He did it again. Warren Buffett one again, and he always will because he is the best investor to ever live. And, in my opinion, it's not even close. It's not like there's Warren Buffett. And then a close second and third and fourth place, this isn't like a debate between Michael Jordan and LeBron. James is just Warren Buffett, there's Warren Buffett and then there's everyone else and none of them are close s. Now this has been pointed out time and time again.
We have articles from The Wall Street Journal hair saying that Warren. Buffett. Wannabes are now losing luster? This is referring to the many people. The many people that thought that they could outsmart outwit and outdo Warren Buffett strategy by investing in lots of various companies. Many of them exciting tech companies and one aisle, they're losing their luster and they're moving back to index funds. They have succumbed to defeat only a couple years into their
investing career. It's not individual investors being the only ones to have claimed to be Warren. Or to be better than Warren Buffett or to be able to beat him at his own game. We have lots of popular figures doing the same thing. We have people like Arc invest with Kathy would she was talked about to be almost the new Warren Buffett, a newer upgraded younger one that invests in more exciting Innovative companies that are outside of Warren
Buffett's, circle of competence. We have people like shamalia patea. He actually compared himself to Warren Buffett. Many times, comparing his performance too warm. Buffett and tell of course his fun tanked and his performance became terrible.
Only a couple years. After starting we have people like Bill Ackman. Also being compared to Warren Buffett. We have people like Dave Portnoy saying that they're the new Warren Buffett, lots of different challenges are coming and going and that's going to be the theme of today's video. Why is it that nobody can beat Warren Buffett? Why is it that he is able to do something that's so difficult to replicate his performances out
of this world. It's literally almost so Or to be better than Warren Buffett or to be able to beat him at his own game. We have lots of popular figures doing the same thing. We have people like Arc invest with Kathy would she was talked about to be almost the new Warren Buffett, a newer upgraded younger one that invests in more exciting Innovative companies that are outside of Warren Buffett's, circle of competence. We have people like shamalia
patea. He actually compared himself to Warren Buffett. Many times, comparing his performance too warm. Buffett and tell of course his fun tanked and his performance became terrible. Only a couple years. After starting we have people like Bill Ackman. Also being compared to Warren Buffett. We have people like Dave Portnoy saying that they're the new Warren Buffett, lots of different challenges are coming and going and that's going to be
the theme of today's video. Why is it that nobody can beat Warren Buffett? Why is it that he is able to do something that's so difficult to replicate his performances out of this world. It's literally almost so Good that it's like fictitious. It's like something you'd read in a fantasy novel from 1965 to current year. He has a compounded annual gain annual, gain of 19.8%, almost 20 percent returns per year for 57 years straight. That is a record that no one even comes close to.
There is no close. Second place, his overall returns is a number again that seems made up its three million, seven hundred, and eighty seven. Thousand four hundred and sixty four percent returns, again, three million, 700, thousand percent Returns the company that he's created is so big.
It's listed as one of the top. Ten companies in the market right now, it has operating earnings at beats out almost every other company except for Apple of which he's a huge shareholder of Buffett is the best and there's no one close. Now we have some information on how he's able to do this but a lot of it I think is very vague. Buffett likes to speak in these platitudes and in these different cliches.
Things, right? It's better to have a bird in the hand, than two in the bush stuff like that, where you can get some meaning from it. But it's it's difficult to kind of dissect what he really does with his Investments. So, in today's video, what I hope to do is actually dig in and try to break through these cliche sayings and make them into more relevant and specific investment techniques.
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cash flow per share. We're constantly doing upgrades to this as well, and all of this is for $10 a month with a month-long free trial. So there's no risk. No strings attached cancel, anytime, join today. Try it out. I think you'll love it. Now, again, diving into the subject. I think it's an interesting question of why nobody can seem to beat Warren Buffett. He always wins every single time. He has for over 60 years during
that time period. There's many time periods in between little Windows of time where there's doubters where it seems like buffets going to lose. There was a time period where Bill Ackman was being talked about as baby Buffett up until this point in 2015, he had phenomenal returns, everything was going his way, then, he had the Valiant implosion, his fun claps dramatically and it looked like he was no longer a baby Buffett that term Slipped Away.
And now people are hesitant to compare Bill Ackman with Warren Buffett. Now his return since then have been decent. I think he's learned a few things but he's no Buffett. He's not even close to Warren Buffett. We look at some other people that I think are even further away that were also claimed to be the new Buffett, chamath polly have patea often compared himself to Warren Buffett in his investor presentations for his
own fund. He literally mapped out his performance, the first year, against the first year of Berkshire Hathaway. He continued to do this until his fund underperformed Berkshire Hathaway. Then all of a sudden that comparison was out of his out of his investor presentation. Now trim off Bali Hai patea compared himself to Warren, Buffett's saying that his spax, these specs are going to be like his Berkshire Empire.
