The Overlooked Oracle: Warren Buffett's 1990 Lecture at Stanford Law School

"Activity is the mother’s milk of Wall Street," said Buffett. "People have this whole different attitude just because there’s a little number up there flashing around all the time."

As Warren Buffett’s extraordinary tenure atop Berkshire Hathaway now enters its final month, the financial world is (quite rightly) revisiting some of his greatest hits.

Amid the familiar parade of quotable quips and endlessly-analyzed shareholder letters, allow me to shine the spotlight on a rarer, largely-overlooked gem.

On March 23, 1990, Buffett delivered a guest lecture to Stanford Law School’s “What Every Lawyer Should Know About Business” class. If that sounds exactly like the kind of thing Charlie Munger would dream up, that’s because it was. Charlie felt so strongly about bringing this multidisciplinary course to life that he funded it, helped select the professor, and even recruited his friends and associates as lecturers.

(We owe an enormous debt to Outstanding Investor Digest, which preserved substantial excerpts from Buffett’s speech that day. Yet another feather in the erstwhile publication’s cap. If not for OID, I fear this one might well have been lost to time.)

As Charlie recently reminded us, Berkshire’s catechism never changes much — so the core lessons won’t come as much of a surprise to longtime students and observers. But Buffett’s comments nevertheless feel as fresh and forceful today as they did more than three decades ago. Quiet proof of his timeless wisdom.

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If Warren Buffett’s lecture to Stanford Law students could be boiled down to one central, non-negotiable point, it was that each and every one of them must ruthlessly define their own circle of competence. Honestly assess its size and boundaries — with no room for self-delusion or wishful thinking — and then never stray a foot outside it.

✨ “If we don’t know enough to make the decisions ourselves, we don’t want to be involved at all. Period. We’re perfectly willing to pass on 90% of the things in the world that we can’t evaluate. But so what? I can’t play pro football, either. There are a lot of things I can’t do.”

Staying inside your circle of competence is not an act of timidity or cowardice, but rather the ultimate expression of intellectual honesty and humility.

Buffett held up the indomitable Rose Blumkin, founder of Nebraska Furniture Mart, as the perfect example. “If you want to sell her 2,300 end tables,” he said, “she will know in a minute what she can pay, how fast she can move them, the whole thing — and she will buy them from you. She’ll wait until just before your plane is going to leave in some blizzard when you have to get the hell out of Omaha and can’t afford to miss your flight [in order to drive the hardest bargain].”

“She will know exactly what she can do with [the end tables] and exactly what price she needs to pay — and she won’t be wrong.”

But bring her something even one inch outside her circle and she won’t even give it a second glance. No temptation and no ego-driven detour into parts unknown. “That is a smart woman,” said Buffett. “And that is why she has killed everybody else.”

✨ “Our circle of competence has not widened enormously as the years have gone by. So we wait. If we wait one year, if we wait five years, that’s not a problem. If I studied IBM or General Motors intensely for a year, I’d know more about them in a superficial sense — but I still wouldn’t know enough to make an intelligent decision.”

Buffett’s circle of competence eventually did widen enough to include IBM, but his reticence throughout the 1990s stemmed from his understandable inability to predict how individual technology companies might fare in such a fast-moving industry.

“I don’t have the faintest idea who makes the best personal computer,” he said. “But even if I did, I wouldn’t know who would [be the best] three years from now. But I do know what the #1 chocolate bar will be three years from now — and so do you.”

“You may also know what the #1 personal computer will be three years from now, but I won’t have the same degree of confidence in that decision no matter how much you try and tell me about it.”

✨ “People make [investing] a lot more complicated [than it needs to be]. You do not need to know any advanced mathematics — or even intermediate mathematics — to be a good investor. You do not have to have very good insights about technology. In the end, you have to be able to understand something about as complicated as why people drink Coca-Cola and whether they’re likely to keep doing it … It’s not very complicated. You don’t need to go to business school to be a good investor. You probably don’t even need to go to college…”

✨ “We can buy the best businesses in the world — we just can’t buy all of them. That doesn’t make any difference to me. I would rather have the other fellow do the work. I mean, any guy who will have a 95-year-old woman work for him seven days a week has no shame at all.”

✨ “Borsheim’s doesn’t take any time. I spend some time on it because I enjoy it. But it needs me the same way the Nebraska football team needs me on Saturday afternoon.”

