Warren Buffett's Best Interview You've Never Seen Before

Five Buffett principles that all investors can benefit from.

Warren Buffett was interviewed by PBS in 1985, marking his first national TV appearance. It is arguably one of his best interviews still to date and is full of gems that are relevant nearly 40 years later.

At the time of the interview, Buffett was worth $500m. He has since grown his net worth by over 24,000% to $121b.

Today, we highlight five takeaways from this special interview that market participants can apply to their investments.

A simple process

“The first rule on investment is: don't lose. The second rule on investments is don't forget the first rule. That's all the rules there are. I mean that if you buy things for far below what they're worth and you buy a group of them, you basically don't lose money.”

Why do people not follow a simple investing strategy?

“Well, I think partly because it is so simple. The academics, for example, focus on all kinds of variables. The data is there, so they focus on whether if you buy stocks on Tuesday and sell them on Friday, you're better off. Or, if you buy them in election years and sell them on other years, you're better off. Or, if you buy small companies etc. There are all these variables because the data is there. And they've learned how to manipulate data.

As a friend of mine says, “To a man with a hammer, everything looks like a nail.” Once you have these skills, you just are dying to utilise them in some way, but they aren't important.

If I were being asked to participate in a business opportunity, would make any difference whether on a Tuesday or Saturday? Or an election year or something? It's not what a businessman thinks about when buying businesses.

So why think about it when buying stocks, because stocks are just pieces of businesses.

Investing is about temperamental qualities

“It's a temperamental quality, not an intellectual quality. You don't need tonnes of IQ in this business. You have to have enough IQ to get from here to downtown Omaha, but you do not have to be able to play three-dimensional chess or be in the top leagues in terms of bridge playing or something of the sort.

You need a stable personality. You need a temperament that neither derives great pleasure from being with the crowd nor against the crowd because this is not a business where you take poles. It's a business where you think.

Ben Graham would say that you're not right or wrong because 1,000 people agree with you, and you're not right or wrong because 1,000 people disagree with you. You're right because the facts in your reasoning are right.”

Think differently to others

“Certainly, most of the professional investors focus on what the stock is likely to do in the next year or two, and they use all kinds of arcane methods of approaching that. But they do not really think of themselves as owning a piece of a business. The real test of whether you're investing from a value standpoint or not is whether you care whether the stock market is open tomorrow. If you're making a good investment in a security, it shouldn't bother you if they close down the stock market for five years. All the ticker tells me is the price, and I can look at the price occasionally to see whether the prices are outlandishly cheap or outlandishly high.

But prices don't tell me anything about a business. Business figures themselves tell me something about a business. The price of the stock doesn't tell me anything about its business. I would rather value a stock or a business first and not even know the price so that I'm not influenced by it in establishing my valuation and then look at the price later to see whether it is way out of line with what my value is.

Don’t follow the herd

On basing Berkshire Hathaway in Omaha and not New York, Buffett said, “We get mail here, and we get periodic goals, and we get all the facts needed to make decisions. Unlike Wall Street, you'll notice we don't have 50 people coming up and whispering in our ear that we should be doing this or that this afternoon. I like the lack of stimulation. We get facts, not stimulation, here.

If I were Wall Street, I'd probably be a lot poorer. You get overstimulated on Wall Street, and you hear lots of things. You may end up shortening your focus, and a short focus is not conducive to long profits.

Here I can just focus on what businesses are worth. I don't need to be in Washington to figure out what the Washington Post newspaper is worth. I don't need to be in New York to figure out what some other company is worth. That's simply it's an intellectual process. The less static there is in an intellectual process, really, the better off you are.”

The intellectual process

“The intellectual process is defining your level, defining your area of competence in valuing businesses, and then within that area of competence, finding whatever sells at the cheapest price in relation to value.

There are all kinds of things I'm not competent to value, but there are a few that I am confident to value. In 30 years, I’ve never bought a technology company. I haven't understood any of them. I never owned IBM. It’s a marvellous company, a sensational company, but I haven't owned IBM.

The technological advancement has gone right past me. And that is OK with me. I don’t have to make money in every game. I don't know what cocoa beans are going to do. There are all kinds of things I don't know about, and that may be too bad, but you know, why should I know all about it? I haven’t worked that hard on any of them.

In the securities business, you literally, every day, have thousands of the major American corporations offered to you at a price and a price that changes daily. You don't have to make any decisions. Nothing is forced upon you. There are no called strikes in the business. The pitcher just stands there and throws balls at you. If you're playing real baseball, and it's between the knees and the shoulders, you either swing or you get a strike called on you. If you get too many calls, you're out.

In the securities business, you sit there, and they throw US Steel at 25, and they throw General Motors at 68, and you don't have to swing at any of them. They may be wonderful pitches to swing at, but if you don't know enough, you don't have to swing. You can sit there and watch thousands of pitches, and finally, you get one right there where you want them, something that you understand, and then you swing. I might not swing for six months. I might not swing for two years.

It would bore most people, and certainly, boredom is a problem with most professional money managers. If they priced to sit out an inning or two, not only do they get somewhat antsy, but their clients start yelling “Swing you bum” from the stands. And that's very tough for people to do.”

In summary:

• Keep things simple.

• Have the right temperament.

• Think differently and long-term.

• Don’t follow the crowd and get caught up in the noise.

• Focus on your area of expertise and be patient.

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