He did it again. Warren Buffett one again, and he
always will because he is the best investor to ever live.
And, in my opinion, it's not even close.
It's not like there's Warren Buffett.
And then a close second and third and fourth place, this
isn't like a debate between Michael Jordan and LeBron.
James is just Warren Buffett, there's Warren Buffett and then
there's everyone else and none of them are close s.
Now this has been pointed out time and time again.
We have articles from The Wall Street Journal hair saying that
Warren. Buffett.
Wannabes are now losing luster? This is referring to the many
people. The many people that thought
that they could outsmart outwit and outdo Warren Buffett
strategy by investing in lots of various companies.
Many of them exciting tech companies and one aisle, they're
losing their luster and they're moving back to index funds.
They have succumbed to defeat only a couple years into their
investing career. It's not individual investors
being the only ones to have claimed to be Warren.
Or to be better than Warren Buffett or to be able to beat
him at his own game. We have lots of popular figures
doing the same thing. We have people like Arc invest
with Kathy would she was talked about to be almost the new
Warren Buffett, a newer upgraded younger one that invests in more
exciting Innovative companies that are outside of Warren
Buffett's, circle of competence. We have people like shamalia
patea. He actually compared himself to
Warren Buffett. Many times, comparing his
performance too warm. Buffett and tell of course his
fun tanked and his performance became terrible.
Only a couple years. After starting we have people
like Bill Ackman. Also being compared to Warren
Buffett. We have people like Dave Portnoy
saying that they're the new Warren Buffett, lots of
different challenges are coming and going and that's going to be
the theme of today's video. Why is it that nobody can beat
Warren Buffett? Why is it that he is able to do
something that's so difficult to replicate his performances out
of this world. It's literally almost so Or to
be better than Warren Buffett or to be able to beat him at his
own game. We have lots of popular figures
doing the same thing. We have people like Arc invest
with Kathy would she was talked about to be almost the new
Warren Buffett, a newer upgraded younger one that invests in more
exciting Innovative companies that are outside of Warren
Buffett's, circle of competence. We have people like shamalia
patea. He actually compared himself to
Warren Buffett. Many times, comparing his
performance too warm. Buffett and tell of course his
fun tanked and his performance became terrible.
Only a couple years. After starting we have people
like Bill Ackman. Also being compared to Warren
Buffett. We have people like Dave Portnoy
saying that they're the new Warren Buffett, lots of
different challenges are coming and going and that's going to be
the theme of today's video. Why is it that nobody can beat
Warren Buffett? Why is it that he is able to do
something that's so difficult to replicate his performances out
of this world. It's literally almost so Good
that it's like fictitious. It's like something you'd read
in a fantasy novel from 1965 to current year.
He has a compounded annual gain annual, gain of 19.8%, almost 20
percent returns per year for 57 years straight.
That is a record that no one even comes close to.
There is no close. Second place, his overall
returns is a number again that seems made up its three million,
seven hundred, and eighty seven. Thousand four hundred and sixty
four percent returns, again, three million, 700, thousand
percent Returns the company that he's created is so big.
It's listed as one of the top. Ten companies in the market
right now, it has operating earnings at beats out almost
every other company except for Apple of which he's a huge
shareholder of Buffett is the best and there's no one close.
Now we have some information on how he's able to do this but a
lot of it I think is very vague. Buffett likes to speak in these
platitudes and in these different cliches.
Things, right? It's better to have a bird in
the hand, than two in the bush stuff like that, where you can
get some meaning from it. But it's it's difficult to kind
of dissect what he really does with his Investments.
So, in today's video, what I hope to do is actually dig in
and try to break through these cliche sayings and make them
into more relevant and specific investment techniques.
Now, before we jump in, just a quick mention today is the
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Now, again, diving into the subject.
I think it's an interesting question of why nobody can seem
to beat Warren Buffett. He always wins every single
time. He has for over 60 years during
that time period. There's many time periods in
between little Windows of time where there's doubters where it
seems like buffets going to lose.
