TILSON FUNDS: Lecture by Warren Buffett to Notre Dame Undergraduate Students

[Tape picks up in middle of lecture.]

...we let the operating managers run their businesses, and we have them send the money to Omaha. And then we try to buy more businesses. And sometimes we can buy all of a business, and sometimes we can only buy part of it. But we’re the largest shareholder of the Coca Cola Company, we’re the largest shareholder of Capital Cities/ABC Broadcasting, we’re the largest shareholder of Gillette Company, and then probably Champion Paper, Geico, the insurance company, the Wells Fargo bank. There’s quite a few.

We buy entire businesses, or we buy tiny pieces of businesses called “stocks” and we have the same approach to it. And if the capital comes in, we’re willing to do either one. In this year’s annual report, in answer to the question of what I do, I tell the story of my granddaughter’s birthday party...

[Told Beemer the Clown story again]

I sit there in Omaha and wave my magic wand. But, I’ve got all these Beemers out there, running businesses. They run them exceptionally well. Our businesses are generally characterized by unusual market strength and terrific continuity of management. Almost everybody that works for us is independently rich because we’ve usually bought their business. And they’ve received a lot of money from us. And one of the main parts of my job is to figure out, when I’m sitting across the table from John Smith and I’m going to hand him a check for $50 or $100 million, I have to decide whether he’s going to get out of bed the next morning. And it’s very important to me that he is just as interested in running his business, and he thinks of it as his business, the next day, and the next year, and the next decade, as he was when he owned it all himself. With a lot of people, there’s no way to buy that. You can’t set up an incentive compensation scheme that accomplishes that because they’ve already got all the money they need. You really have to make a judgment as to whether they run their business because they love business or because they love money. If they love money, we don’t have a chance. We can pay them a lot of money, but they’ve already got a lot of money. They never need to come to work another day in their life after they sell out to us, and yet virtually all of them works harder now than they’ve ever worked before. The main reason for this is that they’re that type – that is the way they’re put together.

Secondarily, we try to provide an environment for them which is exactly like what we’d want if we were running a business. The main thing we would want is we would not want a lot of second guessing, we would not want a lot of home office meetings, we would not want a lot of supervision from some group Vice President at headquarters. We just would not want a lot of nonsense. We would like to run our own business in our own way. If you were a great golfer, and let’s just say, going back to my generation, you were Arnold Palmer, you’d basically play golf because you like to play golf. But if he was playing golf, and we were doing it for money, and in some way I owned him, and I kept saying “why don’t you use a four iron instead of a five iron, and why don’t you aim a littler further to the right” after a while he’d wrap the club around my neck. And rightly so. If you get really talented people, you’ve got to give them a chance to do their own thing.

We bought a uniform company in Cincinnati five years ago, a $100 million company. I’ve never been to Cincinnati. I’ve never seen a factory of theirs, I don’t know what their offices look like. I know the people quite well.

We’ve got a candy company, See’s Candies in California. We sold 13.5 million tons of boxed chocolates last year and made $39 million before taxes. The fellow that runs it has been running it from the day we bought it 19 years ago. We made a deal with him, and in 30 seconds worked out an incentive compensation agreement. In 30 seconds. Never wrote it down, never had a lawyer. That deal is still the same deal 19 years later. He’s been to Omaha exactly once. Last year he came to the annual meeting to see whether their really was a Berkshire Hathaway in Omaha. We’ve never had a group meeting of any kind. We don’t force anything on them. We actually moved the headquarters of the company from Los Angeles to San Francisco because his wife liked living in San Francisco better than she like Los Angeles. Instead of having a guy with a wife that was considerably less happy living in LA, it was a lot easier to move the business to San Francisco, so that’s where it comes from now.

We have no retirement age. We had a woman running a business for us, we’d bought her business when she was 89, and she was Chairman of the Board, and she ran it for us until she got mad two years ago and left at 95, because, foolishly, I’d forgotten to get a non-compete agreement from this 89-year-old woman when we made the deal. She now competes with us across the street. She works seven days a week. We’ve never let anybody go because of age. We had one fellow, ran a savings and loan for us in Pasadena [Wesco Financial], he kept trying to get me to get somebody else, he was 75 years old. [He’d say] “you’ve got to get another guy in here” and I’d say “Louis, how’s your mother?” She lived to be 93 and that ended the conversation.

