market folly

A reader was kind enough to pass along an old interview from around 1985 with Adam Smith featuring Warren Buffett, John Templeton, and Robert Wilson where each investor talked about their investment process and style.


Warren Buffett Interview

Buffett starts the interview with his trademark quote: "The first rule in investment is don't lose.  And the second rule in investment is don't forget the first rule, and that's all the rules there are."

Buffett said the most important quality of an investor is the temperamental nature rather than the intellectual capacity.

He also pointed out the short-term nature of others: "Most of the investors focus on what the stock is going to do in the next year ... They do not really think of themselves as owning a piece of the business."

Buffett said he prefers to value the business first without even knowing the price.  That way he can make a determination and then decide how it compares to the current valuation.

He said to define your area of competence, then within that area of competence find whatever sells at the cheapest price relative to value.

It's funny to hear Buffett say that he doesn't own IBM (IBM) in the interview as he noted he doesn't dabble in tech stocks.  Fast forward 30+ years and his views have evolved a bit.  He now owns both IBM and Apple (AAPL) today, though he's been selling the former as we noted in our recent newsletter.

"Boredom is the problem with most professional money managers."  He's perfectly content to sit and wait for the fat pitch.

Buffett was featured in Adam Smith's book Supermoney.


John Templeton Interview

Templeton made his mark by going against the herd, and thought his distance from Wall Street was an advantage (he was in the Bahamas).  Buffett, of course, has also been positioned away from New York in Omaha, Nebraska.

Templeton developed a motto: "To buy when others are despondently selling and to sell when others are avidly buying, requires the greatest fortitude and pays the greatest reward."

He said his average holding period was 6 years so patience was the name of his game.  His strategy was to look for bargains worldwide and to buy the cheapest stocks and then to extrapolate earnings further into the future than most investors.


Robert Wilson Interview

He was focused on stocks with rapidly growing earnings and bets against those whose earnings are going down.

He said, "I am not an original thinker.  I tend to rely on other people to feed me ideas.  And more bright people are in New York than anywhere else. I'm a derivative thinker."

His philosophy is to be in stocks that have potential for huge gains and risk/volatility is perfectly fine by him.  "The only way one makes money in the market is when the market's perception of a stock changes."

He was looking for stocks where earnings haven't started to improve yet, or if they're improved they're going to accelerate.

Wilson also focused on the notion of hubris in markets and how he too fell victim to it.

Embedded below is the video of the interview with these well known investors: