Warren Buffett’s Best Advice on Successful Investing

You don’t have to be right about thousands and thousands of companies, you only have to be right about a couple.

The most important thing is to decide – is to be able to define which ones you can come to an intelligent decision on and which ones are beyond your capacity to evaluate. You don’t have to be right about thousands and thousands and thousands of companies. You only have to be right about a couple.

I met Bill Gates on July 5th 1991, we were at Seattle. And Bill said “You’ve got to have a computer.” And I said “Why?” And he said, well, he said “You can do your income tax on it.” I said “I don’t have any income, Berkshire doesn’t pay a dividend.” He said “Well, you can keep track of your portfolio.” And I said “I only have one stock.” And he says “It’s going to change everything.” And I said “Well, will it change whether people chew gum.” And he said “Well, probably not.” And I said “Well, will it change what kind of gum they chew?” And he said “I don’t know.” And I said “Well, I’ll stick to chewing gum and you stick to the computers.” I don’t have to understand all kinds of – there’s all kinds of business I don’t understand. But there’s thousands of opportunities there.

I did understand the Bank of America and I’m able to do that. I’m able to understand some given percentage. But Ted Williams wrote a book called “The Science of Hitting”. And in “The Science of Hitting” he’s got a diagram it shows them at the plate and he’s got the strike zone divided into 77 squares, each the size of a baseball. And he says if I only swing at pitches in my sweat zone which he shows there and he has what his batting average would be which is 400. If he had to swing at low outside pitches but still in the strike zone his average would be 230. He said the most important thing in hitting is waiting for the right pitch.

Now he was at a disadvantage because of the count was 0 and 2 or 1 and 2 or so on. Even if that ball was down where he was only going to bat at 230, he had to swing at it.

In investing there’s no cold strikes. People can throw Microsoft at me and you name it. Any stock, General Motors and I don’t have to swing. Nobody is going to call me out on cold strikes. I only get a strike cold if I swing at a pitch in [inaudible 02:18]. So I can wait there and look at thousands of companies, day after day and only when I see something I understand and when I like the price at which it’s selling, then if I swing, if I hit it fine, if I miss it, it’s a strike.

But it’s an enormously advantageous game. And it’s a terrible mistake to think you have to have an opinion on everything. You only have to have an opinion on a few things and in fact I’ve told students, if when they got out of school they got a punch card with 20 punches on it and it’s all the investment decisions they’ve got to make in their entire life, they would get very rich because they would think very hard about each one and you don’t need 20 right decisions to get very rich. 4 or 5 will probably do it over time.

So I don’t worry too much about the things I don’t understand. If you understand some of these businesses that are coming along and spot things on – if you can spot an Amazon for example, I mean it’s a tremendous accomplishment what Jeff Bezos has done. And I tip my hat to him, he’s a wonderful businessman and he’s a good guy, too. But could I have anticipated that he would be the success and 10 others wouldn’t be? I’m not good enough to do that. But fortunately I don’t have to.

I don’t have to form an opinion on Amazon. And I did form an opinion on the Bank of America. And I’ve formed an opinion on Coca Cola. I mean Coca Cola has been around since 1886. There’s 1.8 billion, 1.8 billion 8 ounce servings of Coca Cola products sold every day. Now if you take one penny and get one penny extra, that’s 18 million dollars a day. And 18 million times 365 is 7 billion – 733 billion or 6 billion 570 million dollars. So annually 6 billion 570 billion dollars from 1 penny. Do you think Coca Cola is worth a penny more than Joe’s Cola? I think so. And I’ve got about 127 years of history that would indicate it.

So those are the kind of decisions I like to make. And you may have an entirely different field of expertise than I would have. And probably much more up to date in terms of the kind of businesses that we’re seeing evolve and you can get very rich if you just understand a few of them and understand their future.