So we have a business with very few rules. The only rules the managers have is to basically think like owners. We want those people thinking exactly like they own those businesses themselves. Psychologically, we don’t even want them to think there is a Berkshire Hathaway. They know they will never get sold. They don’t have to sit around and wonder if there’s going to be a takeover raid on Berkshire.

Let’s talk a little bit about what you’re interested in . This is a little bit different group than I usually talk to, its almost always been MBAs in the past, and its quite refreshing to get a mixture of liberal arts people in, so you can throw anything at me that you care to – nothing’s off limits.

[Question from audience.]

They hardly get richer because they sell to me. I tell them “If you come to me, and you’ve got a wonderful business, I can’t make you richer than you are. If you sell to me for $100 million, it’s only because your business is worth $100 million. And you’ll pay a lot of taxes and you won’t have $100 million. If you take the remainder after-tax and buy General Motors and AT&T you’ll have a lot of businesses you don’t understand, instead of one you do understand. There’s no reason to sell to me to get richer. I always tell people the only reason I’m buying is because I think it’s going to be worth more. If they are selling to me simply to stick a lot of money into
their own pocket, it’s the wrong reason. But frequently....

One woman was 89 when she sold to me. She had four children. One worked in the business, three didn’t work in the business. She had multitudes of grandchildren. three of them worked in the business, two of them didn’t. The stock was divided equally, 20% with each branch, plus 20% she kept. As long as she was around, she was an enormously strong personality, there weren’t going to be any problems because she was going to tell people what he answers were. The day she died, she felt that there would be a developing situation where people didn’t work and wanted to get the money out of the business and that the people who did work would resent the fact that the people who didn’t work were cashing in. You get a lot of that as families move along. So she preferred to solve it herself by getting cash for the members of the family that weren’t involved in the business, and then I moved the ownership of the remaining people down to the lowest generation of the ones that were in the business. That happens a variety of times.

The uniform company we own in Cincinnati had an LBO some years earlier and there were four or five venture capital firms there and they just wanted to take a quick profit. The guy who ran it realized he’d made a mistake when he sold out to a group like that in the first place, so he steered it to us. He wrote me out of the blue.

I’ve got a little ad in my annual report every year. We’re in advertising businesses (garbled) and this year it’s under the section “Help, Help.” I tell them the kinds of businesses we want to buy. This fellow had seen that in Cincinnati, wrote me a letter and said “I’m your guy.” And I looked at him and said “You are my guy.” We bought out all the venture capitalists, but we kept the family in. And they run the business. It’s that kind of thing that comes along.

The Scott Fetzer company, which is 20 other businesses, World Book, Kirby, 20 others, Campbell Hausfeld, almost a billion of sales. They had been a New York Stock Exchange company and there was a takeover attempt, even Ivan Boesky was involved, they had a whole raft of things. I’d never met the fellow then. I wrote him a letter, I said “Dear Mr. Schey: Here’s what we are...” I sent him an annual report and said “If you want to do businesses with someone whose checks will clear, who won’t bother you, here’s all the shoes that will drop (I told him all the bad things about us), a one-page letter. Sent it. (Kind of difficult to get all the bad things about us on one page.) I said “If you want to talk about it, I’ll meet you, and if you don’t, throw the letter away.” He called me up, we met on a Sunday in Chicago, made a deal that night and, in a week, the deal was done. That was five or six years ago – I’ve been to Cleveland twice, not because I needed to be. He runs that business exactly like he [owned it himself]. $97 million pretax earnings.

[Question from audience.]

I don’t know if everybody could hear that. In that past, at least in some departments, you’ve heard that there is no such thing as buying an undervalued stock, or making money in stocks, that the market is efficient, and that everything is priced right at all times relative to the known information about it. Therefore, there’s no use thinking. And, of course, from my standpoint I’d like to have everyone believe that, because it’s a terrific advantage to be in a game where your opponent has been taught not to think. I wish the people I played bridge would. An appreciable percentage of the money in Wall Street is managed by people who believe that. It’s the old story that if there’s a $20 bill on the floor there’s no sense picking it up because it can’t be there. That thinking, I would say, prevailed extensively 10 years ago. I would say there’s a little less of it now. All I can tell you is it simply isn’t true.

