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Notes on old (1978) seminar on Buffett at Stanford


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These are notes from an Investment Management course taught by Jack McDonald at Stanford business school.  These notes are from 1978, and McDonald is still teaching the class.  i have not been able to find any notes of a more recent vintage.

I clipped the first few paragraphs and have attached the whole (4 page) document.

 

Fellow groupies, enjoy.

 

 

The game of making money in the stock market is deceptively simple.  It is one of the few businesses where one makes offensive decisions and is not forced into making defensive ones.  You play the game only when and where you wish to.  You need only swing at the fat pitches which are over the plate and belly-button height. 

 

The stock market is manic-depressant which is ideal.  Stocks become severely over and under priced based on non-economic factors.  With large institutions handling greater percentages of the money in the market, the market has more of a tendency to over-react on the upside.  Always when the stocks dropped the little stockholder would be driven to sell out of fear of losing everything.  Now, in addition, when the market moves up the institutions jump in in large numbers because they fear what their clients will say if they miss a major move.(i.e., the fear of losing accounts is the driving force behind institutions). 

 

Institutions are basically marketing organizations.  They have learned how to evaluate their clients desires and manage the $ the way the client would like to see it managed.  The biggest enemy of money managers is too much money under management. 

There is absolutely no correlation between hours worked or intelligence and money management success, although there may be an inverse correlation (i.e., 80 hours/work + 200 IQ = 0).  There is a tremendous correlation between approach and temperament, and investment success.  The record is clear that money can be made if: 

 

1. One resists the temptation to be in every game all the time. 

2. One maintains an even temperament 

3. One has a reasonable knowledge of the subject and interest in it. 

4. One is disciplined 

5. One keeps a distance between himself and the market (i.e., Buffett believes he benefits tremendously by being in Omaha than in Wall Street.). 

 

... the rest is here http://csinvesting.org/wp-content/uploads/2015/01/329_Buffett_Seminar_1978.pdf

or in the attachment

 

from John Chew, csinvesting.org

329_Buffett_Seminar_19781.pdf

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"He would absolutely never invest in any of the largest 50 companies in the

U.S. The market is incredibly efficient at this level. I"

 

Does this mean Berkshire is out as an investment? :)

Or perhaps he's talking about a young professional investor who can afford to take a little more risk and take the time to do research?

 

 

 

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"He would absolutely never invest in any of the largest 50 companies in the

U.S. The market is incredibly efficient at this level. I"

 

Does this mean Berkshire is out as an investment? :)

Or perhaps he's talking about a young professional investor who can afford to take a little more risk and take the time to do research?

 

Makes sense. Only in times of distress do those large cap companies really become appealing.

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WJS Partnership (Walter Schloss)

o Run by one man who once worked for the Graham-Newman Fund

o Not too bright, knows little about investing.

 

I added the bold. "Not too bright, knows little about investing"

 

Wow. I didn't think WB called people out (except for David Winters, of course)  ;D

 

I thought WJS and Buffet were friends. Buffet went to WJS' funeral too.

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  • 2 weeks later...

Very cool, thank you. I think Buffett tempered his take on large companies a bit over the years. Some of his largest successes like Coke, American Express, Petrochina and so on were large companies, and he regrets not investing in Wal-Mart, which again was quite large.

 

Don't forget that Buffett is a learning machine - he learned as he got older.

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WJS Partnership (Walter Schloss)

o Run by one man who once worked for the Graham-Newman Fund

o Not too bright, knows little about investing.

 

I added the bold. "Not too bright, knows little about investing"

 

Wow. I didn't think WB called people out (except for David Winters, of course)  ;D

 

I thought WJS and Buffet were friends. Buffet went to WJS' funeral too.

 

 

I think that was Buffett's dry sense of humour.  Maybe Schloss was the next scheduled speaker.  (Buffett praised Schloss, his detachment from companies and his investment performance on several subsequent occasions.)

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WJS Partnership (Walter Schloss)

o Run by one man who once worked for the Graham-Newman Fund

o Not too bright, knows little about investing.

 

I added the bold. "Not too bright, knows little about investing"

 

Wow. I didn't think WB called people out (except for David Winters, of course)  ;D

 

I thought WJS and Buffet were friends. Buffet went to WJS' funeral too.

 

These are someone's notes from a class about value investing and Buffet,  NOT notes from Buffett himself.  I assume that either the prof., McDonald or a speaker was denigrating Schloss.  That said it might have been from Buffett himself, or Munger, who did give a talk at the class at least once or more over the years.

 

Also, it was generally acknowledged that Schloss was not the sharpest of the so-called Super Investors of Graham-Doddsville.

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"He would absolutely never invest in any of the largest 50 companies in the

U.S. The market is incredibly efficient at this level. I"

 

Does this mean Berkshire is out as an investment? :)

Or perhaps he's talking about a young professional investor who can afford to take a little more risk and take the time to do research?

 

Or you can say that in 1978 WEB would not buy companies like IBM, Burlington Northern (Southern?). He has to today to deploy his free cash.  But it also implies that he has resigned himself to performing like an index. I feel his strategy now is to build an empire for his legacy.  I feel deep down he is not comparing the Brk book value to the S&P500. He is just doing his thing. He will perform somewhat better, but I don't think we can expect too much.

 

 

 

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I think one of the most important lines is "When in doubt, avoid."

 

Analogous to Munger saying regarding circle of competence: "To ask the question is to answer it."

 

+1.  When in doubt, avoid is great in the investing game. That said, in life testing assumptions is paramount. When in doubt in life test the assumption and lean into it. Investing is much easier than creating a lifestyle or breaking self limiting beliefs.

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