[Music] are you seeing signs of inflation beginning to increase we're seeing very substantial inflation it's very interesting we're raising prices people are raising prices to us it's being accepted I mean it's not you know take home building I mean you know the cost of we've got nine home builders in addition to our manufactured housing thing and then uh operation which is the largest in the country so we really do a lot of Housing and the costs are just up up up wages typically follow but with contracts like those with the UAW which last three years we're locked in for that period however if you're buying steel at General Motors or somewhere else you're paying more every day the economy is really RedHot and we weren't expecting this our companies thought that when we were allowed to go back to work the situation would normalize we closed our furniture stores for about 6 weeks on average and no one knew what would happen when they reopened but demand didn't stop we can't keep up with it people are willing to wait for months for their orders because no one else can deliver them any faster we thought this surge would end when the $600 payment stopped but it just kept going I get the figures every week I call and we review what happened day by day in three different stores in Chicago Kansas City and Dallas and it just won't stop people have money in their pockets and they're paying higher prices for example carpet prices have increased and we've had to raise prices due to Rising costs and supply chain disruptions it's almost a buying frenzy except in in certain areas where you still can't purchase things like international air travel so the money is being diverted from one part of the economy into the rest and everyone has more cash in their pockets meanwhile it's a terrible situation for a percentage of the population I haven't worn a suit in almost a year which has put dry cleaners out of business no one is bringing in suits or white shirts for cleaning small businesses like the one my wife frequents struggled unless they adapted by offering takeout and delivery services on the other hand businesses like Dairy Queen which adapted well have seen significant sales increases this is not a price sensitive economy right now and I don't know exactly how this inflation will show up in the different price indices however there's definitely more inflation occurring than people would have anticipated just 6 months ago there's one very intelligent person who thinks this is dangerous and that's just the start inflation is going to affect you it's certain we will have inflation over time we are following policies in this country now to stimulate the economy which will inevitably have some inflationary consequences to the extent that we borrow money from the rest of the world it would be very tempting for future politicians to decide to pay back that debt with dollars that are worth far less than the dollars they borrowed it's a classic way to reduce the impact and cost of external debt and we're building up a lot of external debt I always find it interesting when politicians talk about using taxpayers money to do this or that like paying the bonuses at AIG we haven't raised taxes at all in this country taxpayers are paying nothing beyond what they were paying a couple of years ago in fact Federal revenues this year which were close to $2.6 trillion a couple years ago are now more like $2.3 trillion so we are taking less money from taxpayers the people who are really paying for the things we're doing now will probably be those who are buying dollar Investments much of it from the US government and who will find that the purchasing power when they go to redeem those Investments is far less you might say that the AIG bonuses are probably being paid by the Chinese who will ultimately bear the cost in terms of the loss of purchasing power of their Holdings of US government bonds many years down the road but it sounds better to say the taxpayer than to say the Chinese are paying it's an interesting situation I read comments every day about how the taxpayers are doing this and that I haven't had my taxes raised you haven't had your taxes raised and they're giving me $250 back soon taxpayers haven't paid anything so far and my guess is that the ultimate price of much of this will be paid by a shrinkage in the real value of fixed dollar Investments down the road that will be the easiest thing to do and if it's the easiest thing to do it's the most likely to happen we will see plenty of inflation the best protection against inflation is your own earning power if you're the best teacher surgeon lawyer or whatever it may be you will command a given part of other people's production of goods and services no matter what the currency is whether it's seashells Reich marks or dollars your own earning power is by far the best protection if you're the best journalist whatever it may be you will get your share of the National Economic piie regardless of the value of the currency as measured against some earlier standard the second best protection is a wonderful business if you own the Coca-Cola trademark for example you will get a given portion of people's labor 20 years from now and 50 years from now for your product and it doesn't matter what happens to the general price level people will give up a few minutes of Labor to enjoy 12 ounces of a product they like those are the great assets your own earning power first and then the earning power of a wonderful business that does not require heavy capital investment if your business requires heavy capital investment you get killed in inflation with those guidelines I would tell you the best thing to do is invest in yourself yes a young person should become a brain surgeon and invest in Coca-Cola instead of