Portrait of Warren Buffett, January 1980.
Lee Balterman | The LIFE Images Collection | Getty Images
The U.S. stock market has seen remarkable change over the past 34 years involving the meteoric growth of low-cost passive investing, algorithmic trading and the real time digitization of financial holdings.
However, Wall Street’s most revered investor, decades later, is still touting the identical advice.
In one of Warren Buffett’s first televised profiles, the “Oracle of Omaha” clarified a very simple way of investing that prioritizes an insatiable search for deals, patience, and the occasional baseball event. A video of this interview circulated Twitter on Monday after being shared with consumer Lyall Taylor.
“In the securities business, you literally every day have thousands of the major American corporations offered to you at a price and at a price that changes daily. And you don’t have to make any decisions. Nothing is forced upon you. There are no called strikes in the business,” Buffett said.
“They may be wonderful pitches to swing at, but if you don’t know enough, you don’t have to swing. And you can sit there and watch thousands of pitches and finally you get one right there where you want it … and then you swing,” he continued.
If Buffett’s information from PBS’s “Adam Smith’s Money World” over 30 years ago rings a bell, it is likely because he has barely changed his tune over his several rewarding years on Wall Street.
Berkshire Hathaway has posted average annual yields of 17.1% because 1985, well before the wider stock market’s 10.5% including dividends. If you had invested $10,000 at Berkshire Hathaway in the beginning of 1985 you would now have $2.4 million; the exact same principal in the S&P 500 could now be worth roughly $227,000.
‘No called strikes’
In one part of this 1985 interview, Buffett explains that the secret to great value investing is all about exploiting one’s “area of competence” in determining the actual value of a company. Then, taking advantage of someone’s experience in a group of stocks, an investor can occasionally find upside opportunities once the market prices the securities below their real worth.
Fourteen years after, in Berkshire Hathaway’s 1999 stakeholder meeting, Buffett would inform investors who “different people understand different businesses. And the important thing is to know which ones you do understand and when you’re operating within what I call your ‘circle of competence.'”
“There are all kinds of things I’m not competent to value … There are few I am competent to value,” Buffett stated in 1985. “There are all kinds of things I don’t know about, and that may be too bad, but why should I know all about them?”
Buffett, the chairman and CEO of Berkshire Hathaway, has served as a model for a generation of investors using a frugal, bargain-based purchasing strategy stemming from his schooling under “Father of Value Investing” and Columbia professor Benjamin Graham.
CNBC has years of Berkshire Hathaway meeting transcripts and interviews with Buffett himself in its Buffett Archive.
Along with inspiring legions of value investors throughout the world, Buffett’s investment philosophy also contributed to his immense personal wealth of over $80 billion, according toForbes. Although the amount makes him the world’s third wealthiest person supporting Amazon CEO Jeff Bezos and Microsoft founder Bill Gates, Buffett has vowed to contribute more than 99percent of his worth to charitable causes.
‘You do not need tons of IQ in this business’
While Buffett has credited his focus on his own “circle of competence” because of his achievement, he also tends to invest in businesses with nominal debt, dependable cash flows and noises management teams. He also told “Money World” sponsor George Goodman in 1985 a fantastic investment manager is not a necessarily a genius, but a person with a calm disposition.
“You don’t need tons of IQ in this business. I mean, you have to have enough IQ to get from here to downtown Omaha, but you do not have to be able to play three-dimensional chess,” Buffett quipped.
“You need a stable personality,” he continued. “You need a temperament that neither derives great pleasure from being with the crowd or against the crowd because this is not a business where you take polls. It’s a business where you think.”
Another investment renter the 89-year old has touted throughout his career is remembering to consider each holding as evidence of ownership.
“Most of the professional investors focus on what the stock is likely to do in the next year or two. And they’ve all kind of arcane methods of approaching that, but they do not really think of themselves as owning a piece of a business,” Buffett told Goodman.
“The real test of whether you’re investing from a value standpoint or not is whether you care whether the stock market is open tomorrow,” he explained. “If you’re making a good investment in a security, it shouldn’t bother you if they closed the stock market for five years.”