Warren Buffett on CNBC – The Billionaire Next Door

December 27, 2006

Warren Buffett on CNBC – The Billionaire Next Door

Interviewed by Liz Claman

Family had grocery store he worked at.  The store was in his family for 100 years.  From 1869 until 1969 when his uncle retired.

Started out selling Wrigley’s chewing gum and Coca-Cola he bought from his grandfather.

He bought his first stock at age 11.  City Service Preferred stock.  He said he doesn’t know why he wasted so much time before then.

Bought a farm at the age of 14 using money he had saved from paper routes.

What he’s looking for in a business?

1. Something he can understand.  Something in his “circle of competence”.

                                                               i.      He doesn’t understand what car company, software or chemical company will win 10 years from now.  But he does understand that Snicker’s Bar will be the number one candy bar in the U.S. just as it has been for the last 40 years.

2. Durable Competitive Advantage

                                                               i.      A business that will dominate for what appears to be forever.

3. An Honest and Able management.

4. A price that he wants to pay.

Berkshire Hathaway has acquired 68 subsidiaries since Buffett took control in 1964.

            1964 - National Indemnity Insurance

            1972 - See’s Candies

            1983 -  Nebraska Furniture Mart

            1989 – Borsheim’s Fine Jewelry

            1998 – Dairy Queen, Geico, NetJets, General Re

            2002 – Fruit of the Loom

            2006 – Iscar Metalworking Companies (1^st foreign holding)

The average person today lives better than John D. Rockefeller.

The ultimate luxury is getting to do what you love to do everyday.  Particularly if you can do it with terrific people around you.

Liz Claman mentions that Warren has stayed honest by doing what he loves.  Warren laughed and said that know one will really know if he was honest in a sense.  Because he never had two kids at home sick and not enough money to feed them.  You will never know whether he would have held up a liquor store because he never had to.

Buffett Playbook

1. Rule #1, Don’t Lose Money.

2. Rule #2, Don’t forget rule #1.

3. Look for unique companies that are hard to replicate.  They have a moat around the business.

4. Circle of Competence.  Do what you know.