Three Lectures by Warren Buffett to Notre Dame Faculty, MBA Students and Undergraduate Students Spring, 1991

Lightly edited by Whitney Tilson,

Highlights

[The transcript of Warren Buffett’s lectures is 39 pages. For those of you who don’t have the time to read the entire transcript, we’ve pulled out some of the highlights – the most interesting things Warren Buffett said and/or the things that we’ve never heard him say anywhere else.]

[Archives] Lectures by Warren Buffett to Notre Dame Faculty

Warren Buffett: Keys to Investment Success

I found some strange things when I was 20 years old. I went through Moody’s Bank and Finance Manual, about 1,000 pages. I went through it twice. The first time I went through, I saw a company called Western Insurance Security Company in Fort Scott, Kansas. They owned 92%, at that time, of the Western Casualty and Surety Company. Perfectly sound company. I knew people that represented them in Omaha. Earnings per share $20, stock price $16. (garbled) … much more than that. I ran ads in the Fort Scott, Kansas paper to try and buy that stock – it had only 300 or 400 shareholders. It was selling at one times earnings, it had a first class [management team]…

[Tape ends here]

… Incidentally, I would say that almost everybody I know in Wall Street has had as many good ideas as I have, they just had a lot of [bad] ideas too. And I’m serious about that. I mean when I bought Western Insurance Security selling at $16 and earning $20 per share, I put half my net worth into it. I checked it out first – I went down to the insurance commission and got out the convention statements, I read Best’s, and I did a lot of things first. But, I mean, my dad wasn’t in it, I’d only had one insurance class at Columbia – but it was not beyond my capabilities to do that, and it isn’t beyond your capabilities.

Now if I had some rare insight about software, or something like that – I would say that, maybe, other people couldn’t do that – or biotechnology, or something. And I’m not saying that every insight that I have is an insight that somebody else could have, but there were all kinds of people that could have understood American Express Company as well as I understood it in ‘62. They may have been…they may have had a different temperament than I did, so that they were paralyzed by fear, or that they wanted the crowd to be with them, or something like that, but I didn’t know anything about credit cards that they didn’t know, or about travelers checks. Those are not hard products to understand. But what I did have was an intense interest and I was willing, when I saw something I wanted to do, to do it. And if I couldn’t see something to do, to not do anything. By far, the most important quality is not how much IQ you’ve got. IQ is not the scarce factor. You need a reasonable amount of intelligence, but the temperament is 90% of it.

That’s why Graham is so important. Graham’s book [The Intelligent Investor] talks about the qualities of temperament you have to bring to the game, and that is the game.

Warren Buffett: Require a Statement Before Being Allowed to Buy a Stock

You shouldn’t buy a stock, in my view, for any other reason than the fact that you think it’s selling for less than it’s worth, considering all the factors about the business.
I used to tell the stock exchange people that before a person bought 100 shares of General Motors Company (NYSE:GM) they should have to write out on a [piece of paper:] “I’m buying 100 shares of General Motors at X” and multiply that by the number of shares “and therefore General Motors is worth more than $32 billion” or whatever it multiplies out to, “because … [fill in the reasons]” And if they couldn’t answer that question, their order wouldn’t be accepted.

That test should be applied. I should never buy anything unless I can fill out that piece of paper. I may be wrong, but I would know the answer to that. “I’m buying Coca Cola right now, 660 million shares of stock, a little under $50. The whole company costs me about $32 billion dollars.” Before you buy 100 shares of stock at $48 you ought to be able to answer “I’m paying $32 billion today for the The Coca-Cola Company (NYSE:KO) Company because…” [Banging the podium for emphasis.] If you can’t answer that question, you shouldn’t buy it. If you can answer that question, and you do it a few times, you’ll make a lot of money.

See full Lectures by Warren Buffett to Notre Dame Faculty in PDF format here.