Warren Buffett breaks down how he would invest if he had to start again with $1 million

CNBC Television
8 May 202405:20

TLDRIn a 2018 discussion, Warren Buffett shared his strategy for achieving a 50% annual return if starting with under $1 million. He emphasized the importance of thorough research, recalling his own experience of meticulously going through the Moody's Transportation manual. Buffett highlighted the discovery of unique investment opportunities, such as mislabeled bonds and stocks, by delving into the details of lesser-known companies. He stressed the necessity of passion for the subject over mere money-making, drawing parallels with the dedication of biologists and chess players to their fields. Buffett encouraged investors to find what they love about the investment game and to leverage their unique brain strengths to excel, suggesting that anyone attending the annual meeting is likely already on the right path.

Takeaways

  • 🚂 Warren Buffett suggests that to achieve a 50% annual return with a small investment, one should thoroughly research every detail of small companies, similar to how he went through the Moody's Transportation manual.
  • 🔍 He emphasizes the importance of being passionate about the subject of investing, rather than just the money, which is crucial for success.
  • 📚 Buffett mentions that he would know everything about every small company, which is a strategy he used to impress Charlie Munger with his knowledge of lesser-known companies.
  • 💡 He talks about the excitement of expanding one's knowledge in a specific area, comparing it to how a biologist or chess player is driven by the love of discovery.
  • 🧠 Buffett acknowledges the complexity of the human brain and suggests that people do best when they find what they are naturally suited for and focus on that.
  • 💰 He believes that with a small amount of money and the right approach, it's possible to earn a 50% return on investment annually.
  • 🎯 The key is to find undervalued securities, which requires a deep understanding and love for the game of investing.
  • 🤝 Buffett's connection with Munger was instant due to their shared knowledge and passion for the details of small, lesser-known companies.
  • 🛤️ He specifically mentions the Green Bay and Western railroad company as an example of the kind of obscure companies he studied in depth.
  • 📈 Buffett's strategy involves identifying companies with unique financial structures, such as stocks that function like bonds or vice versa, to find unusual investment opportunities.
  • 🏆 He encourages others to pursue their interests with the same passion and dedication that leads to success in any field, including investing.

Q & A

  • What is the annual return that Warren Buffett claimed he could achieve if he had to start again with under $1 million?

    -Warren Buffett claimed he could achieve a 50% annual return if he had to start again with under $1 million.

  • How did Warren Buffett approach investing when he was younger?

    -Buffett would go through extensive pages of Moody's manual, specifically the Moody Transportation manual, to find interesting investment opportunities in smaller companies.

  • What is an example of a lesser-known railroad company that Warren Buffett studied?

    -The Green Bay and Western railroad company is an example of a lesser-known railroad company that Buffett studied in detail.

  • What was the nickname for the Green Bay and Western railroad company?

    -The Green Bay and Western railroad company was nicknamed 'Grab Baggage and Walk' or 'GBNW'.

  • How does Warren Buffett describe the process of finding undervalued securities?

    -Buffett describes it as a process of falling in love with the subject, being passionate about expanding knowledge in a given area, and finding it exciting to uncover undervalued securities.

  • What is the importance of understanding the human brain's capabilities according to Buffett?

    -Buffett emphasizes that the human brain does its best when you find out what you are naturally suited for and then focusing your efforts on that area.

  • What is Buffett's advice for someone looking to achieve a high return on investment?

    -Buffett advises that one should be passionate about the investment game, find what they love about it, and then focus on that aspect to achieve high returns.

  • What is the significance of the 'Moody's manual' in Warren Buffett's early investment strategy?

    -The 'Moody's manual' was a comprehensive resource that Buffett used to research and find investment opportunities in lesser-known companies, which played a significant role in his early investment strategy.

  • How did Warren Buffett's knowledge of small companies impress Charlie Munger?

    -Buffett's detailed knowledge of small companies, including those on the west coast, impressed Charlie Munger because he thought only he knew about them, creating an instant connection between the two.

  • What is the role of opportunity cost in Warren Buffett's investment decision-making process?

    -Opportunity cost serves as the final arbiter in Buffett's investment decision-making process, helping him choose between different investment methods based on their potential returns.

  • What does Warren Buffett suggest is necessary to earn 50% a year with a small amount of money?

    -Buffett suggests that to earn 50% a year with a small amount of money, one must be in love with the subject of investing, not just the money, and be willing to deeply research and understand potential investments.

  • How does Warren Buffett relate the game of investing to other intellectual pursuits like chess or bridge?

    -Buffett relates investing to other intellectual pursuits by emphasizing the importance of passion and interest in the game. He believes that, like chess or bridge, investing requires a deep understanding and strategic approach to be successful.

Outlines

00:00

💼 Investing Strategies for High Returns

The speaker discusses their confidence in achieving a 50% annual return if starting with under $1 million. They reminisce about their past experience of meticulously going through thousands of pages of Moody's manual to find undervalued companies, such as the Green Bay and Western railroad company. The speaker emphasizes the importance of being passionate about the subject of investing, much like a biologist or chess player is passionate about their field. They suggest that with a small amount of money, one could potentially earn 50% a year by thoroughly researching and understanding every detail of small companies, which would also involve a combination of methods including reading extensive financial publications and identifying great companies at a fair price.

