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'No easier game than stocks'

Gift of giving: The Oracle of Omaha, Warren Buffet, and his heir-apparent, Ajit Jain, interacted with business school students in a session moderated by Prannoy Roy.

business Updated: Mar 25, 2011 21:01 IST

Gift of giving: The Oracle of Omaha, Warren Buffet, and his heir-apparent, Ajit Jain, interacted with business school students in a session moderated by Prannoy Roy. Excerpts:

Roy: The younger generation in India is much more competent than our generation. Is it the other way in America… You've got a great existing generation and a not so hungry new generation.

Buffett: I'm going to meet with 48 schools and universities, 45 from America. People kind of remind me of myself. They've got more energy, they're smarter, but they're all looking forward to doing the things that I did. And they look at me and go like, 'my God, you can do it, I can do it, it must be easy'. When they look at (Bill) Gates, they don't think they can do what he did, but when they look at me, they think anybody can do that.

Audience: What financial innovations would you recommend for the Indian (equity and bond) markets to be more developed?

Buffett: I look at individual companies. I like to go in for it without having the faintest idea of what the stock is selling for… it's about the business. So, business first, and then the valuation.

I don't believe in a lot of innovations for the market. In the end I just want to buy a piece of a business I believe has a good future, honest and able management, and buy it at the right price.

Roy: When you say you don't look at the stock market, how often do you look at the price of shares?

Buffett: The only time I'm really interested in the price of stock is when I'm either buying or selling it. If I'm buying one stock right now, I hope it goes down, obviously.

Audience: Regarding this 'moat' that you talk of. Say the moat of Coca-Cola. How do you identify that? Now you say Coca-Cola's market is expanding, but when you bought it there was doubt if the company would make it. So how do you go out and buy the stock when the market is against you?

Buffett: If you can't recognise the moat, it doesn't mean there isn't one there… just that you can't recognise it.

Take Coca-Cola. If you've been selling a product since 1886; if every year you sell more than the year before and you're selling 1.6 billion 8-hour servings a day, you've got a 'moat' around that product.

It's also got an association in your mind. If I say Coca-Cola, everybody in this room has something in their mind about it… (probably) something favourable, you are happy. I can name a 100 other soft drinks and there's nothing in your mind about them.

If a 16-year-old buys a box of candies and takes it to a girl he has fallen for, and presents it to her or her family before they go to the movies, and she kisses him, we own him. I mean he's not going to try another product. That's a moat.

We look for businesses with a wider moat. If you name a company out of the blue, I can't tell you if it has a wide moat or not. All I have to do is be right about the ones I look at.

Roy: And how much do you actually get involved in advising them about these aspects?

Buffett: I send a letter to the managers and talk to them about widening the moat. It doesn't require their earnings per share or anything like that. Any business that has a widening moat will make a lot of money over time. And they are guardians of the moat, a knight for the economic castle.

Roy: Ajit, does he advise you much or just write a letter to you once in a while?

Ajit Jain: No, no he advises me a lot. We have conversations every evening and almost all I do, I have the chance to run it by him and get the benefit of his wisdom and advice. That is the biggest perk of my job.

Audience: I saw this talk you had at an MBA school. You gave the students an assignment: choose one classmate in whom they would invest 10% and another on whom they would go 10% short. Did you do the exercise yourself?

Buffett: Well if you look around you at the people you admire, they have qualities that attract you. None of these are innate at birth. You can acquire those.

And then there are people who can turn you off. They have habits, (maybe) they're a little dishonest about things. If you are young, and if you can choose the person you can be, why not choose the person you admire, rather than the person you can't stand? It's so simple.

Roy: Is he (Buffett) very organised, very disciplined?

Jain: He is very disciplined, no question. He is the most rational, disciplined human being you can come across, without letting emotions come in the way.

Roy: He sounds very emotional.

Jain: He is emotional, but it doesn't come in the way of his rationality. I don't think one needs to come at the expense of the other.

Roy: Is it a responsibility when you invest and everybody says my God, this must be a great stock... you're sending a signal around the world.

Buffett: We try to invest quietly. We are legally required at certain points by the Securities Exchange Commission. But we don't really go about telling things we've done.

Audience: What makes Warren Buffett a great investor? Is it the intelligence or the discipline?

Buffett: I think it's both to a certain extent. To be a great investor you don't need to have a terrific IQ. What you do need is the right temperament. You need to be able to detach yourself from the point of view or opinions of others, from the herd mentality.

Roy: We see commodity prices rising, oil prices rising, do you believe in this peak oil theory?

Buffett: Whether it's copper, or cotton or soya beans, they are all advancing and we maybe sowing the seeds for significant inflation in the United States. We've monetary policies as far as you can push it, we've pushed fiscal policies to the extreme as well ... but heavy doses of medicines have repercussions too.

Roy: You're saying the after effects could still be felt?

Buffett: We've given the patient a lot of medicines post the fall of 2008 and the medicine can have consequences.

Audience: Everybody is talking of India shining and booming, you have stayed away from India. What has made you take such a position?

Buffett: Well I made a mistake. I would have been better off if I had spent some time discovering companies outside the US... Actually I've never had a call from India...

Jain: I think the truth is that India's stayed away from him. His investment style is not so much to identify a product segment and then zero in on that, it's more like people serve him up with opportunities and he evaluates his opportunities and then says yes or no. Unfortunately we haven't had that kind of opportunity from here.

Roy: That's amazing. You've never got a call from India?

Jain: I must confess I have got a lot of calls from India and I have not done a very good job as I could have.

Buffett: Now I'm leaving my phone number all over.

(The discussion will be telecast on NDTV 24X7 at 10 pm on April 1, and NDTV Profit at 2 pm on April 9)