There was a time period where Bill Ackman was being talked
about as baby Buffett up until this point in 2015, he had
phenomenal returns, everything was going his way, then, he had
the Valiant implosion, his fun claps dramatically and it looked
like he was no longer a baby Buffett that term Slipped Away.
And now people are hesitant to compare Bill Ackman with Warren
Buffett. Now his return since then have
been decent. I think he's learned a few
things but he's no Buffett. He's not even close to Warren
Buffett. We look at some other people
that I think are even further away that were also claimed to
be the new Buffett, chamath polly have patea often compared
himself to Warren Buffett in his investor presentations for his
own fund. He literally mapped out his
performance, the first year, against the first year of
Berkshire Hathaway. He continued to do this until
his fund underperformed Berkshire Hathaway.
Then all of a sudden that comparison was out of his out of
his investor presentation. Now trim off Bali Hai patea
compared himself to Warren, Buffett's saying that his spax,
these specs are going to be like his Berkshire Empire.
Well luckily for us we can look at the performance of aspects
and see how this new Warren Buffett is doing space spce
which is Virgin Galactic that's one of his specs stand 53% all
time. That one hasn't been going.
Well, we have Sophie that bank it's down 66 percent over the
past two years 38% all time, we have Clover Health Care.
This one's down 88% all time. Another trough Polly, hepatitis
back and of course we have opened or the real estate's
pack. That's down 88%, all time, and
has never made any real money. But again, this was talked about
by cumali, huh? Fatiha the king of spax as
being. The new Buffett.
This is his Empire that he's built a bunch of companies that
barely have any It's that are all down dramatically all time.
Now, of course, we have many contenders after that, we have
people like Kathy would, with Arc and evasion.
She was talked about as being the new Warren Buffett.
Someone that represented a younger generation that she
could see through all the mess of the older companies that were
going to be disrupted by her newer.
Younger more Nimble, Innovative companies and many YouTubers
referred to Kathy would as being the new Warren Buffett.
She represented Innovation him, he was literally old and washed
Stop. These were the type of videos
made in 2020 during the explosion of Arc Innovation.
Now since then, we know how the story played out, it's down, 71
percent, its underperform Berkshire.
Hathaway with a huge amount of volatility and of course it's
become abundantly. Clear?
That Cathy wood is no Warren Buffett.
So there's been many Challengers that over the years have come
and gone as the new Warren Buffett.
And then over time it's revealed that they're not the new Warren
Buffett. They're not a replacement
they're not as good at investing as Warren Buffett at the end of
the day there's one Warren Buffett and it's Warren Buffett.
Now we can choose to learn from a lot of different people but
personally I'd rather just try to learn from the best.
So what I want to do is go through this letter and
highlight my takeaways from what I think are the most important,
most revealing things that Warren Buffett shares.
The first thing that he emphasizes is something that he
has repeatedly emphasized over and over and over again
throughout his career. And no matter how many times
Warren Buffett says this, most investors still don't do it.
They don't follow this advice, they do.
View their stocks in this manner.
He says, our goal in both forms of ownership is to make
meaningful investments in businesses.
Businesses being emphasized with both, long-lasting favorable
economic characteristics, and trustworthy managers.
He doesn't say. And I want to highlight what he
doesn't say, he doesn't say our goal is to buy cheap stocks with
low P/E ratios and time when the multiple expands That's not what
he says. What does he say?
We're buying businesses with both long-lasting favorable
economic characteristics. That means profitable businesses
highly profitable when Warren Buffett uses long-lasting
favorable economics. That means highly profitable.
High barriers to entry business, very long durable modes, so he's
not looking for cheap companies, trading at low multiples, that
might have a quick expansion of PE he's looking for businesses
that have Good profitability and wide modes.
He also looks for trustworthy managers which I think is
straightforward, please note, particularly that we own
publicly traded. Stocks based on our expectations
about their long-term business performance.
Again, he's always looking at the operating performance of the
company. In fact, when Warren Buffett
actually reports the earnings of Berkshire Hathaway.
He says to focus on the operating income because a stock
prices of all of their publicly traded holding swing so much
that throws off the pnl that's reported and the thing to
actually focus on is the operating income.
