Warren Buffett Q&A Transcript || 1994 at UNC
"If you have ten good ideas in the rest of your life, you can afford to give away five of ‘em."
In 1994, Warren Buffett spoke to students at the University of North Carolina’s Kenan-Flagler Business School for close to an hour. PBS recorded this discussion and, a year later, released it on VHS as Warren Buffett Talks Business. Over the past few weeks, I transcribed (and lightly annotated) Buffett’s remarks for posterity and future study.
A few notes:
My main focus is accuracy and readability.
I summarized some of the questions to save space. All of Warren’s answers are transcribed verbatim.
I added footnotes with additional information at relevant points. Hopefully, these will prove useful to readers.
The Warren Buffett Talks Business VHS presents a somewhat condensed version of his remarks to UNC students. Sadly, I only have access to the VHS recording and that is what has been transcribed below. If anyone knows where to find a longer video of this event, please let me know.
The full transcript is available to all paid supporters. Free subscribers have access to the first 2,500-ish words. (That’s longer than the typical Kingswell article.)
I’ve tried to do my best to ensure that no one feels short-changed.
So, without further ado, here is the complete transcript of Warren Buffett Talks Business — featuring the Oracle of Omaha’s timeless wisdom for college students and investors of all ages…
Kingswell is a reader-supported newsletter. To better support my work, please consider upgrading to a paid subscription. 🙏❤️
Host (Dr. David Hartzell): You’re about to meet one of the most successful investors in the world, Warren Buffett. He gained that distinction by shrewdly investing his own — and other people’s — money.
Starting in the 1950s and 1960s, he ran an investment partnership that earned a remarkable annual average return of nearly 30% per year for thirteen years.
In 1965, he paid $12 a share for a company named Berkshire Hathaway. In 1995, Berkshire Hathaway, which is now an investment holding company, is trading on the New York Stock Exchange for over $25,000 per share.
Based in Omaha, Nebraska, Berkshire Hathaway owns shares in such large companies as Coca-Cola, Gillette, and Capital Cities/ABC — as well as 100% of such smaller companies as See’s Candies, H.H. Brown Shoes, and the Nebraska Furniture Mart.
In 1994, Forbes Magazine listed Warren Buffett as the second-richest man in America — but he’s famous for far more than just his wealth. His common sense approach to business decision-making is widely admired both for its wit and its wisdom.
In what follows, you’ll hear about how he chooses companies to buy, about his views on predicting the stock market, and about some of his favorite people — including Rose Blumkin, the 101-year-old founder of the Nebraska Furniture Mart. The format is the one he enjoys the most: a dialogue with a group of students who are invited to throw at him any questions that they’d like.
He begins with a story about near disaster in the financial world. It happened when the top management at the huge Wall Street securities firm, Salomon Brothers, in which Berkshire Hathaway held a stake1, was forced to resign after a treasury bond trading scandal2. Mr. Buffett stepped in as chairman and his first challenge was to find the right man to run the highly-leveraged company — and fast!
Warren Buffett: I really had a lesson on employment a few years ago. When, on August 14 of 1991, I got a phone call at a quarter of seven in the morning. It was the top management of Salomon and they told me, essentially, that the head of the Fed of New York — who was the most powerful man in finance, basically — [had] told them that the top management [of Salomon] was unacceptable and, that therefore, they were going to offer their resignations and there was no one there to run the place.
That was a matter of some concern because, at the time, Salomon had balance sheet totals of $150 billion, of which about $4 billion was equity and the other $146 billion was owed to someone else. That was the largest amount owed by any American corporation — except for Citicorp — at that time. It was larger than the liabilities of the Prudential Insurance Company, larger than the liabilities of Bank of America, Merrill Lynch, American Express, whatever.
There was one problem about this $146 billion — a very high percentage of it came due within a few weeks.
And, so, that was the situation. I went back to New York that Friday and I met that evening — and this is where it may start getting relevant to this group…
One of the problems I was going to have the following week was that I needed someone to run the place. There were 8,000 people [working at Salomon] and this $150 billion balance sheet of assets and liabilities — and a complex business. Essentially, somebody had to be making decisions minute by minute about the operations because I was going to have to be dealing with regulators and legislators and people of that sort.
I met twelve people — roughly twelve — that evening. A dozen or so. I probably knew four or five of them by sight and there were probably six or seven that I didn’t know, though I probably knew their names. As I interviewed these people, making what to me was the most important hire — by far — that I would ever have to make…
It may be of interest to you, [though] it may not be quite as dramatic when you get hired, but maybe some of the same things will be going through the mind of the person that’s looking at you [during your job interview process]. The good news is that I did not ask them their grades in business school. (Laughs) And the bad news, of course, is that I didn’t ask them if they had been to business school at all.3
I never looked at a resume. It wouldn’t have made any difference. I knew that all twelve had the IQ to handle the job. No one had gotten to that position in the firm without being smart enough to know all the instruments and know how markets work and all of that sort of thing. It wasn’t a question of IQ at all.