05:04

🤝 Welcoming Enthusiastic Investors

The speaker expresses appreciation for the attendees of the annual meeting, acknowledging that those who make the effort to attend are likely motivated by more than just casual interests like Bridge or chess. They encourage the audience to continue their engagement and to return for the following year's meeting, indicating a welcoming and supportive environment for those interested in investing.

Mindmap

Keywords

💡Annual Return

Annual return refers to the amount of profit or loss generated by an investment or portfolio over one year. In the context of the transcript, Warren Buffett mentions that he could achieve a 50% annual return if he were to start investing again with a smaller amount of capital. This indicates a high level of confidence in his investment strategy and ability to generate significant returns.

💡Moody's Manual

Moody's Manual is a comprehensive guide that provides detailed information about various companies and industries. In the transcript, Buffett talks about going through the Moody's Transportation manual, which he used to find investment opportunities in smaller, lesser-known companies like the Green Bay and Western railroad company. This highlights his meticulous research approach and the value he places on in-depth analysis.

💡Green Bay and Western Railroad Company

The Green Bay and Western Railroad Company is an example of a small, lesser-known company that Buffett researched and invested in during his early career. He mentions this company to illustrate his strategy of looking for undervalued securities, which was a key part of his investment approach. The mention of this company in the transcript underscores Buffett's focus on detailed research and finding hidden gems in the market.

💡Undervalued Securities

Undervalued securities are investments that are believed to be worth more than their current market price, offering the potential for higher returns. Buffett's strategy involves finding these securities, which he refers to as 'something' with a million dollars that could earn 50% a year. The concept is central to the video's theme of identifying and capitalizing on investment opportunities that others may overlook.

💡Opportunity Cost

Opportunity cost is the loss of potential gain from other investments when one alternative is chosen over others. In the transcript, Buffett suggests that opportunity cost would serve as the final arbitrator of which investment method to use, indicating that it's a critical factor in decision-making. It's related to the video's theme as it's a concept that investors must consider when evaluating different investment strategies.

💡Charlie Munger

Charlie Munger is Berkshire Hathaway's vice chairman and a long-time business partner of Warren Buffett. In the transcript, Buffett recalls how his detailed knowledge of small companies impressed Munger when they first met. Munger's mention serves to highlight the importance of deep knowledge and the connections formed through shared interests, which is a subtle theme in the narrative of Buffett's investment philosophy.

💡Los Angeles Athletic Club

The Los Angeles Athletic Club is used as an example in the transcript to illustrate Buffett's extensive knowledge of small, obscure companies. His awareness of such details impressed Charlie Munger and helped form their partnership. The mention of this club exemplifies Buffett's investment strategy of seeking out detailed information on lesser-known entities to find potential investment opportunities.

💡Investment Philosophy

Investment philosophy refers to a set of principles that guide an investor's decisions. Buffett's investment philosophy is characterized by a focus on value investing, thorough research, and long-term thinking. The transcript reflects this philosophy through his discussion of finding undervalued companies and the importance of loving the subject of investing rather than just the money.

💡Value Investing

Value investing is an investment strategy that involves buying securities that appear to be undervalued by the market and selling those that appear to be overvalued. Buffett is a well-known proponent of value investing, as evidenced by his approach to finding undervalued companies and his focus on their intrinsic value rather than market trends. This concept is central to the video's narrative about Buffett's investment strategy.

💡Thorough Research

Thorough research is the process of extensively examining and analyzing information to make informed decisions. In the transcript, Buffett emphasizes the importance of this process by mentioning his detailed study of the Moody's manual and various companies. This keyword is integral to the video's message about the importance of in-depth analysis in successful investing.

💡Loving the Subject

Loving the subject refers to having a genuine interest and passion for a particular field or activity. Buffett stresses the importance of being in love with the process of investing, rather than just the money, which he believes is key to success. This concept is woven throughout the transcript as a foundational aspect of Buffett's approach to investing and his advice to others.

Highlights

Warren Buffett guarantees a 50% annual return if starting again with less than $1 million.

Buffett would use a method involving thorough research of extensive financial publications.

He emphasizes the importance of reading and understanding every detail of small companies.

Buffett's past success was influenced by his deep knowledge of lesser-known companies.

He suggests that passion for the subject is crucial for achieving high returns.

Buffett believes in the power of detailed research, even in the face of vast amounts of data.

Opportunity cost is a key factor in deciding which investment method to use.

Investing in undervalued securities can lead to significant returns.

Buffett's approach to investing is likened to a biologist's pursuit of knowledge in their field.

He stresses the importance of understanding one's own strengths and leveraging them.

Buffett's strategy involves collecting a variety of undervalued assets.

He shares his experience with the Green Bay and Western railroad company as an example.

Buffett's knowledge of niche companies impressed his business partner, Charlie Munger.

Investing success requires a deep love for the subject, not just the money.

Buffett encourages attendees to continue their pursuit of knowledge and return to future meetings.

He acknowledges the complexity of the human brain and its role in investment decisions.

Buffett suggests that everyone at the annual meeting has a passion beyond mere games like Bridge or chess.