Warren Buffett: How Smart Investors Easily Identify Terrible Stocks

In the end the better mouse trap usually wins but but the people with the second or third best mous trap will will try to keep that from happening. I the ones you name I don't know anything about I mean I know what they do but I don't I don't know they specific prospects which is why we kind of stay away from that sort of thing because we don't we know there'll be change and we don't know who the winners will be and and we try to stick with businesses where we know the winners. We know we know that our energy companies that railroad a lot of our businesses are very very very likely to be winners and that doesn't mean they don't have some change involved with them but they're going to be winners and and then there's other fields where we can't pick the winners and so we just sit and watch. We find them interesting but we don't get tempted, Charlie.

Charlie, well I think the new technology is going to be quite disruptive to a lot of people and I think retailing in particular is facing some very significant threats. And you heard Greg EO talk about a power plant in Iowa that was huge to serve one Google's server farm. When you get computer capacity all over the world on this scale it is changing the world. I mean you're talking about fast too, yeah and fast so and I think it's going to hurt a lot of people just as all the past technology Investments hurt a lot of people.

I think birkshire B and large is in pretty good shape. Where do you think we're most vulnerable? Well, I don't think I want to name them, okay now you've got them all wondering. Charlie, I probably shouldn't tell you this one, Charlie, having a little trouble there on those last two words, um I got a little worried about Charlie. Don't know whether I should talk about this but, uh, I thought maybe he was losing his hearing and I didn't want to confront him with it.

I mean we've in Palace for a long time so I went to the doctor and I said, "Do I've got this wonderful partner but I think maybe his hearing is going on him and I don't want to talk to him about it?" I mean how do you say that to somebody have known that long and what should I do? He says, "Well, he stand across the room, talk to him in normal course of tone of voice and let me know what happens." So the next time I was with Charlie I stood across the room and I said, "Charlie I think we ought to buy General Motors at 35 do you agree?" Not a flicker. I go halfway across the room so, "Charlie I think we ought to buy General Motors at 35 do you agree?" Nothing. I get right next to him in his ear, "Charlie I think we ought to buy General Motors at 35 do you agree?" He said for the third time [Applause]. Yes, so speak up, speak up.

Uh, do you ever have any plans or would you be interested in buying a professional sport team or sports equipment manufacturing company being that where Sports is in a global world today or is this out of the birkshire game? Warren's already done it. I I owned a quarter of a major minor league team but it's not responsible for my position on the fors 400. The, uh, the answer to your question about buying a sports team is no, uh, uh in fact if if Charlie and I if you read that either one of us is buying a sports team it may be time to talk about successors. The, the, uh, um we are we we do we sports equipment has generally not been a very good business.

All you know obviously Nike's done incredibly well in its overall operation but but we own sport Bing, uh, we own Russell and you know Spalding has been around a long long time. AG Spalding I forget when the hell he was I think he was trying to take baseball to the rest of the world back in the I don't know 1880s or something like that but it's generally speaking if you look at the people that have made golf equipment, golf equipment, footballs, helmets, particularly, uh, baseball gloves, baseballs it's not been a particularly, uh, profitable business and certain aspects of it like helmets you know the last thing burshire should do is own a helmet company that, uh, a helmet company should be owned by some guy that owes about a million dollars and doesn't have a dime to his name because, uh, you know he is not going to be a Target, uh, and we would be the ultimate Target. That's the reason we used to in but we'd had no interest in and we got offered the chance to buy the whole place and the idea of owning a business that provided guards at airports, you know, when anything that went along you know you're going to say that it was the guards fault and here's this super rich Corporation around there that is a perfect Target. I mean, a guard company at airports again should be owned by somebody whose net worth, uh, does not not get out the two figures, uh, so, so that that you won't see much of us in the sports arena.

Um, Charlie, are you looking at the Clippers or now I'm worried that he is no whatever we in thinks about sports teams ownership—I like it less. What do you make of the larger trend of activism in Corporate America given given that it's in the news so much today? Well, I don't think it'll go away and I think it scares the hell out of a lot of managers. There are cases, uh, I'm certainly cases where corporate management should be changed. I mean that you can't have thousands of Corporations without that being the case, uh, I think generally speaking that the, the, uh, you know the activist if they get the price of the stock up one way or another, you know, that that's going to end their interest in the business.

So I don't think they're looking for often they're not looking for permanent changes for the better in the business but they're looking for a specific event that will result in a big price change and, uh, they're certainly attracting more and more money. In other words the funds flowing to activist hedge funds and so on is Multiplied, I'm sure by a significant factor and that means they can play the game on a bigger scale and anything in Wall Street that looks like it's successful will generate a funds flow, uh, that will you know go on until it's no longer successful. Charley, well you're right that the activism is causing more of a stir in corporate management than anything Happ has in years. Practically nobody feels immune, uh, when an activist comes into a company; 20 or 30% of the stock can change hands rather rapidly and a management that seemed entrenched is suddenly is threatened and of course that sort of thing causes a lot of Anguish.

And on the other side the activist by and large for making a fair amount of money and of course in the culture we live in most people don't care how the money is earned they just care whether they get it or not and so that that just grows like some the beant stock of Jack and so I I think we have a very significant effect and some of the stuff you'll find an activist who is not what youd want to marry into the family going after a company you would never never buy into and when that happens it reminds me of Oscar Wild's definition of fox hunting said the pursuit of the uneatable by the Unspeakable and I think we're seeing some of that. It's, uh, it's I don't think it's good for America.

What's happening? Where do you think avered out? Where do you think it'll be three years from now? Bigger. Wow. Well, what—what's stopping it now? If it's bigger 3 years now from now it'll be a lot bigger. I mean just the compounding of numbers it's really serious.