It’s just sort of hearing how their [mental] machinery works4. You can tell the people who are very full of themselves. It’s very easy to do. You find a few of those in investment banking, believe it or not. (Laughs) You can probably detect, perhaps, the ones who won’t have the courage in a situation like that.
I wanted the qualities, the same thing Ben Franklin wrote about a couple of hundred years ago, the people who are always willing to give the other person more credit than themselves and who don’t cut corners and who deliver all they promise — and a little extra. Essentially, I was very lucky because I found that individual: a fellow named Deryck Maughan5.
The next day, the board met and we had a lot of complications6 that day. We had a group of about 200 reporters — probably about this size — in an auditorium who had come in on Sunday to cover this story. They assembled at about 2:30 p.m. and I walked out of the directors meeting at about a quarter to three — it was late because of other problems7 — and there these twelve were and I just walked up to Deryck and I tapped him on the chest and I said, “You’re it, pal.”8
We went right down to the auditorium and 200 or so reporters fired questions at him for three hours while he sat up at the podium with about two minutes’ notice9 that he was going to be running the firm.
A month later, Deryck Maughan never had asked me what he was getting paid. The question of his salary had never come up. Forget about stock options or anything like that. It never came up. He just walked right up, never said a word about it, and took on the job. He worked eighteen hour days for months and months and months10. He showed uncanny judgment about what to bring up to me and what not to bring up to me. All sorts of things like that.
I often use this illustration [when speaking to] a class. I say to them, “If you looked under your seat today and one of you had this lucky ticket and the one who got that ticket got to pick one of their classmates — you’ve been together for a couple of years and you could pick any one you want — if you had an hour to make the decision and you would get 10% of the earnings of that individual for the rest of their life, [who would you pick]?”
You don’t pick the guy with the richest father. We’ll assume that everybody’s starting from scratch.
But what would you think about, in that hour, in terms of who you’d pick? Would you think about who had the highest grades in the class? Probably not. Would you think about who had the highest IQ? Probably not. The best looking? Probably not.
A whole bunch of things would go through your mind — and I think you’d be amazed at how most of you would settle on a relatively few individuals.
But the interesting thing is that, when you think about what is going through your mind, you’re not thinking about things that are impossible for you to achieve yourself. You’re not thinking about who can jump seven feet, who can throw a football 65 yards, who can recite pi to 300 digits, or whatever it may be. You’re thinking about a whole bunch of qualities of character — and the truth is that every one of those qualities is obtainable. They are largely a matter of habit.
Ben Franklin — and, actually, my old boss Ben Graham… Ben Graham, when he was twelve years old, wrote down all the qualities that he admired in other people — and he wrote down the qualities that he found objectionable. He looked at that list and there wasn’t anything there about being able to run the 100-yard dash in 9.6 [seconds] or high jumping seven feet.
They were all things that were simply a matter of deciding whether you were going to be that kind of person or not. When you’re young, you really have that opportunity. As you get older, it’s tougher. Somebody said that the chains of habit are too light to be felt until they’re too heavy to be broken11. And, in terms of behavior, I see that all the time. The time to form the right habits is very early. The right habits, the habits that you would admire in someone else and [that make you] want to buy 10% of whatever individual that is, they’re absolutely obtainable.
If you had to sell short one other member of your class and you had to pay 10% of their earnings, again, you wouldn’t pick the person with the lowest grades. You’d think about the person who always cut corners or claimed credit for things that they didn’t do and never showed up on time. All these little things that seem like nothing, but they determine whether if you have a 300 horsepower motor, whether you get 300 horsepower output out of it or whether you get a whole lot less.
The people I see that function well are not necessarily the people with the biggest motors, but they’re the people with the most efficient motors. And it’s those qualities of character that really make an enormous difference.
What I would suggest to you is to think about that person who you would buy 10% of and the one you’d short 10% of — and think about why you would do it. Then ask yourself, “What on this lefthand side of the list can’t I achieve myself?” and “What on the righthand side of the list can't I get rid of by myself if I possess it?” In the end, decide you’re going to be the [kind of] person that you’d buy the 10% of.
That’s enough of the sermon — I’d like to answer questions now. And, really, the nastier they are, the better I like it. It’s much more fun and makes it more interesting.
UNC Student: It sounds like your and Charlie Munger’s analysis of companies is very back of the envelope. Can you just tell us about the financial analysis that you do on companies — whether it be like Rose Blumkin’s [Nebraska] Furniture Mart or Coca-Cola?