The last class I told of how, in 1966 or so, we bought 5% of the Disney company for $4 million. The whole company was selling for $80 million! They’d written off all their films, Snow White, Three Little Pigs, Fantasia, all 220 some of them, written down to zero. You got 300 acres down in Anaheim and all of Disneyland for zero. The Pirate Ride had just been put in that year – $17 million it cost, yet the whole company was selling for $80 million. It was a joke. Mary Poppins made $30 million that year. They were going to recycle Mary Poppins seven years later, they were going to recycle Snow White seven years later. It’s like an oil field where the oil seeps back in, and every seven years a new crop of kids comes along and they all want to see Snow White. And they drive their parents crazy until they get to see it. Well, that whole company was selling for $80 million. You don’t have to be a financial analyst, you don’t have to be finance major, to know that’s a ridiculous valuation. Eleven million people a year go to Disneyland. That’s seven bucks a person and you get the (garbled) thrown in free. It was a joke. And Walt Disney would tell you, if you went out to see him, would tell you all about the values, and what he had planned. It just happens occasionally in securities.

Now, an efficient market theorist would tell you that $80 million is the correct value on the Walt Disney company. And he’s wrong. You do not have to have very many like that in a lifetime. It’s not very esoteric, it does not require some insight into what’s going to cure AIDS, or what’s going to be the best computer five years from now, or the best software manufacturer – it doesn’t require anything like that. It just requires figuring out whether people will be eating Hershey bars or drinking Coca Cola.

This company [Coke] you could have bought one share of stock for $40 in 1919, when they went public. If you reinvested the dividends, you’d be worth a million now. There are 150 countries in the world where they sell this and in every single one of them per capital consumption goes up every year. It’s not that complicated. The Chairman of your [Notre Dame’s] Board, Don Keough – I don’t know if you’re familiar with that; he is also the President of Coca Cola – used to live across the street from me in Omaha in 1960. He was a coffee salesman for Butternut Coffee, making $200 a week. And if you knew Don Keough there was no way that, if you put Don Keough together with Coke, you were going to miss. There really isn’t any way they won’t be selling a lot more Coca Cola products five years from now than they are now. And, they’ll be making more money on each one. If you raise the price of each one of these a penny, it’s $2 billion a year.

[Question from audience.]

The question is whether LBOs and junk bonds and so on have hurt the country in some fundamental way in terms of its competitiveness vis-à-vis the world. I wouldn’t go that far, but I think on balance it’s been a huge minus on the financial scene. Extreme leverage has been, generally speaking, a net minus. The analogy has been made (and there’s just enough truth to it
to get you in trouble) that in buying some company with enormous amounts of debt, that it’s somewhat like driving a car down the road and placing a dagger on the steering wheel pointed at your heart. If you do that, you will be a better driver – that I can assure you. You will drive with unusual care. You also, someday, will hit a small pothole, or a piece of ice, and you will end up gasping. You will have fewer accidents, but when they come along, they’ll be fatal. Essentially, that’s what some of corporate America did in the last 10 years. And it was motivated by huge fees. And it was motivated by greed.

The most extreme case I saw was a television station. About three years ago, a television station in Tampa sold for an amount where, when they had to borrow the money, the interest amounted to more than the total sales of the station. If everybody donated their labor, if they donated their programming, if they donated their utilities, they still wouldn’t have enough to pay the interest. They went crazy. And you can buy those bonds at 15 cents on the dollar. Charlie Keating’s enterprise [Lincoln Savings and Loan Association in California, which became the nation’s largest thrift failure] had a bunch of them too. There’s a lot of crazy stuff that went on in the last five or six years. The fees on that deal, they paid $365 million for the station, they borrowed $385 million and you can guess where the extra money went. It went into the pockets of the people who put the deal together.

[Question: Is it comparable to say the same thing about companies and our government debt?]
No, it really isn’t comparable. The important thing on government debt is how much is owed externally. If this group landed on an island someplace, we were stranded, and the only person we could do business with was another islander, and we all went to work producing rice, and we worked hard eight hours, and we had just enough rice to stay alive. If we worked out some internal system where some people worked 10 hours a day, and some other people worked six hours a day, and the people who worked six hours a day “borrowed” two hours worth of rice daily from the people who worked 10 hours a day, as an island we wouldn’t be getting poorer. We might have some class that owed future rice, plus interest, to the people that had saved, but we would not be any worse off. We would consume all the rice we produced each day, it’s just that some of us would have claim chits on each other.

