are you seeing signs of inflation beginning to increase we're seeing very substantial inflation it's very interesting we're raising prices people raising prices to us it's being accepted I mean it's not you know take home building I mean you know the cost of we've got nine home builders in addition to our manufactured housing thing and then uh operation which is the largest in the country so we really do a lot of Housing and the costs are just up up up steel costs just every day they're going up and there hasn't yet been because the wage stuff
follows I mean if the UAW writes a three-year contract we got a three-year contract but if you're buying steel at General Motors or someplace you're paying more every day so it's an economy really it's red hot I mean and we weren't expecting it I mean all our companies when they they thought when we're allowed to go back to work you know at our various operations we closed the furniture stores I mentioned you know they were closed for 6 weeks or so on average and they didn't know what was going to happen when they when they
open them and you know they can't stop people from buying things and we can't deliver them and they say well that's okay because nobody else can deliver them either and we'll wait for 3 months or something of the sort that the backlog grows and then we thought it would end when the $600 payments ended it just kept going and it it keeps going and it keeps going and it keeps going and I get the figures every week I call for blump calls me and we go over day by day what happened in three different stores
in Chicago and Kansas City and Dallas and it just won't stop uh people have money in their pocket and and they pay the higher prices and on carpet prices go up in a month or two you know we announced a price increase for our costs are going up Supply chains all screwed up you know for all kinds of people but it's almost a buying frenzy except certain areas you can't buy yet you you know you really can't buy international air travel and there's so the money is being diverted from a little a piece of the
economy into the rest and everybody's got more cash in their pocket and except for meanwhile you know it's a terrible situation for a percentage of the people you know this suit I haven't worn a suit you know for a year practically and that means that the dry cleaner nurse just went out of business I mean that nobody's bringing in suits they get dry clean and nobody's nobody's bringing in white shirts uh the place where my wife goes the small business person if you didn't have take out and delivery services for restaurants you got killed on
the other hand if you've got takeout facilities you've done you know same source stes of Dairy Queen are up a whole lot they adapted and but it's it is not a price sensitive economy right now in the least and uh I don't know exactly how one shows up in different price indices but there's there's more inflation going on than quite a bit more inflation going on than people would have anticipated just six months ago or thereabouts yeah and there's one very intelligent man who thinks it's dangerous and that's just the start inflation is going to
affect you the U it's certain we will have inflation over time and we are following policies in this country now to stimulate things which stimulate business which are bound to have some inflationary consequences and to the extent that we borrow money from the of the world it would be very human on the part of of politicians in the future decide that they would rather pay the rest of the world back in dollars that are worth far less than the dollars they borrowed I mean it's the classic way of reducing the impact and cost of external
debt and we're building up a lot of external debt I always find it interesting when politicians now talk about using the taxpayers money to do this and the taxpayers money to do that and how the taxpayers are paying the bonuses at AIG we haven't raised taxes at all in this country you know I mean taxpayers are paying nothing beyond what they were paying a couple years ago a matter of fact the federal revenues this year which were close to 2.6 trillion a couple years ago you know maybe more like 2.3 trillion so we are taking
less money from the taxpayers the people are really paying for the things we're doing now will probably be the people who are buying dollar Investments much of it from the US government and who will find the purchasing power when they go to redeem those Investments to be far less so you can you might say that that the AIG bonus is probably the Chinese have are the people that are ultimately paying the most in terms of the loss of purchasing power they will have with their with their Holdings of government bonds US government bonds many years
down the road but it sounds better to say the taxpayer than to say the Chinese are paying Bo it's an interesting situation I read that comment every day about how the taxpayers are doing this and that you I haven't had my taxes raised you haven't had your taxes raised they're giving me 250 bucks back here pretty soon uh yet taxpayers haven't paid anything so far and my guess is that the ultimate price of much of this will be paid by a shrinkage in the value of the real value of fixed dollar Investments down the road
uh and that will be the easiest thing to do and if it's the easiest thing to do it's the most likely thing to have happen so you we will see plenty of inflation now the best protection against inflation is your own earning power if you're the best teacher if you're the best surgeon if you're the best lawyer you know whatever it may be you will command a given part of other people's production of goods and services no matter what the currency is whether it's seashells or right marks or or dollars so your ear own earning
power is the best by far if you're the best journalist whatever it may be you will get your share of the national economic Pi regardless of the value of whatever the currency may be is measured against some earlier standard the second best protection is a wonderful business you know if you if you own the Coca-Cola trademark company you will get a given portion of people's labor 20 years from now and 50 years from now for your product and it doesn't make any difference what's happened to the price level generally uh because people will give up
