Dan Sweet

Warren Buffett on Chinese insurers (2 of 12)

This is the second in a series of twelve posts. The introduction to the series is here. By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

Do you find any of the insurers in China attractive?

You can’t own more than 24.9% of anything—that’s a problem for us.

Distribution is still expensive there.

Do some business with reinsurers. Look at auto – didn’t exist 100 years ago.

Insurance was a cartel with bureau rates. Competed to get the best agent with the best insurance.

1921 – a farmer started State Farm. “The Farmer from Merna” took captive agents direct to consumers.

1936 – Leo Goodwin and his wife Lillian went more direct by mail and started Geico—lower customer acquisition cost than competitors

Look for a big business where you can offer the consumer a better deal.

Geico got in trouble in 1976—bought half. 1995 – bought the rest.

Gates called and asked Munger and I to come up to give the orangutan perspective on the internet. Gates said “Here is the internet—tell me how to make money with it. I had just bought Geico but I never thought of it. No one in the room thought of disruptive technology, direct selling, search, etc.

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Warren Buffett on investing in China (1 of 12)

This is the first in a series of twelve posts.  The introduction to the series is here.
By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

What are your thoughts on investing in China?

If you don’t have a high degree of confidence, just leave it alone. Not buying stocks in China at this time.

The 1790 population of China = the US population now.

I only want things I am certain of.

Know when you are in your circle of competence and when you are outside of it.

Ted Williams – it’s all about waiting for the right pitch.

PetroChina at 33% of book – swing. At 80% of book – wait.

H-shares vs. A-shares – mainland Chinese paying 2.5x as much for PetroChina as HK and US investors.

How he got into the PetroChina investment:
reading Annual Reports in 2003, saw a firm that promised to pay out 45% of earnings as dividends (earnings looked to be worth at least 80-100 billion) then looked up price—found it was 35 billion. Sold investment at 275 billion, it later went to 400 billion.

Yukos was similarly huge, but I’d rather be in China than Russia. Ate breakfast with the Yukos CEO 4 months before he went to prison.

Comparing yourself to your idiot neighbor who is getting rich drives momentum and bubbles.

I would never buy based on momentum.

Buy based on how businesses behave, not how people behave.

It’s like Cinderella. The ball is fun, you know it ends at midnight, but there are no clocks on the wall.

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“One of us is off base, but its definitely not me!”

This video on Youtube is amazing.  Could also be titled-“why you should never make predictions on TV.”  Ten minutes of pure talking head awesomeness!

Memorable moments occur at these points:

2:15 “I’ll bet you a penny!”classic! nothing like the I’ll bet you a penny line to show you are serious!

2:40 “in a normal market home prices will rise about 10%”

3:32 “what artificial lending standard are you talking about!?!” (voice dripping with scorn)

4:10 Ben Stein “financials are being given away…its as if nuclear war has struck the financials” Dow @ 13k

5:19 Ben Stein “sub-prime is a tiny tiny blip”

6:10 Peter Schiff “the fundamentals are NOT sound”

6:28 Ben Stein “Merrill is astonishing well run, might as well be putting it in cereal boxes and giving it away aat these prices” Merrill @ $75

7:25 Ben Stein “their earnings are HUGE, what are you talking about?!?”

8:50 “I like Washington Mutual, I know we are catching a falling knife”

9:20 ” Dow will go to 16k easily”

Why does a finance guy need a blog?

Q: How do you tell an extroverted finance guy from an introverted finance guy?
A: He looks at your shoes instead of his own.
(as told to me by my future boss before I started at P&G)

I don’t fit the finance guy stereotype.  I am a little too loud, I joke around a little too much, and I’ve spent seven years in the non-profit world.  However, I recently got an MBA from Notre Dame and have somehow become a finance guy.

I’ve started this blog because I want a place to jot down my thoughts, archive cool stuff I find online, and join in the conversation.

I plan to transcend the “finance guy” stereotype both in my career and in my posts here.

Check out my post on Why You Need Social Media.