government bonds if you discount it back at present interest rates stocks are very cheap now the question is what interest rates will do over time but there's a view of what interest rates will be based on the yield curve out to 30 years it's a fascinating time we've never really seen what happens when you shovel money into the economy on a fiscal basis while following a monetary policy of near zero interest rates it's enormously pleasant but an economics there's always one thing to remember you can never do just one thing you always have to ask and then what we are sending out huge sums of money the president said on Wednesday that 85% of the people are going to get a $1,400 check a couple years ago we were saying 40% of the people could never come up with $400 in cash now 85% of the people are getting these sums and so far we've had no unpleasant consequences from it people feel better those who get the money feel better but those lending money don't feel very good it causes stocks to go up businesses to flourish and the electorate to be happy we'll see if it causes anything else if it doesn't you can count on it continuing in a big way but there are consequences to everything in economics that is why companies like Google and apple are incredible we don't own Google or Microsoft but they earn an extraordinary return on Capital without requiring ing a lot of capital and they generate immense cash flows if you're trying to find bonds that generate that kind of return you're out of luck we've got hundred billion dollar gushing out like $30 or $40 million a year depending on short-term rates that puts pressure on the economy which is exactly what the monetary authorities want they're pushing the economy and they're doing it even more aggressively in Europe we're aiding it with fiscal policy and people feel good people have become numb to the numbers trillions don't mean anything to anybody but $1,400 does we'll see where it all leads but Charlie and I consider this the most interesting economic situation we've ever seen professional economists have been very surprised by what has happened it reminds me of what Churchill said about Clement Atley he was a very modest man with much to be modest about that's exactly what's happened to the professional economists they were so confident about everything and it turns out the world is more complicated than they thought or John Maynard kan's said many years ago that inflation is an invisible tax that only one man in a million really understands it's a tax on people who have faith in their currency the best protection against inflation is to improve your own earning power and your own talents very few people maximize their talents but if you increase your talents they can't tax that while you're doing it they can't take it away from you so if you become more useful in your profession whether as a doctor lawyer or whatever it may may be that is the best protection against a currency that might decline rapidly the best passive investment I think is a good business if you own an interest in a good business you're in a a strong position it's likely that you can maintain your purchasing power no matter what happens to the currency for example in the United States the value of the dollar has declined by 94% since I was born meaning what was once worth a dollar is now only worth 6 cents inflation acts as a very cruel tax on people who believe in fixed dollars however things can work out well even during inflationary times if someone had told me when I was born that the dollar bill would drop to 6 cents I might have said no thanks I'm not interested in coming into that kind of world but it has actually worked out pretty well so I have no complaints investing in yourself is the best thing you can do anything that improves your own talents is something that nobody can take away from you governments may run up huge deficits the dollar may lose its value and all kinds of things might happen but if you've invested in yourself and maximized your talents you've got a terrific asset this doesn't necessarily mean everyone should go to college but it does mean that you should find ways to improve yourself for instance communication skills are enormously important I took the Dale Carnegie course which I paid $100 for and it was worth more than a college degree I advise students to look for a job that they would take even if they didn't need one don't Sleepwalk through life thinking everything will be great later on you really want to be doing what you love and while you may not find it in your first job don't give up until you do you're going to make mistakes in life there's no doubt about it you just want to avoid making them on the big decisions like who you marry I've made many business and investment decisions and some have been mistakes I try to minimize them but I don't dwell on them the biggest mistakes are often the ones you you don't see the missed opportunities rather than the wrong decisions we've never lost much money on any one investment but I've missed out on profits sometimes as much as 10 billion on things I knew enough to do but didn't for example not buying Microsoft early on wasn't a missed opportunity because I didn't know enough to make that decision but there have been other Investments where I did know enough and for one reason or another I didn't act or acted too cautiously the those missed opportunities don't show up anywhere but they've been significant the triumphs in life are partly triumphs because you know not everything is going to be a win don't get too hung up on mistakes many people agonize over them but it's not worth it tomorrow is another day and uh you just move on to the next thing the nature of what I do requires me to think independently if I just follow what everyone