3 minutes of Labor five whatever it may be to enjoy you know a 12 ounces of a you know of a product they like so those are the great assets your own earning power first and then the earning power of a wonderful business that does not require heavy capital investment that requires heavy capital investment you get killed in inflation and uh with those guidelines I would tell you the best thing to do is invest in yourself yes the young man should become a brain surgeon and invest in Coca-Cola instead of Government Bond if you discount
it back and you're discounting at present interest rates stocks are very very cheap now the question is what interest rates do over time but there's a view of what interest rates will be based in the yield curve out to 30 years and you know so on it it's a fascinating time we've never really seen what shoveling money in on the basis that we're doing it on a a fiscal basis while following a monetary policy of something close to zero interest rates and it is enormously pleasant but in economics there's one thing always to remember you
can you can never do one thing you always have to say and then what and we are sending out huge sums I mean president said it on Wednesday 85% of the people we're going to get a $1,400 check you know uh 85% and a couple years ago we were saying 40% of the people couldn't never could come up with 4 $100 to cash so we've got 85% of the people getting those sums and so far we've had no unpleasant consequences from it I mean people feel better the people who get the money feel better and
people are lending money don't feel very good but it causes stocks to go up it causes business to flourish it causes an electorate to be happy and we'll see if it causes anything else and if it doesn't cause anything else you can count on it continuing in a very big way but you there there are consequences to everything in economics but that is that is why the Googles and the apples and we don't own gole we don't own Microsoft we don't but they are incredible companies in terms of what they earn on Capital they don't
require a lot of capital and they gush out more money and if you're trying to find bonds that gush out more more money from the federal government we got 100 billion that's gushing out like you know 30 or $40 million a year or whatever it may be depending on the short-term race it's so that puts the pressure on which is exactly of course what the monetary authorities want done I mean that's they're they're pushing the economy in a and they're doing in Europe you know even more extreme and they're pushing and we're aiding it with
fiscal policy and people feel good and people have become numbed to numbers you know trillions don't mean anything to anybody you know uh and $1,400 does mean something to him so we'll see where it all leads but it's Charlie and I consider it the most interesting movie by far we've ever seen in terms of economics don't really yes and the professional economists of course have been very surprised by what's happened it reminds me of what Churchill said about Clement adley he said he was a very modest man and had a great deal to be mo
modest about and that's exactly what's happened to the professional Economist they were so confident about everything and turns out the world is more complicated than than they thought Kan said it many years ago that it it's it's an invisible tax that only one man in a million really understands and it's a tax on people that have had faith in their currency uh that the government's issued that the best protection the best investment against inflation is to improve your own earning power yeah your own talents very few people maximize their talents and if you incre increase
your talents they can't tax it while you're doing it they they you know they can't take it away from you so if you become more useful in your activities your profession you know doctor lawyer whatever it may be that is the best protection against a currency that might decline at a rapid rate and and uh the best investment passive investment I think is a good business if you own an interest in a good business you're very likely to maintain purchasing power no matter what happens to the currency but uh it's interesting in the United States
the value of the dollar since I was born has declined by 94% to 6 cents so inflation is a very cruel tax on people who believe in fixed dollars but things can work out pretty well even during inflationary times I mean if somebody told me when I was born you know that the dollar bill is going to go to six cents I might have I might have said you know let me go let me go back I'm not I'm not interested in emerging into that kind of a world but actually it's worked out pretty well
so I have no complaints investing in yourself is the best thing you can do anything that improves your own talents nobody can take it away from you they can run up huge deficits and the dollar can become worth far less you can have all kinds of things happen but if you've got talents yourself and you've maximized your talent you've got a terrific asset and that doesn't mean everybody should go to college but it does mean that any way you find to improve communication skills are enormously important I mean I took the Dale Carnegie course that
I paid $100 for and it was worth a college degree I advise students as much as possible look for the job that you would take if you didn't need a job don't sleep walk through life and don't say it's all going to be great you know I'll do this and I'll do that and I'm just marking time to get to be older you really want to be doing what you love doing and you can't necessarily find it on your first job but don't give up before you find it you're going to make mistakes in life
I mean there's no question about it you don't want to make them on the big decisions you know who you marry and things like that so there's no way I'm going to make a lot of business and investment decisions without making some mistakes I may try to minimize them I don't dwell on them at all I don't look back the biggest mistakes are the ones that actually don't show up they're the mistakes of omission rather than commission we've never lost that much money on any one investment uh but it's the things that I knew enough
to do that I didn't do we have missed profits of as much as you know maybe 10 billion doll in things that I knew enough to do and I didn't do now the fact I didn't buy Microsoft way back is not a foregone opportunity because I didn't know enough to make that decision but there have been other Investments where I didn't know enough to make the decision and for one reason or another I either didn't do it at all or I did it on a small scale I was sucking my thumb when I should have