If, on the other hand, we all decided to quit working, because people on the other island would work 16 hours a day, and they would ship over eight hours a day of rice to us, so we would just eat and mail them IOU’s (we’d send over a guy in a canoe each night with the IOUs, they’d send over rice every day), we’d all just sit around, but the little IOUs we sent them drew interest, and then after 10 years they said “we would just as soon quit producing rice the next 10 years and you guys work 16 hours a day.” That won’t work so well, particularly if it’s a different generation that’s being asked to work the 16 hours a day later on to pay back the rice from the first generation.

External debt, something our country owes the rest of the world, is a whole different question than internal debt. The national debt is largely held internally, but the game is changing as we run a trade deficit. So the trade deficit is a threat, essentially, to living as well as we live now. We are, essentially, selling off a little piece of the farm every day, as we run a trade deficit in
order to finance our own consumption. We’ve got a very big rich farm, so we can sell a little piece of that farm for a long time without hardly noticing it. It’s a lot like eating a little too much over time. You never see it in any one day. You don’t all of a sudden get up, all of your buttons pop, and people say “God, you look fat!” It just doesn’t happen. What happens is you just keep doing it so pleasantly until, after a while, you’ve got a helluva waistline. And that is, essentially, the situation in our trade deficit. We are giving the rest of the world claim checks on us. That has consequences over time.

In fact, we sold our building to the Japanese, but it doesn’t make any difference whether it’s the Japanese or anybody else. We sold our buildings at ABC two years ago for about $175 million. That was equal to one day’s trade defect with Japan. They sent up a bunch of VCRs and things, and we sent them the title to 54th Street and 6th Avenue. And we use up the one thing and they’ve got the other.

It’s got sort of a poetic justice to it. As a matter of fact, in 1626 I think, Peter Minuet handed a bunch of trinkets to the Indians and they paid him the island. And now, people are handing us the trinkets, and we’re giving them the island. It happens every day. The trade deficit will be $100 billion plus, and that means we are giving out IOUs to the rest of the world that will draw interest, which are claims of future production of everybody in this room.

Now the internal debt, that’s an entirely different story. That person helps, but the help is commensurate with the hurt. When it goes abroad, the equation is not the same.

[Question from audience.]

The question is whether we just invest domestically or also abroad. The answer to that is, in terms of buying securities, everything we’ve bought, almost, has been domestic. It’s not that I rule out other investments. We almost bought a pretty good sized investment in England a year or two ago, and we look at things elsewhere.

The United States is a $3 trillion equity pool, a $3 trillion pool of equity investments. If you can’t make money in a $3 trillion pool, you’re probably not going to make money in a $6 trillion pool.
Now, Coca Cola earns 80% of its money abroad and we hold 7% of that. Our 7% share is roughly $100 million. Of that, roughly $80 million comes from abroad. Coca Cola is spending an enormous amount of money in East Germany in the next year. They were in there big in March of 1990. Interestingly enough, the first Coca Cola they sold in East Germany, you may be too young for this, but it was shipped from Dunkirk where the Germans, essentially, drove the English into the sea 50 years ago. For a while all the Coca Cola was going from our big bottling plant in Dunkirk to East Germany. Now, the infrastructure has been built up within East Germany tremendously, and it will be a good market for Coke.

Coke is also in McDonald’s in Moscow. The Moscow McDonald’s is doing $235,000 in business a day, 50 times the average McDonald’s in this country. You think of 50 McDonald’s opening and that’s how much business that Moscow McDonald’s has done. That’s a lot of people buying Coke.

[Question from audience.]

The question was, “Have I changed my ideas over the years as my bank account has increased?” The truth is, I used to have more ideas than money and now I’ve got more money than ideas. You’ve put your finger on that particular problem, but there are worse problems.

The only ideas we’re interested in now are big ideas. We are not interested in anything that we do not think we can put at least $100 million into, usually quite a bit more. We own fewer stocks now, with $7 or $8 billion, that we owned back when we had $15 million in 1970.

We do not try and buy more and more of everything. I call that the Noah’s Ark approach to investing – have two of everything. We’ve got a very selective ark, and we only want a couple of specimens on there. It makes it more difficult, but you don’t need very many good ideas. If we get one good idea a year, that would be terrific. And if you negotiate with me, you’d get me down to one every two or three years. That’s all you need. You do not have to keep hitting home runs all the time. That’s one of the nice things about this business. If you make one decision on something like that, it takes care of a lot.

I always tell classes that, in the investment world, if you had a punch card when you got when you got out of school, and there were only 20 punches on it, and when that was done, you were all done investing, you’d make more money than having one with unlimited punches. You’d make sure you used them for the right things.