So right there, he gives us a lot of information jam-packed
and it was single paragraph. He's not buying the cheapest
companies at favorable prices. He's buying high-quality
long-lasting, favorable economic characteristics of businesses
that have wide modes and then he views these as businesses.
He tracks their business performance, not their stock
price. He says not because View them.
And this is again, he's not buying these companies because
we view them as vehicles. For adroit purchases, and sales,
adroit means clever or witty purchases and sales.
So he's not trying to time the Ebbs and flows of the market and
buy during little dips and sell during little surgeon price.
That point is crucial. Charlie, and I are not stock
Pickers. We are business Pickers, just
this single paragraph. This one paragraph I can get
loads of information from. Let's go ahead and just go
through it. And we'll break down this one
paragraph. We have companies that we want
to buy. That have favorable economic
conditions, that means they're profitable.
So you have companies that are not profitable companies that
are diluting, shareholders companies that aren't generating
any wealth. Warren Buffett is saying that he
does not buy those companies. Number one, favorable, economics
means profitable companies. Number two, long-lasting
favorable economic characteristics.
How does the company have a long-lasting?
Favorable economics a moat. They need to have high barriers
to entry something. That's very difficult to
replicate or be disrupted. So we have profitable companies
with a wide mode. They're going to be profitable
for a long period of time. The next thing that he points
out is the mentality, his mentality differs from what most
investors have. He says that he buys companies
with the view of them being businesses and tracking their
operating performance. This right here is something
again. Then I think is very difficult
for most investors to do, because what Warren Buffett is
able to do is to decouple, the stock price performance from his
sentiment on the stock, most investors become very bearish.
As the stock price comes down their sentiment get slower.
They view the stock less favorably.
Warren Buffett doesn't do that. The price does not dictate his
sentiment at all. The business performance does
the operating performance does. So He is different with Buffett,
not only does he buy great businesses with great moats?
Great profitability. Good long-standing economics,
but he attracts their operating performance.
And then you decouples, that from the price of the stock.
And then, finally, the last thing that he highlights is a
point that he's often repeated, they are not stock Pickers, they
are business Pickers. So Warren Buffett views
Berkshire as a conglomerate of a lot of different businesses will
compound, their intrinsic value faster than the rest of the
market. He identifies these Pennies.
Many of them like energy companies, many of them like
insurance companies, many of them, with consumer companies,
like Coca-Cola companies that have great economics.
Favorable economics, they have very wide modes.
They have intrinsic value that grows over time and he holds
them for decades at a time decades.
Most investors hold stocks for an average of less than one
year. So why do you think Warren
Buffett outperforms? Majority of investors.
His timeline is longer the That he buys are better.
They have better modes and his mentality is more stable.
He does not convince himself to sell stocks when they're at
Lowe's, and he doesn't view stocks, more favorably when the
price goes up. So Buffett has a superior way of
both identifying companies and investing in them, and a
superior way of the mental game viewing, his performance of his
companies and two coupling price from the actual business moving
on from that. First paragraph, that's loaded
with information. We get to the second paragraph,
over the years, I have made many mistakes consequently.
Lee our extensive collection of businesses currently consists of
a few Enterprises that have truly extraordinary economics.
Many that enjoy, very good economic characteristics.
Now this is another thing where Allstate Warren Buffett, he uses
these very vague terms. They're almost like euphemisms.
He just says that they have very good economic characteristics
and that can mean a lot of different things to a lot of
different investors. Some investors might look at
that and erroneously conclude that very good.
Comics means a lot of Revenue growth and that's clearly not
what Warren Buffett is saying he's never just searched out
companies that have quick Revenue growth and said that's
good economic characteristics. The best descriptor that I've
seen of a company that has very good economic characteristics
was what Terry Smith defined companies that have high margins
High Returns on tangible assets. That's a an actual ratio that
Warren Buffett has talked about many times Returns on tangible
assets, Terry Smith. It says it's very close to
Returns on Capital employed. That is the metric that he looks
for. These are companies that when
they bring in Revenue, they earn consistently a lot of money,
their margins are high and then when they reinvest back into
their business, with the money, they do earn.
