27: Buffett's Contradiction
Buffett Vs. Buffett; Introducing a new format
One thing I’ve struggled with since writing my book on Berkshire Hathaway, starting a YouTube Channel, and founding Watchlist Investing is how to tie it all together. I think Substack is the answer.
My plan is to increase these emails from once every Friday to perhaps 2-3x/week. The goal will continue to be exploring timeless investing concepts in the search for great businesses.
Thanks for being on this journey with me! -Adam
Buffett’s Contradiction:
Warren Buffett doesn’t often contradict himself. Two videos (below) highlight a seeming contradiction between not waiting to buy a great business and having patience.
In 1996, Buffett counseled BRK shareholders not to wait to buy a good business. He did say that if it was outrageously priced you shouldn’t buy it, but essentially advocated for paying up a bit. Finding wonderful businesses like See’s Candy or Coke is hard enough, he said. Why risk losing the opportunity by trying to time the market?
Yet, in 1995, Buffett expressed confidence in future market crashes and advised patience.
How do we reconcile these two ideas?
They’re not necessarily a contradiction. I think the secret is knowing what sort of pitch you’re looking at. Berkshire could pay 3x book value for See’s because it earned returns on capital well into the double digits and had pricing power. It was a simple business with a durable competitive advantage squarely inside Buffett’s circle of competence.
On the other hand, a good business is only worth so much. A business you’d like to own trading at five times its intrinsic value (like some waste management companies are today) isn’t worth reaching for. You’re better off letting time temper whatever external force is causing the mispricing to dissipate.
Sometimes it’s risky losing the opportunity to buy into a clearly great business. Other times it’s risky discovering a good business, finding it overvalued, and giving into the temptation to buy it.
Looking at lots of businesses—good and bad—coupled with continual learning will give us the experience and confidence to know which situation we’re looking at.
Stay rational! —Adam