been writing checks you know basically and you know those don't show up there's no place where it shows missed opportunities but I've missed some big ones the triumphs in life are partly triumphs because you know that everything isn't going to be a Triumph and uh I would never get too hung up on mistakes I know a lot of people that really agonize over them and it just isn't worth it I mean tomorrow is another day and you live it forward and just go on to the next thing the nature of what I do means I
have to think pretty much independently because if I take a poll in effect I'm going to do what everybody else is doing and I don't think much of that usually in Investments and so I have to have an environment and I have to have a temperament personally that lets me think for myself and I've got a terrific partner fellow named Charlie moner you can't find anybody any smarter any better quality of anything but we think a lot alike and we do talk things over occasionally but we don't talk them over very often because I know
how he thinks he knows how I thinks he's taught me a lot you know and why should I pay for a phone call if I know what he's going to say so if I need to get a cabinet around to make decisions or anything like that I probably shouldn't be running the place and that doesn't bother me to have the responsibility for but I just don't want to put it up to a vote cuz I've seen too many particularly in the investment world as you get larger and larger groups making the decisions they get more
and more homogenized and I don't think you will ever get brilliant investment decisions out of a large committee I always look at IQ and talent of sort of representing the uh the horsepower of the motor but then in terms of the output the efficiency which which the motor works that depends on rationality because a lot of people start out with 400 horsepower motors and get 100 horsepower of output and it's way better to have a 200 horsepower motor and get a at all in output and and so why do smart people do things that interfere
with really getting the output they're entitled to and it gets into the habits and the character and the temperament and it really gets into behaving in a rational manner it's not getting in your own way as I say everybody here has the ability absolutely to do anything I do and much Beyond and some of you will and some of you won't the ones that won't it will be because uh you get in your own way it won't be because the world doesn't allow you to it will be because you don't allow yourself to you want
to associate with people who are the kind of person you'd like to be you'll move in that direction and the most important person by far in that respect as your spouse I can't overemphasize how important that is and you're right the friends you have they will form you as you go through life and make some good friends keep them for the rest of your life but have them be people that you admire as well as like them I have an old fashion belief that I can only should expect to make money in things that I
understand and when I say understand I don't mean understand you know what the product does or anything like that I mean understand what the economics of the business are likely to look like 10 years from now or 20 years from now I know in general what the economics will say wrigly chewing gum will look like 10 years from now the Internet isn't going to change the way people chew gum it isn't going to change which gum they chew you know if you own the chewing gum Market in a big way and you've got double Min
spearmint and Juicy Fruit those Brands will be there 10 years from now so I can't pinpoint exactly what the numbers are going to look like on rley but I'm not going to be way off if I try to look forward on something like that evaluating that company is within what I call my circle of competence I understand what they do I understand the economics of and I understand the competitive aspects of the business so figuring out the economic consequences TV I think there's I don't know 20 25 million cents a year sold in the United
States I don't think there's one of them made in the United States anymore I mean You' say TV set manufacturer what a wonderful business everybody now nobody had a TV in 1950 everybody has multiple sets now nobody is in the United States has made any real money making the sets that they're all out of business you know the Magna boxes the rcas all of those companies radio was the equivalent in the 20 over 500 companies making radios in the 1920s again I don't think there's a US radio manufacturer at the present time but Coca-Cola you
know what was it 1884 Jacob's Pharmacy or whatever the fellow comes up with something of copers over the years but now you've got a company that is selling roughly 1.1 billion 8 ounce servings of its product not all Coke Sprite and some others daily throughout the world 117 years later so understanding the economic characteristics of a business is different than predicting the fact that an industry is going to do wonderfully so when I look at the internet businesses or I look at Tech businesses I say this is a marvelous thing and I love to play
around on the computer and now I order my books from Amazon and all kinds of things but I don't know who's going to win and unless I know who's going to win I'm not interested in investing I'll just play around on the computer and uh defining your circle of competence is the most important aspect of investing it's not how large your circle is you don't have to be an expert on everything but knowing where the perimeter of that Circle of what you know and what you don't know is and staying inside of it is all
important Tom Watson senior who started IBM said in his book he said I'm no genius but I'm smart in spots and I stay around those spots and you know that is the key uh so if I understand a few things and I stick in that Arena I'll do okay and if I don't understand something but I get all excited about it because my neighbors are talking about stocks are going up and everything I start fooling around someplace else eventually I'll get cream and I should uh I met Bob Woodward and he'd just come out with
All the President's Men and all of a sudden as at below 30 years of age he was getting quite well we had the breakfast or lunch over at the Madison Hotel they said what do I do with this money and I said investing is just about assigning yourself the right story I said imagine Ben Bradley this morning said to you what is the Washington Post company wor what would you do if you have to write the story in a month you'd go out and interview TV Brokers and newspaper Brokers and owners and you try and