They also earn a very high return.
So they're both gaining a lot of profit from the money, they
bring in, and they're making a lot of returns when they invest
money. Both of those things are great.
If you find a company that can grow while doing both of those
things, that is what I would Define as a business that has
very good economic characteristics.
Businesses that are not very good economic characteristics.
These are businesses that grow Revenue really fast.
While printing off shares like crazy and dilute the
shareholder. These are businesses like the
many that we've seen that. They have the free cash flow, go
up. And then they have stock-based
compensation further. Diluting the shareholder at a
faster rate than they actually make money.
There's a lots of companies I could go through.
That have unfavorable economic characteristics.
Warren Buffett has never invested in these companies.
He never has yet investors today.
Many of them continually seek out these companies in hopes
that in the future, there economics will change that down
the road. There economics will improve
Warren Buffett has said before. He does not count on the
economics of a business suddenly changing.
If it's had a terrible past and it's going to have a bright
future. Berkshire is going to miss it,
they're not going to risk investing in those type of
companies Berkshire. Invest in companies that already
have good economics, they make major stakes in those companies,
and then they watch the economics grow over time and
have those businesses create wealth for the shareholder.
So this is something again that, Warren Buffett gives these kind
of phrases these euphemisms, these very general vague
statements when you try to dive in and actually find the meaning
I find companies with good economics, be high, margins,
High rates of return on tangible.
Assets High Returns on Capital employed and businesses that
have favorable secular growth for long periods of time.
Those are companies that truly have good economics.
Now it goes on pointing out that there's many other companies
with less favorable economics. He says, and a large group that
are marginal companies with okay, economics, along the way
other businesses in which I have invested in have died, their
products unwanted by the public, capitalism has two sides, the
system creates an ever-growing, High-level losers while
concurrently delivering a gusher of improving goods and services.
Moving on with this letter, he points out why that's okay.
Why? It's okay that capitalism.
Kills off some companies. As long as you pick a few that
do really well, the secret sauce in August of 1994.
Berkshire completed, its seven-year purchase of the 400
million shares of Coca-Cola, we own.
Now the total cost was 1.3 billion then a very meaningful.
Full sum of Berkshire. So they made this big bet on
Coca-Cola. The cash dividend we receive
from Coke in 1994 was 75 million by 2020, to the dividend had
increased to 704 million. So, just a quick glance at the
math here, they invested 1.3 billion in 1994 and the dividend
they receive on an annual basis is 704 million.
Roughly half of their total investment.
So every year, they're getting a 50, Sent return on the dividend,
the dividend paying for half their initial investment.
This company has paid for itself multiples and multiples and
multiples over just by the dividend alone growth occurred
every year. Just as certain as birthdays,
all Charlie and I were required to do was Cash coax quarterly
dividend checks. We expect that those checks are
highly likely to continue growing and they are the
dividend checks from Coca-Cola. Are going to continue to grow
and the interesting thing here is Berkshire, doesn't actually
reinvest this 104 million back into Coca-Cola because he
doesn't necessarily think it's the best investment today.
So uses this continual stream of cash flow to buy, other
dividend-paying companies to further snowball his wealth.
So this is one company being compounded rolling that snowball
and that compounding going into different companies.
American Express is much, the same story Berkshires, purchase
of Amex were essentially completed in 1995 and
coincidentally they also cost. Billion annual dividends
received from this investment have grown from 41 million to
three hundred and two million. Those checks to seem highly
likely to increase in the future.
He's highlighting here. Something that dividend
investors are well aware of dividend growth.
Warren Buffett is often talked about as not caring about the
dividends but he obviously does care about it.
He's highlighting as a part of the secret sauce of his
Investments because what our dividends its actual Cold Hard
Cash operating income that's being returned back to the
investor Warren Buffett looks for companies that return
Capital back to the investor. Not just companies that have a
good return on Capital but companies actually return
Capital back to the investors. In fact, one of the things that
Charlie Munger highlighted is they like companies that spit
cash back to them that they can deploy in other places.