else is doing I won't get very far or I've got a terrific part partner Charlie Munger you can't find anyone smarter or of higher quality we think alike and occasionally talk things over but not often because I know how he thinks and he knows how I think I don't need to call him to confirm what I already know if I ever need to rely on a large committee to make decisions then I probably shouldn't be running the place I've seen too many investment decisions get watered down in large groups I don't think you ever get brilliant investment decisions out of a large committee I always look at IQ and Talent as representing the horsepower of the motor but the output the efficiency with which that motor works depends on rationality many people start with 400 horsepower motors but only get 100 horsepower of output because they don't act rationally it's better to have a 200 horsepower motor and get all 200 horsepower out of it why do smart people do things that interfere with getting the output they're entitled to it comes down to habits character and temperament behaving rationally and not getting in your own way everyone here has the ability to do anything I do and and much more some will succeed and some won't those who don't will likely get in their own way not because the world doesn't allow it but because they don't allow themselves to succeed it's important to associate with people you admire people who are the kind of person you want to be you'll move in that direction the most important person in this regard is your spouse I can't overemphasize how important that is your friends also shape you as you go through life so make good friends and keep them for Life choose people you both admire and like I have an old-fashioned belief that I should only expect to make money in things that I understand and when I say understand I don't mean knowing what the product does but rather understanding what the economics of the business will likely look like 10 or 20 years from now I have a pretty good idea of what the economics of wrigly chewing gum will look like in 10 years the Internet isn't going to change how people chew gum or which gum they choose if you own a significant part of the chewing gum Market with Brands like double mint spearmint and Juicy Fruit those Brands will still be around in 10 years I can't pinpoint the exact numbers but I won't be way off in my projections evaluating companies within my circle of competence is crucial for instance I understand the economics and competitive aspects of Wrigley on the other hand television set manufacturing seemed like a great business everyone wanted a TV in 1950 and now nearly every household has multiple sets however almost no TVs are made in the United States anymore and no one has made real money manufacturing them they're all out of business now the Magnavox the rcas all those companies in the 1920s radio was the equivalent of TV with over 500 companies making radios yet today I don't think there's a single us radio manufacturer left but Coca-Cola founded in 1884 at Jacobs Pharmacy has endured it now sells roughly 1.1 billion 8 oun servings of its products daily worldwide 117 years later understanding the economic characteristics of a business is different from predicting that an industry will do well when I look at internet businesses OR tech companies I think they're amazing I love using my computer ordering books from Amazon and exploring new technology but unless I know who's going to be the winner in these sectors I'm not interested in investing I'll just enjoy the products and services defining your circle of competence is the most important aspect of investing it's not about how large your circle is you don't have to be an expert on everything the key is knowing the perimeter of that Circle what you know what you don't and staying inside it Tom Watson senior who started IBM once said I'm no genius but I'm smart in spots and I stay around those spots that's the key to successful investing if I understand a few things and stick to that area I'll do well but if I get excited about some because my neighbors are talking about it or because stock prices are soaring and I start venturing outside my expertise I'll eventually get burned and rightly so I once met Bob Woodward just after he' published All the President's Men He was about 30 years old and starting to earn a good income during breakfast at the Madison Hotel he asked me what to do with his money I told him that investing is just like assigning yourself the right story imagine if Ben Bradley asked you to determine the worth of the Washington Post company how would you go about it you'd interview TV and newspaper Brokers talk to owners and try to Value each asset that's exactly what I do I assign myself the right story but there are some stories I can't write for instance if you ask me to write a story about the worth of a glamorous but unprofitable business I wouldn't know how to begin however if you ask me to write about the value of an electric power company I could easily handle that this has been my painting for over 50 years I get to paint whatever I want I'm not bound by what Wall Street dictates or pressured to meet quarterly expectations I own the brush the canvas is unlimited and I get to do this every day with people I like I don't have to associate with anyone who causes me stress or discomfort as I've often said if you reach the age of 65 or 70 and the people you want to love you actually do love you then you're a success I've never seen anyone at that age regardless of their wealth who felt genuinely unhappy if they had the love and respect of those they cared about conversely I've seen many wealthy individuals who despite their riches didn't have strong family relationships and didn't feel good about their lives