Warren Buffett explained how asset bubbles form, shared the key attribute he looks for in companies and warned against using leverage, in an interview with the Investment Commission. survey of the financial crisis in 2010.
The billionaire investor and CEO of Berkshire Hathaway also highlighted the difference between speculation and long-term investing, and praised the
and the Treasury for quickly strengthening the financial system after the collapse of Lehman Brothers.
Here are Buffett’s top 10 quotes from the interview, edited for length and clarity:
1. “The most important decision in valuing a business is pricing power. If you have the power to raise prices without losing business to a competitor, you have a very good deal. And if you have to have a prayer session before you raise the price a dime, then you’ve got a terrible deal. I’ve been in both, and I know the difference.
2. “When a reputedly brilliant management teams up with a company known for its bad economy, it is the company’s reputation that remains intact.”
3. “When I buy a stock, I don’t care if they close the stock market tomorrow for a few years, because I’m relying on the company, Coca-Cola or whatever, to produce returns for me at Now, if I care whether the stock market is open tomorrow, then to some extent I am speculating, because I wonder whether the price will go up tomorrow or not.
4. “The nature of Wall Street is that, overall, it makes a lot of money relative to the number of people involved, relative to the IQ of the people involved, and relative to the energy expended.”
5. “If you don’t have influence, you won’t get in trouble. It’s the only way a smart person can go broke, basically. And I’ve always said, ‘If you’re smart, you don’t need it; and if you’re stupid, you shouldn’t use it. ‘”
6. “When people are paid between $200,000 and $300,000 a year to serve on one board, and they hope to be placed on another board in order to get $200,000 or $300,000 $ more a year, they won’t exactly be Doberman Pinschers in terms of policing.”
7. “The public may not understand stocks, they may not understand tulip bulbs, but they understand houses. They wanted to buy one and with the funding you could leverage sky high It created a bubble like we’ve never seen.” (Buffett added that bubbles form when people buy into a strong premise, such as “housing prices rise over time” or “stocks outperform bonds,” but that premise is distorted and they end up focus only on price action.)
8. “The media, investors, mortgage bankers, the American public, me, my neighbor, the rating agencies, Congress – you name it – people have overwhelmingly come to believe that the prices of real estate couldn’t go down in any significant class in the country, and that was the easiest class to borrow against, it created probably the biggest bubble in our history.”
9. “There’s rarely a single roach in the kitchen. You turn on the light and all of a sudden they all start scurrying around. I couldn’t find the switch, but I had seen one. (He reflected on his concerns about Freddie Mac arbitrating government credit.)
10. “Treasury and Fed remedied this very quickly by taking action. It was economic Pearl Harbor, and we sent the fleet the next day. But we had the ships in port, unfortunately, on the day of the bankruptcy of Lehman.” (Buffett said the authorities had quickly dispelled doubts about whether they would intervene to prevent the banking system from collapsing.)
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