• This quip made more sense in the Tom Osborne era of Cornhusker dominance. After Nebraska’s past two games — in which they were outscored 77-26 — maybe Buffett should dust off the shoulder pads and suit up next fall. 😜

✨ “Every day, you can buy AT&T, General Motors, or U.S. Steel [stock] — or you can sell them short. Most people feel that because all those opportunities to make those decisions are there, they should make the decision. That we don’t do.”

✨ “We wait for something that seems obvious. But the whole mechanism of Wall Street is saying, ‘Do something! Do something!’ Activity is the mother’s milk of Wall Street. People have this whole different attitude just because there’s a little number up there flashing around all the time. It makes them think they have to do something. People would be way better off if they closed the stock exchange down periodically.”

• The stock market exists to serve you, not instruct you. But, in spite of that simple truth, Wall Street’s entire architecture — the unending flood of quotes and the dopamine drip of instant trades — conspires to eat away at anyone’s discipline. Activity is mistaken for productivity. This, suggests Buffett is the original sin of modern markets: liquidity creates constant pressure to act, when the surest path to wealth usually requires radical inaction. Investors will do far better when they

  think like business owners rather than just renters of a ticker symbol.

✨ “When you’re buying things that are cheap, the fact that they get cheaper — I don’t care how fast they do it or anything else — that makes them less risky. There’s less risk buying the Washington Post at $80 million than $120 million — and less risk still at $40 million.”

✨ “Susie and I each have one share of a stock I bought in 1955. It looked very safe at the time. It was a marvelous stock. There’s just one problem. Its property is located in Havana and Castro seized it. We can’t get title to it. It just sits there. We’ve got huge claims with the government. And it’s never going to be worth anything. I keep it around to remind me of what can happen. The rules in other countries can just change overnight.”

✨ “I have people ask me all the time whether or not they should take a flyer on this situation or that one. The answer is you don’t do that. Only do things that you want to put a lot of money in. If you don’t want to put a lot of money in it, it isn’t a good idea. Then you don’t want it — period. I don’t want to buy anything where I wouldn’t want to put 10% of my net worth into it. If I don’t want to put that into it, then it just isn’t much of an idea.”

• Buffett then took the point even further. “When I really want to buy something,” he added, “my normal feeling is that I’d like to have my entire net worth in it. When that happens, you make a lot of money. Those ideas have crossed a lot of different filters.”

✨ “We handle negotiations way different than anybody [else]. When we bought See’s Candies, I spent an hour there. Every business, we’ve bought on one call. On the Borsheim’s deal, I dropped over to Ike Friedman’s house for half an hour. He showed me some figures that weren’t audited, penciled on a piece of paper. If I need a team of lawyers and accountants, it isn’t going to be a good deal. We’ve never had an extended negotiation with anybody about anything. That’s just not our style. If it’s going to be that way, I don’t want to deal with them — because it’s going to ruin my life sooner or later. So we just walk away.”

✨ “We only go where we’re wanted. I have, a number of times, told companies when we’re buying their stock that I want to buy as much as they’re comfortable with. In the case of The Washington Post, for example, Kay Graham got uncomfortable when we got up to 9%. I said, ‘Okay, we’ll never buy another share.’ It’s that simple. I want management to be comfortable because if they’re uncomfortable, they may do a lot of dumb things — like issue shares too cheap. I want them to do smart things.”

✨ “You can’t be that sure that if you can buy something worth $1 for 50 cents, that you should sell it at 51 cents and buy something else for 50 cents. It isn’t that fine-tuned a game unless you’re comparing different government bonds or something of the sort. There are wide price areas you get into where you are still comfortable because you know you own something for less than it’s worth and you think that the value is going up. But it doesn’t have the compelling discount that would cause you to reach in your pocket and put fresh money into it.”

• Buffett warned against selling a wonderful business that you deeply understand simply because its price ticked up — just to chase another company that looks fractionally cheaper. Investing is not an endless series of binary buy-or-sell decisions triggered by every wiggle on the chart. Often, the most profitable move is to sit on our hands and let a great business do all of the hard work for us.

✨ “The strange thing — it’s a real contradiction — is that if a business is earning a given amount of money and everything else is equal, the less it has in assets, the more it’s worth. You won’t get that in any accounting book. The really desirable business is the one that doesn’t take any money to operate because it’s already proven that money will not enable anyone to get a position within the business. Those are the great businesses.”

✨ “When you’re in an easy business, you’re going to look like a genius. If you’re in a tough business, you’re going to look like a dolt.”

✨ “It’s like a corner with four gas stations in the old days. If one guy drops his price, the others have to drop theirs five minutes later. [In a commodity business], it’s very hard to be smarter than your dumbest competitor.”