Well luckily for us we can look at the performance of aspects and see how this new Warren Buffett is doing space spce which is Virgin Galactic that's one of his specs stand 53% all time. That one hasn't been going. Well, we have Sophie that bank it's down 66 percent over the past two years 38% all time, we have Clover Health Care. This one's down 88% all time. Another trough Polly, hepatitis back and of course we have opened or the real estate's pack. That's down 88%, all time, and
has never made any real money. But again, this was talked about by cumali, huh? Fatiha the king of spax as being. The new Buffett. This is his Empire that he's built a bunch of companies that barely have any It's that are all down dramatically all time. Now, of course, we have many contenders after that, we have people like Kathy would, with Arc and evasion. She was talked about as being the new Warren Buffett.
Someone that represented a younger generation that she could see through all the mess of the older companies that were going to be disrupted by her newer. Younger more Nimble, Innovative companies and many YouTubers referred to Kathy would as being the new Warren Buffett. She represented Innovation him, he was literally old and washed Stop. These were the type of videos made in 2020 during the explosion of Arc Innovation.
Now since then, we know how the story played out, it's down, 71 percent, its underperform Berkshire. Hathaway with a huge amount of volatility and of course it's become abundantly. Clear? That Cathy wood is no Warren Buffett. So there's been many Challengers that over the years have come and gone as the new Warren Buffett.
And then over time it's revealed that they're not the new Warren Buffett. They're not a replacement they're not as good at investing as Warren Buffett at the end of the day there's one Warren Buffett and it's Warren Buffett. Now we can choose to learn from a lot of different people but personally I'd rather just try to learn from the best.
So what I want to do is go through this letter and highlight my takeaways from what I think are the most important, most revealing things that Warren Buffett shares. The first thing that he emphasizes is something that he has repeatedly emphasized over and over and over again throughout his career. And no matter how many times Warren Buffett says this, most investors still don't do it. They don't follow this advice, they do. View their stocks in this manner.
He says, our goal in both forms of ownership is to make meaningful investments in businesses. Businesses being emphasized with both, long-lasting favorable economic characteristics, and trustworthy managers. He doesn't say. And I want to highlight what he doesn't say, he doesn't say our goal is to buy cheap stocks with low P/E ratios and time when the multiple expands That's not what he says. What does he say? We're buying businesses with both long-lasting favorable
economic characteristics. That means profitable businesses highly profitable when Warren Buffett uses long-lasting favorable economics. That means highly profitable. High barriers to entry business, very long durable modes, so he's not looking for cheap companies, trading at low multiples, that might have a quick expansion of PE he's looking for businesses that have Good profitability and wide modes.
He also looks for trustworthy managers which I think is straightforward, please note, particularly that we own publicly traded. Stocks based on our expectations about their long-term business performance. Again, he's always looking at the operating performance of the company. In fact, when Warren Buffett actually reports the earnings of Berkshire Hathaway.
He says to focus on the operating income because a stock prices of all of their publicly traded holding swing so much that throws off the pnl that's reported and the thing to actually focus on is the operating income. So right there, he gives us a lot of information jam-packed and it was single paragraph. He's not buying the cheapest
companies at favorable prices. He's buying high-quality long-lasting, favorable economic characteristics of businesses that have wide modes and then he views these as businesses. He tracks their business performance, not their stock price. He says not because View them. And this is again, he's not buying these companies because we view them as vehicles. For adroit purchases, and sales, adroit means clever or witty purchases and sales.
So he's not trying to time the Ebbs and flows of the market and buy during little dips and sell during little surgeon price. That point is crucial. Charlie, and I are not stock Pickers. We are business Pickers, just this single paragraph. This one paragraph I can get loads of information from. Let's go ahead and just go through it. And we'll break down this one paragraph. We have companies that we want to buy. That have favorable economic conditions, that means they're profitable.
So you have companies that are not profitable companies that are diluting, shareholders companies that aren't generating any wealth. Warren Buffett is saying that he does not buy those companies. Number one, favorable, economics means profitable companies. Number two, long-lasting favorable economic characteristics. How does the company have a long-lasting? Favorable economics a moat. They need to have high barriers to entry something. That's very difficult to
replicate or be disrupted. So we have profitable companies with a wide mode. They're going to be profitable for a long period of time. The next thing that he points out is the mentality, his mentality differs from what most investors have. He says that he buys companies with the view of them being businesses and tracking their operating performance. This right here is something
again. Then I think is very difficult for most investors to do, because what Warren Buffett is able to do is to decouple, the stock price performance from his sentiment on the stock, most investors become very bearish. As the stock price comes down their sentiment get slower. They view the stock less favorably. Warren Buffett doesn't do that. The price does not dictate his sentiment at all. The business performance does
the operating performance does. So He is different with Buffett, not only does he buy great businesses with great moats? Great profitability. Good long-standing economics, but he attracts their operating performance. And then you decouples, that from the price of the stock.