They don't like companies that just hold onto cash and they
never return anything and they never do by back so you never do
dividends. Aren't the Investments That
Warren Buffett likes. He loves these ones that grow
the dividend from a couple million to 704 million.
He loves the Investments like Amex that grow the dividend from
41 million the 302 million. That's what I'm trying to find
as well, companies that can grow.
Dividends at very fast rates because they'll have continual
growth and their operating income, this is what's funded
the continual growth of Berkshire Hathaway.
All this Capital being returned to them that they can reinvest
at another high rate of return above it, just got done.
Lighting the entire idea of dividend growth.
He highlighted it with Amex and with Coca-Cola.
And again, this is something that's debated, a lot of
investors. Don't agree with Warren Buffett
here. They think Dividends are
irrelevant. They don't mean anything.
It's just something you should completely ignore buff it.
Obviously does not see it that way.
Look at what he's actually writing.
He's highlighting it in the first part of his letter, he
views dividend growth as a very favorable thing.
He wouldn't be sharing it with other people.
If he didn't like that, the divins were growing with this
company. Are the dividend growth.
He highlights something else. That's another form of returning
Capital back to the shareholders which are BuyBacks.
Let's go ahead and jump into his thoughts on BuyBacks at
Berkshire. We directly increase your
interest in our unique collection of businesses by
repurchasing. 1.2 percent of the company's outstanding shares.
That's your BuyBacks at Apple and Amex repurchases increased
Berkshires ownership, a bit without any cost to you.
The math isn't complicated. When the share count goes down
your interest in many businesses.
Goes up every small bit helps, if free purchases are made at
Value accretive prices. That's a very simple principle.
Warren Buffett, only invest in companies, and you only holds
companies that he thinks are undervalued since their
undervalued. All of these companies that do
share repurchases are buying at Value accretive prices, he
continues on emphasizing how good BuyBacks are, especially if
a company is at or below its intrinsic value gains from the
value creative repurchases. It should be emphasized.
It all owners in every respect. Imagine if you will three fully
and form shareholders of a local auto dealership one of who
manages the business. Imagine further that one of the
passive owners wishes to sell his interest back to the company
at a price attractive, to the to continuing shareholders.
When completed has this transaction harmed, anyone?
Obviously the answer is no, is the manager somehow favored over
the continuing passive owners? Has the public been hurt?
This is something that a lot of politicians don't.
Durst and when share repurchases happen this way, there's no
victims. There's no one being harmed in
this transaction. When you are told that all
repurchases are harmful to shareholders or the country or
particularly beneficial to CEOs. You are listening to either an
economic illiterate or a silver tongue demagogue characters that
are not mutually exclusive. This is Warren Buffett, I think
he's just dropping a bomb on people like Elizabeth Warren,
Elizabeth And routinely paints share repurchases as bad, bad
bad bad and every situation, she's not the only one, she's
just the most outspoken. There's other Democrat members
that have routinely advocated for not even increasing taxes,
on share repurchases that would harm.
Everybody's 401K it would harm the returns of everyone invested
in these companies, but they're outright wanting to ban them,
they want to ban share repurchases, they want to make
it so companies can only issue more shares?
Only dilute the shareholder, but not even of shares outstanding.
And that is how economically illiterate many commentators
are. And many members of Congress are
many members of Congress don't even understand what they're
trying to regulate. They want to ban share
repurchases without even understanding what they are, who
they benefit how they work. Warren Buffett is directly
calling these people out. He's not using their name but
he's calling them out on this subject.
So we have share repurchases as another big topic that Warren
Buffett highlights as being very positive and this is something
that I want to highlight. Well, we go through this list of
lots of different things that he looks for.
And one thing that I think a lot of investors that even study
Warren Buffett continually Miss is that he does have a big
emphasis on return of capital return of capital.
That's different than return on Capital return.
On capital is investing into a business and having a high rate
of return, return of capital is when the company makes so much
excess profit that it can return money back to the shareholder,
it can do that in one of two ways by backs.
Or dividends those are two different ways of returning
Capital back to you. The shareholder.
Warren Buffett in a large part of this letter highlighted.