value each asset I said that's what I do I assign myself the right story and it's nothing more than that now there's some stories I can't write if you ask me to write a story on you know what is some glamorous but nonprofit making business worth I don't know how to write that story but if you ask me to write a story on what is pic electric power Worth or something like that I can write the story and that's what I'm doing every day it's been my painting for 50 some years I get to paint
what I want I don't have to follow what Wall Street is telling me to do next quarter or something so I own the brush I own the canvas and the canvas is unlimited now that's a pretty nice game and I get to do it every day with people I like I don't have to associate with anyone that causes my stomach to turn you know I've said many times that if you get to be 65 or 70 and later and the people that you want to have love you actually do love you you're a success I've
never seen anybody that reaches that age I mean I'm not talking about somebody that's in extreme poverty or pain or something but never seen anybody that if they have a lot of people that love them that is other than happy and I've seen some very very wealthy people that now at 86 I mean I've seen a lot of people that have gotten older and I've never seen anybody that is 70E pi and age who felt good about their children that felt bad about their life in all my experience I've seen plenty of people with lots
of money that where it hasn't worked out well in the family and they didn't feel good about their children and well or the children didn't feel good about them you I mean But whichever way I mean but there was they failed at the most important teaching job they had in personal relationship and sometimes it happens for extraneous reasons but I really have never met anybody regardless of their economic circumstances who felt their life was a failure and I knew one fellow was extraordinarily Rich he put a lot of money in his kids' name he didn't
want them to have any control over it once a year he would have dinner with them and try and get them to sign their income tax return in blank now just imagine that you know with this case four kids none of them he wanted to have enough confidence in them or to have it's just crazy I mean he would rule them during this dinner and they knew exactly what was going on once a year you know and then he'd bribe them sort of to sign their income tax return in blank so he could file and
they wouldn't know what they had I've seen just time after time when people have been success I've seen plenty of the other too but success is a business and failure and I don't think they feel that good about life the whole long-term Capital Management and I hope most of you are familiar with it but the whole story is really fascinating because if you take John Merryweather and Eric Rosenfeld Larry Helen brand Greg Hawkins Victor agani the two Nobel Prize winners meron scholes if you take the 16 of them they probably have as high an average
IQ as any 16 people working together in one business in the country including at Microsoft or wherever you want to name so there incredible amount of intellect in that room now you combine that with the fact that those 16 had had extensive experience in the field they were operating I mean this was not a bunch of guys who had made their money you know selling men's clothing and then all of a sudden went into the Securities business or anything they had had in aggregate the 16 had probably had 350 or 400 years of experience doing
exactly what they were doing and then you throw in the third factor that most of them had virtually all of their very substantial net worths in the business so they they had their own money up hundreds and hundreds of millions of dollars of their own money up super high intellect working in a field they knew and essentially they went broke and that to me is absolutely fascinating I mean if I ever write a book it's going to be called why smart people do dumb things my partner says it should be autobiographical but I but this
might be an interesting illustration and these are perfectly decent guys I respect them and they helped me out when I had problems with Solomon and they're not bad people at all but to make money they didn't have and didn't need they risked what they did have and did need and that's foolish that is just plain foolish doesn't make any what your IQ is if you risk something that is important to you for something that is unimportant to you it just does not make any sense I don't care whether the odds are 100 to one that
you succeed or a thousand to one that you succeed if you hand me a gun with a thousand Chambers a million Chambers in it and there's a bullet in one chamber and you said put it up your temple how much do you want to be paid to pull it once I'm not going to pull it you know you can name any Su you want but it doesn't do anything for me on the upside and I think the downside is fairly clear so I'm not interested in that kind of a game and yet people do it
financially then without thinking about it very much one thing I will tell you that I didn't realize when I was getting out of school is how much the unusual person will jump out at you and it isn't because they got 200 IQs or anything like that it's really because just how they behave you know what they bring the energy they bring the commitment they bring the quality of how they do things how they treat the people around them all kinds of things but you will jump out much more than you might anticipate one of the
things you would want to be sure to do is whether you like it or not get very comfortable it may take a while with public speaking for example I mean that's an asset that will last you 50 or 60 years and it's a liability if you don't like doing it or uncomfortable doing it that also will last you 50 or 60 years and it's a necessary skill but a lot of the skills are just human skills if you get the best out of people around you that's a rare talent and it doesn't Cor with IQ
it correlates with an attitude toward the world and toward other people and it's a talent that if you work at early and you're really conscious about it you know you don't have to show up other people you know you don't have to be smarter than they are or anything else you want to bring out the best in them it will pay huge dividends
