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In this episode, Warren Buffett was asked about the criteria he used to buy and sell a company? And whether he apply Phil Fisher's two reasons to sell a company or stock?
In this episode, you’ll learn:
- Why Berkshire Hathaway almost never sell an operating business?
- What is Warren Buffett's acquisition principle?
- Which is better; time or money?
- Warren Buffett first 20 years investing method.
~ Please visit the site above for full video of Berkshire Hathaway Annual Meeting.
AUDIENCE MEMBER 00:08
Thank you. Yeah, my main question is this. Much has been written by you, and a lot more by other people, about your criteria, or the criteria you use when you make a purchase of a company, either in full or in part.
But almost nothing has been written by you, at any rate as far as I can tell, on your criteria for selling a company that you have already — you have previously purchased.
And I wonder if you could outline the criteria you might apply today to a sale of a company, and whether you would go — well, the simplest way to put it is this: Would you agree with Philip Fisher, who said there were two reasons to sell a company — or a stock?
One was when you’d discovered you’ve made a mistake in your analysis and the company was not what you thought it was.
And the second when — was when the — something within the company had changed, the management had changed or so on, so it no longer met your original criteria.
Would you — are those the principles that you apply or would you say there are different ones or others? Thank you.
WARREN BUFFETT 01:23
I’m glad you brought up Phil Fisher, because he is a terrific mind and investor. He’s probably in his 90s now, and — but his —
A couple of books he wrote in the early ’60s are classics and I advise everybody here who’s really interested in investments to read those two books from the earlier ’60s.
And he’s a nice man. I went out to — 40 years ago, I dropped into his office in San Francisco, a tiny office. And he was kind enough to spend some time with me. And I’m a huge admirer of his.
The criteria that we use for selling a business that we own control of are articulated in the annual report, under the ground rules.
So in terms of businesses that we own, we have set forth — and I direct you there — we’ve written those same ground rules every year since 1983. And actually, we had those in our head for decades before that.
And we have this quirk, which you should understand, and we want our shareholders to understand it, that even though we got offered a price that was far above its economic value, as we might calculate it going in — but if we got offered a price for that for a business that we have now, we have no interest in selling it.
You know, we just — we don’t break off the relationships that we develop simply because we get offered a fancy price for something. And we’ve had a chance to do that sometimes.
That may help us, actually, in acquiring businesses, because both of the companies that I’ve committed to buy in the last few weeks, both of them are very concerned about whether they have found a permanent home or not.
And people who build their businesses lovingly over 30, or 40, or 50 years, frequently care about that. A lot of people don’t care about that.
And that’s one of the things we evaluate when buying a business. We look at the owner, and we say, “Do you love the — ” in effect, we ask ourselves, “Does he love the business or does he love the money?”
Nothing wrong with liking the money. In fact, we’d be a little disappointed if most of them didn’t like the money. But in terms of whether the primacy is loving the money or loving the business, that’s very important to us.
And when we find somebody that loves their business — and likes the money — but loves their business, we are a very, very desirable home for them, because we’re just about the only people that they can deal with, of size, where we can commit that they are going to be part of this operation, really, forever, and be able to deliver on that promise.
I tell sellers that the only person that can double-cross them is me. I can double-cross them. But there’s never going to be a takeover of Berkshire. There’s never going to be a management consultant come in and say, “I think you’d better do this.”
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CHARLIE MUNGER 06:16
WARREN BUFFETT 06:23
CHARLIE MUNGER 06:31
WARREN BUFFETT 06:44