he's a very simple guy
anything like that
pack and the two million dollars in sales was pretty simple to was it had a
million i was growing seventy percent there is a big margin of safety belt if
million dollars uh... arb and her sixty thousand hollers
personal line partnership money into this company
hot n the way he thought about it was really simple it was a one step decision
he looked at historical data and then he had this generic return that he once on