The big things are not what you do, they’re what you don’t do. Basically, we’ve had very few things we’ve lost money on. We’ve had no more good ideas than other people. But we’ve not made big mistakes – that I learned from Ben Graham. He used to say there are two rules in investing. The first: don’t lose. The second: don’t forget the first.

[Question from audience.]

The first question was, “Does the current recession change our attitude toward investing?” It doesn’t change it a nickel’s worth. If something comes along tomorrow that’s interesting, I will do it tomorrow. And it will be by exactly the same yardsticks I used whenever the business cycle was at its peak. We don’t care what businesses are doing. If the Chairman of the Federal Reserve called me tonight and said “I am really panicking and things are terrible,” I don’t care. We will do exactly what we were going to do tomorrow morning. The truth is, on balance, we will do more business when people are pessimistic. Not because we like pessimism, but because it makes for prices that are much more attractive. If you all have filling stations to sell in South Bend, I want to do business with whomever is most negative about filling stations. And that’s were I’m going to make the best buy. Times are really good and times are really bad, over a period of time. We don’t quit selling candy in July just because it isn’t Christmas. We pay no attention to economic forecasts. I don’t read anything [along those lines]. I read annual reports, but I don’t read anybody’s opinion about what’s going to happen next week, or next month or next year.

The second question is whether there are any special industries we favor. The only thing we favor is industries we can understand. And then, we like businesses with what I call “moats” around them. We like businesses that are protected in some way from competition. If you go in the drugstore and say “I want to buy a Hershey bar” and the guy says “I’ve got an unmarked chocolate bar that’s a nickel cheaper,” you’ll buy the Hershey bar or you’ll go across the street.
One of the interesting things to do is walk through a supermarket sometime and think about who’s got pricing power, and who’s got a franchise, and who doesn’t. If you go buy Oreo cookies, and I’m going to take home Oreo cookies or something that looks like Oreo cookies for the kids, or your spouse, or whomever, you’ll buy the Oreo cookies. If the other is three cents a package cheaper, you’ll still buy the Oreo cookies. You’ll buy Jello instead of some other. You’ll buy Kool Aid instead of Wyler’s powdered soft drink. But, if you go to buy milk, it doesn’t make any difference whether its Borden’s, or Sealtest, or whatever. And you will not pay a premium to buy one milk over another. You will not pay a premium to buy one [brand of] frozen peas over another, probably. It’s the difference between having a wonderful business and not a wonderful business. The milk business is not a good business.

In our candy business, Valentine’s is coming up, and See’s candy on the West Coast is a very desirable item, and very few men will want to hand their girlfriend, or wife, or whatever, and say “Here honey, I took the low bid.” It just doesn’t sell. We want things where they’re not terribly price sensitive. And if you’re going to go out and buy a car this afternoon, you’re not going to say “I’d like that red job there, but I want to be sure it has steel that came from Bethlehem steel.” You don’t care where the steel came from. And, therefore, Bethlehem’s got nothing to say to General Motors, or Ford, except what wonderful guys they are. And General Motors says “We know you’re wonderful guys, and so, if Y sells it for X dollars a ton and you’d better be $5 under them.” Anything that differentiates your product – those are the businesses we like to be in.
We like to be in businesses I can understand. There are all kinds of businesses I don’t understand, but we’re not going to own them. Thomas Watson Sr., of IBM, in that book “Father, Son, and Company, that his son wrote, quoted his father as saying “I’m no genius, but I’m smart in spots, and I stay around those spots.” The real trick is knowing what you know, and what you don’t know. It isn’t how much you know, it’s whether you can define it well, so you know when you can take a swing at the ball, and you know when you’ve got no business swinging.

[Question from audience.]

The durability and strength of the franchise is the most important thing in figuring out [whether it’s a good business]. If you think a business is going to be around 10 or 20 years from now, and that they’re going to be able to price advantageously, that’s going to be a good business. And if somebody has to have a prayer session every time they want to raise the price a dollar a pound on whatever they’re selling, that’s not going to be a good business.