How much he loves both of them. He highlighted dividend growth
as being something that he loves and that he's tracking the
numbers in many ways. He's doing what we do in
qualtrics and tracking our dividend growth over time and
then he looks at share repurchases.
That's another thing that I highlight all the time I bring
up the shares outstanding chart and I look at this year's going
down of the companies I'm invested in, he highlights both
of these and he defends both of them.
He loves Capital being returned back to him the shareholder and
he's operated that way his entire career.
Most of the companies that Warren Buffett invest in do two
things. They pay a dividend and they do
BuyBacks almost every single one he invest in does that but still
we have the next Warren Buffett's and these Warren
Buffett wannabes investing in companies that dilute
shareholders and don't pay a dividend, they expect to
outperform Warren Buffett by not following one of the basic
things that he's routinely outlined as being crucial.
Oil. Now, this next topic we're going
to jump into is one that I just love.
I loved reading this part because I've made video after
video calling different companies Liars, for the way
that they present their financial statements.
I think it's intentionally deceptive.
They fabricate profits out of thin air by adjusting numbers by
coming up with free cash flow, that doesn't even factor in the
payment of employees by doing these things that are.
So I think deceiving making their companies look so much
better than they actually are. And I've been trying to
Highlight this, I don't like when companies do this, I don't
want to invest in companies that do this.
I like companies that are very straight forward with their
profitability, Warren Buffett does as well.
Finally, an important warning, the sounds like he's making a
YouTube video. When I read this an important
warning from Warren Buffett. Even the operating earnings,
this is where you get sent to the warning.
The operating earnings figure that we favor can easily be
manipulated by managers who wish to do so such tampering is Even
thought of as sophisticated by the CEOs and the advisors and
reporters and analysts embraced this existence as well.
They do. He's 100% correct.
This is the most perplexing part of this.
I feel like I'm yelling into a void.
When I point out, the things that these companies are doing,
that's intentionally deceiving the analyst embrace it, they eat
this stuff up, he says beating expectations, this way is
heralded as managerial triumphs Activity is disgusting.
He calls it, disgusting it requires no talent to manipulate
numbers. Only a deep desire to deceive is
required. Again, when I use the term
Liars, in my videos, I use that term very carefully.
I do not call out companies that I think are being truthful
forthcoming, honest, with their financial metrics.
I call it ones that I think are being intentionally deceiving.
He says, quote, bold and Adjective accounting as a CEO.
Once described his deception to me has become one of the shames
of capitalism. I don't think there's a bigger
combination that Warren Buffett could give to people that do
this type of accounting. It is repugnant, it's
disgusting. That companies do this.
They are intentionally deceiving their shareholders and to
painting one picture about how the company is actually
performing than what, it's actually doing a recent example
of this and one that I'll call out with their most recent
earnings report is another example, Pulled it out.
Highlight as disgusting. The company's zoom zoom just
released their most recent quarter.
And here we have, the presentation they're giving to
investors, right? They have these nice glossy
presentations where they talk about how great the company is.
But one of the things that they emphasize right here from the
start, this is one of the first pages is the strong financial
performance strong financial year 2023 performance.
One of the things they emphasize right here is a 27 percent.
Free cash flow margin right at the beginning of their earnings
report. Okay.
Zoom, you had very strong financial performance.
A good, 20 22. Let's take a look at the year of
2022 and how this company did when we can look at last quarter
and see that the company had net cash provided by operating
activities of 211 million. That's the operating activity
income. Then they paid their developers,
their employees, 518 million dollars in stock.
This is their strong Performance having two hundred, eleven
million dollars of income and paying over half a billion in
stock. We bring this up on qual term,
just to illustrate. How deceiving the Satchel is, we
bring up their free cash flow quarter by quarter, right hair.
And then we introduced stock-based compensation.
And this is what it looks like stock based compost over double
their free cash flow last quarter in, this is the same
company that's highlighting in its investor presentation that
it has strong free, cash flow margins of the same year.
