Warren Buffett and Charlie Munger compare Ben Graham’s investing approach to Phil Fisher’s approach. From the 1995 Berkshire Hathaway annual meeting.
Buffett And Munger Compare Ben Graham To Phil Fisher’s Approach
Q4 hedge fund letters, conference, scoops etc
Transcript
Speaker: Yes Neil McMahon New York City also a Sequoia shareholder. Ben Graham investing encouraged turnover. Looking at Berkshire's holdings concentration and long term. Are you still a 15 percent Phil Fisher and 85 percent Graham?
Buffett: I don't know what the percentage would be I'm 100 percent Ben Graham and those 3 points I mentioned earlier and those really count. I'm very. I was very influenced by Phil Fisher. When I first read his two books back around 1960 or thereabouts and I think that they're terrific books. I think fellows a terrific guy. So I think I probably gave that percentage to I first used it in Forbes one time when Jim Michaels wrote me and I think you know it was one of those things that just named a number. But I think it I think I'd rather think of myself as being a sort of 100 percent Ben Graham and 100 percent felt Fisher and the points where they don't. And they really don't contradict each other. It's just that they had a. Vastly different emphasis. Ben would not have disagreed with the proposition that if you can. Find a business with a high rate of return on capital that can keep using more capital on that that that's the best business in the world. And of course he made most of his money out of Geico which was precisely that sort of business.
So to recognize that it's just that he felt that the other system o buying things that were statistically very cheap and buying a large number of them was an easier policy to apply and one that was a little more teachable. He would have felt that Phil Fisher's approach was less teachable than his but has had a more limited value because it was not workable with really large sums of money. At Graham NewmanCorp. Graham the Marine Corp was a closed end fund is technically an open and fair but had 6 million dollars of. Net worth and no one Graham the partnership that was affiliated with it had six million. So you had a total pool of 12 million while you could go around buying little machine tool company stocks and machine tool companies whatever it might be and all statistically cheat. And that was a very good group operation. And he had to you have if you own a lousy business you have to sell it at some point and if you want a group of lousy businesses you better hope some of them get taken over or something happens you need turnover. If you own a wonderful business and you don't it you don't want turnover basically. Charlie?
Munger: What was interesting to me about the Phil Fisher businesses is that a very great many of them didn't last as wonderful businesses. One of his businesses was title insurance and Trust Company which dominated the state of California. It had the biggest tidal plant which was maintained by hand. And it had. Great fiscal solvency and integrity and so were they just dominated a lucrative field. And along came the computer. And now you could create it for a few million dollars a title plant and keep it up without an army of clerks and pretty soon we had 20 different. Title companies and they would go to great big customers like big lenders and big real estate brokers and pay them outlandish commissions. By the standards of your and and bit away huge blocks of business and in due course in the state of California the aggregate earnings of all the title insurance companies combined went below zero. Starting with a virtual monopoly on what looked like Monopoly a very few companies are so safe that you can just look ahead 20 years and technology is sometimes fragmented sometimes you're better enemy. If title insurance on Trust Company had been smart they would have looked on that computer which they saw as a cost reducer. As one of the worst curses that ever came the man.
Buffett: It probably takes more business experience and Insights to some degree to apply. Phil Fisher's approach than it does Graham's approach if you know I promise you may be shut out of doing anything for a long time with Ben's approach and you may have a lot of difficulty in doing it with big money. But if you strictly applied for example his working capital testis security you know that it will work. It just may not work on a very big scale. And there may be periods when you're not you're not doing much. Ben really was more of a teacher than me. He had no urge to make a lot of money. It did not interest him so he was he really wanted something that he thought was teachable. And as a. Cornerstone of his philosophy and approach and. He felt you could read his books. Setting out here in Omaha and. Applied buying things that were statistically cheap. And you didn't have to have any special insights about business or consumer behavior or anything of the sort. And I don't think there's any question about that being true but I also don't think you can you can manage lots of money in accord with it.
