Sham Gad The Business of Value Investing. Download Full PDF Package. A short summary of this paper. 6 Full PDFs related to this paper. This 50 basis point difference, or approximately $11,000, represents 11% of the original amount invested. Over a twenty year period, the difference is nearly $50,000, or 50% of the original invested capital. Such is the beauty of the little, but incredibly lucrative nuances of this business. But in the real world of active money management.

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Opening remarks by Mr. Buffett-

The following notes are from my two-day visit with Mr. How to make real money spell. Buffett in Omaha. As always, Warren was very warm, simple, and loaded with brilliant nuggets of worldly wisdom.

Everyone has the potential to achieve their dreams. The point is to get out of each of us what we are capable of producing. I will invite you to play a game. Suppose that when this class ends, you have one hour to pick a classmate that you will own 10% of his or her earnings for the rest of their life. Besides picking the one with the richest father (laughter ) you would choose the person who is most effective. I would predict that you would not necessarily pick the student with the best grades or highest IQ. Instead, you would look for someone with the most integrity and intelligence. Think about the person that has a 300 horsepower motor and operates at 300hp and compare that person to someone who has a 400hp motor but operates at 150hp. You would pick the 300hp everyday.
My point is to suggest that you should become an effective human being..the chains of habit are too light to feel until they are too heavy to break!
Highlights of the Q&A:
Given the steady decline in the textile industry in the Northeast and the economically depressed nature of New Bedford and other companies in the industry what made you purchase Berkshire Hathaway at the time that you did?

Well in 1962 I learned from Ben Graham how to assess businesses. He also had the cigar butt analogy for buying businesses..you can usually get one good puff out of it and it’s free. Berkshire made a lot of money after WWII (more than Pfizer and Merck) and then it steadily went downhill. Between 1955 and 1965 Berkshire went from 12 mills to 2 mills and they bought their own stock as mills closed. We bought 100,000 shares out of 1 million in 1962 at $7 3/8 and the company had $10-11/share in working capital..I knew I wouldn’t lose money because of the working capital. It was losing money but it was also liquefying assets by closing mills. Seabury Stanton was running Berkshire at the time and I went to go visit him. We had an agreement that Berkshire would tender $11-1/2 for my shares of the company. At this point, I could not buy any stock as I had inside information. A few weeks later I received a letter from Old Colony Trust containing a tender offer of $11-3/8. Early the following week, Seabury tendered the stock at 11 3/8. As result, I began buying more Berkshire. Other family members of Seabury Stanton sold their shares to me and I gained controlling interest in the company. The family members weren’t very happy with Seabury either really. We ran the mills until 1985. .
See’s Candy is an example of low rate of return on capital expenditures individually yet the company as a whole makes loads of money because of the great brand of See’s. We bought See’s in 1972 and every year since then we have raised the prices the day after Christmas and it never hurt the business. When we invest we ask one question, how long do you have to wait to raise the prices? If you are an airline today and you try to raise your prices, an hour later, you will be lowering them because of competition. Not the case with a good brand like See’s. If I were to give you a $100 million, I’m not going to, but if I did, you could not damage the See’s brand in the minds of 30 or so million Californians. Only See’s can do that. Their brand is their promise to provide the quality and service that people have grown to expect.
Mr. Buffett, you have described Berkshire Hathaway as your masterpiece painting, a masterful business entity that has compounded shareholders equity at 21.5% per year since you have taken over. You have described your work as being a capital allocator and that it has been a joy for you to do that work all your life. In July 2006 you allocated all the Berkshire Hathaway shares you accumulated to the Bill and Melinda Gates Foundation and four other foundations. This act was enormous in its scope, brilliant in execution, and magnanimous in its goal. It now becomes the Bill and Melinda Gates Foundations’ job to allocate $15,000,000 each and every business day because of your donations. In your mind which part of this incredible act was most important or most concerning to you and why?
I actually gave the stock away 15 years ago in my mind, created a trust mentally. When my wife died, I was forced to do something. Soon after I discussed my plans with Bill and Melinda they gave me an original copy of Adam Smith’s Wealth of Nations. In the first chapter Adam Smith talks about “Specialization of Labor”, which talks about markets and allowing countries to specialize and work on what they are good at. Mike Tyson doesn’t try to run Berkshire, and I don’t try to get in the ring with Mike Tyson. This is how I look at philanthropy. I started looking for people that were younger, smarter, more experienced, and doing it with their own money. I looked for people that had similar goals, who would do the best with the money. In effect, I outsourced the handling of my philanthropy. It was a no brainer.
In the Fortune article, I stated that business is a game that I love because I get to hit the easy pitches. Ted Williams had written a book about hitting and he said to succeed in baseball, you had to wait for the best pitch. See’s Candies to me was an easy pitch. It is not like Olympic diving, where one could do a simple dive perfectly, but score lower than someone who might have made a big splash attempting a more difficult dive. In diving you are judged on the degree of difficulty. Philanthropy is the opposite of investing with degree of difficulty. Philanthropy deals with trying to solve the toughest problems in society, so you expect to fail very often. I personally don’t like failing, so I’d rather let someone else do it. I wouldn’t personally enjoy working on something where I couldn’t get any feedback on how I was doing and in fact, expected the project to fail. My lifespan is 12 years now and I should be able to add tens of billions of dollars to my “donation” in that time. I am going to stick with what I love doing and I am glad others will work on giving the money away.
I’m just lucky to have been in the right place at the right time. Another place, another time, I wouldn’t have been as successful. Society enabled me to make my money and my money should go to society.
You have said that the last 50 or so years were a unique time for investing in American securities markets—numerous mis-pricings. Do you believe that something like this will happen again? And if you were 26 today and you had only a $1,000,000 how would you generate the 50% returns that you said you might do with smaller amounts of capital?

Attractive opportunities come from observing human behavior. In 1998, people behaved like frightened cavemen (referring to the Long Term Capital Management meltdown). People make their own opportunities. They will be frozen by fear, excited by greed and it doesn’t matter what their IQ, degrees etc is. Growth of 50% per year is with small capitalization, not large cap. The point is I got rich looking for stock with strong earnings.
The last 50 years weren’t unique. It’s just capitalizing on human behavior. It’s people that make opportunities when others are frozen by fear or excited by greed. Human behavior allows for success if you are able to detach yourself emotionally.
In 1951, I got out of school at 20 years old. At the time there were two publishers of stock information, Moody’s and Standards and Poor’s. I used Moody’s and went through every manual. I recently bought a copy of the 1951 Moody off of Amazon. On page 1433, there’s a stock you could have made some money on. The EPS was $29 and the Price Range was from $3-$21/share. On another page, there is a company that had an EPS of $29.5 and the price range was $27-28, 1x earnings. You can get rich finding things like this, things that aren’t written about.
A couple of years ago I got this investment guide on Korean stocks. I began

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