So after talking about return of capital in the The importance of
dividend growth and share BuyBacks Warren Buffett, lays
out this warning about companies that participate in deceptive
accounting. Practices ones that try to make
the economics of their business. Look much better than they
actually are. Now I've created tools and
software that really dig through this and make it so that they
can't do this BS against us, but many investors are still being
deceived by this. They bite into this Hook Line
and Sinker. And so Warren Buffett's trying
to help out investors trying to warn people about Out this type
of thing as well. So overall this is the completed
list of this letter and there's so much.
I think we can gain from this one letter that many investors
are not doing these are things that give us an edge as
investors, we can go through what investors do.
That's not what Warren Buffett says the best thing to do.
Number one, buying companies with great economics gray
economics. Again High Returns on Capital
employed, Buffett calls it high Returns on tangible assets, very
similar companies that have very high Margins that's number one
and most investors get lost right at this step they buy
companies with a low P/E ratios and poor economics companies
with unproven business models companies that don't generate
real free cash flow beyond the level of dilution.
They buy companies that are optically cheap companies that
make our durable goods and highly cyclical Industries.
These are not companies that have very favorable economics.
So even a number one many investors get lost, they don't
even follow the first step. The next step is companies that
have long and during good Economics.
The long duration is a consequence of a moat having a
competitive Advantage. I've done analysis on Berkshires
portfolios, and many of the companies that he invests in
have natural monopolies. He invests in railroads that is
a naturally monopolistic business.
He invested an apple. That's a company that has
basically a monopoly. Everybody uses the app store,
which again is a toll bridge with excellent economics and it
has very high barriers to entry. Try competing with apple.
Go ahead. Give it a shot.
Even Samsung is having a difficult.
Difficult time. So in number two investors don't
give enough attention to the mo of the company, they invest in
companies that are highly risky and industries that are highly
cyclical that are ripe for disruption.
They invest in Innovative companies that are unproven that
come and go that are in Ever Changing Industries with unknown
threats. Buffett doesn't do that.
He invest in companies that have concentrated Industries.
There's usually a couple leaders.
They have very high barriers to entry.
Times their outright regulated and he builds up a large stakes
in these companies out of the first two pieces of advice, I
would say 80% of investors. Don't even follow those two
pieces of advice so obviously they're not going to outperform
them. They don't follow the first two
pieces of advice. Then we have number three, which
I think is perhaps the most difficult step to follow, which
Buffett has perfected the mental game.
This one I think is the definition of easier said than
done. It's easy to say.
Yeah, I love you. My doc says businesses I won't
focus on the price and and and you know look at the Ebbs and
flows of price everyday. Investors are looking at the
price of their companies every single day they're glued to
their brokerage looking. If it goes up two percent or
down 2% and then they don't spend enough time even reading
the investor relations and the reports of how their businesses
are actually doing. If you added up the amount of
time that investors look at Price compared to the amount of
time that they actually do analysis on businesses.
It's probably 90 percent on price and 10% on analysis on the
She'll company, Buffett has perfected the mental game.
He has decoupled, the price from the intrinsic value and
operating performance of the business.
And this is something again that I know anecdotally from my own
experience being a YouTuber and interacting with a lot of
investors that this simply isn't the case with most investors.
Every single company that I've invested in that the price went
down every single, one of them. I have sentiment following.
I'll get comments about how it was a poor investment.
Vestment how the companies no longer doing well, how
everything looks - and bad. Even if the price went down
while the operating performance increased, even if the company
is doing better, when I was buying Texas Roadhouse, the
price went down while the intrinsic value and operating
performance was increasing. Most comments.
I got at the time being in the red with the price down was at
the company's doing poorly. And why would I invest in this?
Obviously poorly ran company. The same thing with Vici the
price went Down and the sentiment followed many negative
comments about that company. The same thing follows with
every single company, right now, the price has gone down with
Amazon and Google and many people are speaking negatively
about the company's sentiment follows price.
That's almost like a law of physics with investors
inevitably. Every one of them will have that
challenge. Warren Buffett has broken that
law. He does not allow the price to
dictate his sentiment on a stock.
He only follows the actual operating performance.
