"Biggest mistakes were mistakes of omission, not of commission"
Warren Buffett talks about a few ideas in this clip; timing of investments, investment mistakes and effects of macroeconomic factors. These are his comments in brief.
"You can always find a few reasons why a particular time is not ideal to buy a stock. If you are right about a business, you will make a lot of money; and the timing part of it is a very tricky thing, so I don't worry about any given event if I've got a wonderful business, what it does next year or something of the sort."
"The wonderful business you can figure out what will happen, you can't figure out when it will happen. You don't want to focus too much on when, you want to focus on what. If you're right about what, you don't have to focus on when too much."
A student then asked about his investment mistakes. He replied by stating his biggest mistakes were of omission, not of commission. He refers to mistakes of omissions as huge mistakes that G.A.A.P. does not detect. Also, buying into something where you like the terms and not the business. These usually turn out to be huge mistakes as well. Buffett tells the students that it is better to learn from other people's mistakes and also to stay within the circle of competence; stick to businesses they understand, where they will be knowledgeable about why they made the decision to purchase the stock in the first place.
The next question was on the effects of macroeconomic factors on his investment decisions. This was his response.
"When it comes to investments, you have to figure out what is important and knowable. The macroeconomic factors are important, but they are not knowable."
He says that passing up great investment opportunities based on interest rates or other macroeconomic factors is unwise. It does not make any difference if you have found a great business.
Warren Buffett has always maintained consistency in his investment principles. The same themes of circle of competence, underlying business economics and great businesses are always mentioned. What I would focus on here is the timing. I look to his philosophy for motivation through this tough economic period. I know that there is so much fear in the market right now, and stocks are being oversold. Great businesses are being sold for prices that were not seen in decades. Based on all that he teaches and his recent article in The New York Times, this is the time to be in equity and over time, a lot of money will be made. Consider two of his quotes:
"Be greedy when the market is fearful, and fearful when the market is greedy"
"In the short-term, the market is a voting machine, but in the long-term it is a weighing machine."
This is a clear indication of today being a buying opportunity of a lifetime. Dive in.
What life lesson can we learn from this part of the lecture? I think what is important is to stick to what you want to do and what you know given the conditions of the world. The most important thing you can do for the world is to improve yourself, therefore, if you focus on what is out there (macroeconomic trends), and not focus on what's inside of you, then you will get lost in the irrelevant. For example, I know many people today are concerned about the state of the economy and are scared of a recession. Does this really matter in the grand scheme of things? Pay attention to yourself and what you know and believe that you are an asset. The end of the world is not hear, things will revert to normal soon enough, therefore do not allow this tough period to control your life. There will always be ups and downs in the business cycle. What is most important is how one deals with these situations. James Allen said,
"Circumstances don't make a man, they reveal him."
Be strong and trust in yourself. Nothing else can have an impact on your underlying fundamentals.
Warren Buffett MBA Talk | Part 1: Integrity
Warren Buffett MBA Talk | Part 2: Smart Choices
Warren Buffett MBA Talk | Part 3: Choosing Businesses
Warren Buffett MBA Talk | Part 4: Share of Mind
Warren Buffett MBA Talk | Part 5: Circle of Competence
Warren Buffett MBA Talk | Part 6: Macroeconomic Factors
Warren Buffett MBA Talk | Part 7: Inactivity & Dividends
Warren Buffett MBA Talk | Part 8: Diversification
Warren Buffett MBA Talk | Part 9: Market Cap
Warren Buffett MBA Talk | Part 10: Ovarian Lottery