What’s the highest priced daily newspaper in the United States? Most of you are familiar with it. The highest priced daily newspaper in the United States, with any circulation at all, is the Daily
Racing Form. It sells about 150,000 copies a day, and it has for about 50 years, and it’s either $2.00 or $2.25 (they keep raising prices) and it’s essential. If you’re heading to the racetrack and you’ve got a choice between betting on your wife’s birthday, and Joe’s Little Green Sheet, and the Daily Racing Form, if you’re a serious racing handicapper, you want The Form. You can charge $2.00 for The Form, you can charge $1.50, you can charge $2.50 and people are going to buy it. It’s like selling needles to addicts, basically. It’s an essential business. It will be an essential business five or 10 years from now. You have to decide whether horse racing will be around five or 10 years from now, and you have to decide whether there’s any way people will get their information about past performances of different horses from different sources. But you’ve only got about two questions to answer, and if you answer them, you know the business will make a lot of money. The Form has huge profit margins, incidentally. Wider than any other newspaper. They charge what they want to basically. It’s an easy to understand business – so easy to understand.

Snow White is going to show up every so often, and when she shows up, millions of kids are going, and they’ll make their money, and they don’t have to make the picture again. Made back in 1937 or so. It’s a perpetual royalty on youth. And that’s not a bad business.

[Question from audience.]

Where did Donald Trump go wrong? The big problem with Donald Trump was he never went right. He basically overpaid for properties, but he got people to lend him the money. He was terrific at borrowing money. If you look at his assets, and what he paid for them, and what he borrowed to get them, there was never any real equity there. He owes, perhaps, $3.5 billion now, and, if you had to pick a figure as to the value of the assets, it might be more like $2.5 billion. He’s a billion in the hole, which is a lot better than being $100 in the hole because if you’re $100 in the hole, they come and take the TV set. If you’re a billion in the hole, they say “hang in there Donald.”

It’s interesting why smart people go astray. That’s one of the most interesting things in business. I’ve seen all sorts of people with terrific IQs that end up flopping in Wall Street or business because they beat themselves. They have 500 horsepower engines, and get 50 horsepower out of them. Or, worse than that, they have their foot on the brake and the accelerator at the same time. They really manage to screw themselves up.

I tried this with the last class. Let’s say each one of you could buy 10% of the earnings, forever, of anybody else in this room, except me. Let’s charge $50,000. And that means that if somebody gets out of here and earns $30,000 you get a $3,000 royalty off them. But, if they do extremely well, and become President of Coca Cola like Don Keough did, you’ll make a fortune.

How are you going to think, in terms of the rest of the people here, of which one you want to buy the 10% of? Let’s say we had Donald Trump here, and my friend Tom Murphy, who runs ABC, or Don Keough, and you’re really betting on the lifetime of each of them, and let’s say they’re all in equally good health. Would you give them an IQ test? Well, you’d want to be certain they have a certain amount of IQ. Would you want to measure how strongly motivated they were, how much they wanted to get rich? Donald Trump wanted to get rich. That might not be a great qualifier. What would you do to select that one person out of this whole crowd here, because there will be a huge difference in results here. There’s not a huge difference in IQ. But there will be a huge difference in results. I would venture to say, I don’t know how well this group knows each other, you come from two different schools, so I’d break it down into two groups, I would venture to say that your guesses would not be bad. They’d be better if you’d had more experience with the group, and if you’ve had more experience generally, but they will be way better than flipping coins. You would probably relate it to a lot of qualities, some of which would be straight from Ben Franklin – I would suggest that the big successes I’ve met had a fair amount of Ben Franklin in them. And Donald Trump did not.

One of the things you will find, which is interesting and people don’t think of it enough, with most businesses and with most individuals, life tends to snap you at your weakest link. So it isn’t the strongest link you’re looking for among the individuals in the room. It isn’t even the average strength of the chain. It’s the weakest link that causes the problem.

It may be alcohol, it may be gambling, it may be a lot of things, it may be nothing, which is terrific. But it is a real weakest link problem.

When I look at our managers, I’m not trying to look at the guy who wakes up at night and says “E = MC 2” or something. I am looking for people that function very, very well. And that means not having any weak links. The two biggest weak links in my experience: I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. Donald Trump failed because of leverage. He simply got infatuated with how much money he could borrow, and he did not give enough thought to how much money he could pay back.

You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing. I’ve never borrowed a significant amount of money in my life. Never. Never will. I’ve got no interest in it. The other reason is I never thought I would be way happier when I had 2X instead of X. You ought to have a good time all the time as you go along. If you say “I’m taking this job – I don’t really like this job but in three years it will lead to this,” forget it. Find one you like right now.

[Tape runs out]

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