So between this step step 3 and the The other two I think we've
lost 95% of investors. I think right off the bat there
we've lost the huge majority. Most of them aren't going to buy
companies with great economics because they're not studying
enough to find companies that really have these modes.
Great economics, number two, they're not buying companies
that really have durable competitive advantages.
And the number three, the mental game perfecting that as well, I
think is a huge Challenge. And I think once you get past
this step, you've lost 95% of investors number four and five
are pretty simple. These are companies That have
dividend growth that grow the dividend over time and their
companies that produced this year, count over time.
These are the two forms of Return of capital Buffett
routinely emphasizes this. He likes companies that spit
cashback Adam and he likes companies that buy back their
own shares in increases interest.
He loves both of them, he gave equal time to each of them.
He emphasizes this over and over again.
But many people say, it doesn't really matter.
They're irrelevant and you know, how they return, Capital doesn't
really matter. Buffett obviously doesn't think
so. So and the number six, last but
not least, avoiding companies that have deceiving accounting
practices. This has been a major, I'd say
focal point and our emphasis that I've that I've done over
the past six months, I've really tried to give investors a lot of
warning about this. I'm glad to see Warren Buffett
doing the same thing here, and I think it's important, I think a
lot of investors right now are being suckered into companies
that they didn't fully understand the financial
condition. The company was in and I don't
think that's their fault. I think that there's a lot of
slick accounting practices that are Deceptive.
So we have tools to see past this and I think we can follow
step 6 as well. These six steps I really do
believe will lead to outperformance.
I think of investors follow these six steps that will
outperform and many investors. Say it's impossible to
outperform the markets to efficient and it's better to
just buy index funds. I don't have anything against
index funds but Buffett has one more point that he highlights on
this topic. One of the things that Warren
Buffett directly addresses in this letter.
Is the efficient market hypothesis.
One of the advantages of our publicly traded segment.
Is that episodically, it becomes easy to buy pieces of wonderful
businesses at wonderful prices. It's crucial to understand that
stocks often trade at truly foolish prices, both high and
low efficient market exists. Only in textbooks, efficient
market only exist in textbooks in truth markable stocks and
bonds are baffling their behavior usually Understandable.
Only in retrospect, controlled businesses are a different
breed. They sometimes command.
Ridiculously higher prices than Justified but are almost never
available at bargain valuations. Unless under duress, the owner
of a controlled business gives. No thought to selling at Panic
type valuations. So right Harry highlights a
couple things. He says that basically the
people promoting efficient market hypothesis are fools that
are existing in textbooks and not the real world and he also
highlights that you have a bigger advantage.
Age in the publicly traded market, then you do the private
Market because in private Market, if things go down in
price, they simply don't sell the business.
A good example of this is stripe.
Stripe was going to sell the business in the public market at
a high price prices went down and then they decided just to
not IPO so Buffett's highlighting that as an investor
in the public market. We actually have a greater
Advantage than people working in the private markets.
So I do think that investors can outperform the market I think
they can Eats pie but I think it will take something that most
investors are unwilling to do. They actually have to follow
Warren Buffett's advice. They can't just follow a couple
cliche statements like Buy Low, sell High.
Buy the dip be greedy when others are fearful.
They actually have to look at what he's done in detail and
follow the things that he says. 90% of investors are not going
to do that, they're not going to put in the time or energy so
they're not going to beat the market but I think investors at
do really well, that's all for this episode and I hope you
enjoyed and if you haven't already, try out the patreon,
there's 100 exclusive episodes. We even have more coming in the
future. You get access to Quality.
Mm, I think you'll really enjoy it.
We have some big updates coming on that and of course you get
access to the Discord Community, where we have thousands of
members. So hopefully, I'll see you
there. Other than that.
See you in the next one. and I hope you enjoyed and if you
haven't already, try out the patreon, there's 100 exclusive
episodes. We even have more coming in the
future. You get access to Quality.
Mm, I think you'll really enjoy it.
We have some big updates coming on that and of course you get
access to the Discord Community, where we have thousands of
members. So hopefully, I'll see you
there. Other than that.
See you in the next one.