And then, finally, the last thing that he highlights is a point that he's often repeated, they are not stock Pickers, they are business Pickers. So Warren Buffett views Berkshire as a conglomerate of a lot of different businesses will compound, their intrinsic value faster than the rest of the market. He identifies these Pennies.
Many of them like energy companies, many of them like insurance companies, many of them, with consumer companies, like Coca-Cola companies that have great economics. Favorable economics, they have very wide modes. They have intrinsic value that grows over time and he holds them for decades at a time decades. Most investors hold stocks for an average of less than one year. So why do you think Warren Buffett outperforms? Majority of investors.
His timeline is longer the That he buys are better. They have better modes and his mentality is more stable. He does not convince himself to sell stocks when they're at Lowe's, and he doesn't view stocks, more favorably when the price goes up. So Buffett has a superior way of both identifying companies and investing in them, and a superior way of the mental game viewing, his performance of his companies and two coupling price from the actual business moving
on from that. First paragraph, that's loaded with information. We get to the second paragraph, over the years, I have made many mistakes consequently. Lee our extensive collection of businesses currently consists of a few Enterprises that have truly extraordinary economics. Many that enjoy, very good economic characteristics. Now this is another thing where Allstate Warren Buffett, he uses these very vague terms. They're almost like euphemisms.
He just says that they have very good economic characteristics and that can mean a lot of different things to a lot of different investors. Some investors might look at that and erroneously conclude that very good. Comics means a lot of Revenue growth and that's clearly not what Warren Buffett is saying he's never just searched out companies that have quick Revenue growth and said that's
good economic characteristics. The best descriptor that I've seen of a company that has very good economic characteristics was what Terry Smith defined companies that have high margins High Returns on tangible assets. That's a an actual ratio that Warren Buffett has talked about many times Returns on tangible assets, Terry Smith. It says it's very close to Returns on Capital employed. That is the metric that he looks
for. These are companies that when they bring in Revenue, they earn consistently a lot of money, their margins are high and then when they reinvest back into their business, with the money, they do earn. They also earn a very high return. So they're both gaining a lot of profit from the money, they bring in, and they're making a lot of returns when they invest money. Both of those things are great.
If you find a company that can grow while doing both of those things, that is what I would Define as a business that has very good economic characteristics. Businesses that are not very good economic characteristics. These are businesses that grow Revenue really fast. While printing off shares like crazy and dilute the shareholder. These are businesses like the many that we've seen that. They have the free cash flow, go up. And then they have stock-based
compensation further. Diluting the shareholder at a faster rate than they actually make money. There's a lots of companies I could go through. That have unfavorable economic characteristics. Warren Buffett has never invested in these companies. He never has yet investors today. Many of them continually seek out these companies in hopes that in the future, there economics will change that down the road. There economics will improve
Warren Buffett has said before. He does not count on the economics of a business suddenly changing. If it's had a terrible past and it's going to have a bright future. Berkshire is going to miss it, they're not going to risk investing in those type of companies Berkshire. Invest in companies that already have good economics, they make major stakes in those companies, and then they watch the economics grow over time and have those businesses create wealth for the shareholder.
So this is something again that, Warren Buffett gives these kind of phrases these euphemisms, these very general vague statements when you try to dive in and actually find the meaning I find companies with good economics, be high, margins, High rates of return on tangible. Assets High Returns on Capital employed and businesses that have favorable secular growth for long periods of time. Those are companies that truly have good economics.
Now it goes on pointing out that there's many other companies with less favorable economics. He says, and a large group that are marginal companies with okay, economics, along the way other businesses in which I have invested in have died, their products unwanted by the public, capitalism has two sides, the system creates an ever-growing, High-level losers while concurrently delivering a gusher of improving goods and services. Moving on with this letter, he points out why that's okay.
Why? It's okay that capitalism. Kills off some companies. As long as you pick a few that do really well, the secret sauce in August of 1994. Berkshire completed, its seven-year purchase of the 400 million shares of Coca-Cola, we own. Now the total cost was 1.3 billion then a very meaningful. Full sum of Berkshire. So they made this big bet on Coca-Cola. The cash dividend we receive from Coke in 1994 was 75 million by 2020, to the dividend had
increased to 704 million. So, just a quick glance at the math here, they invested 1.3 billion in 1994 and the dividend they receive on an annual basis is 704 million. Roughly half of their total investment. So every year, they're getting a 50, Sent return on the dividend, the dividend paying for half their initial investment. This company has paid for itself multiples and multiples and multiples over just by the dividend alone growth occurred
every year. Just as certain as birthdays, all Charlie and I were required to do was Cash coax quarterly dividend checks. We expect that those checks are highly likely to continue growing and they are the dividend checks from Coca-Cola. Are going to continue to grow and the interesting thing here is Berkshire, doesn't actually reinvest this 104 million back into Coca-Cola because he doesn't necessarily think it's the best investment today.
So uses this continual stream of cash flow to buy, other dividend-paying companies to further snowball his wealth. So this is one company being compounded rolling that snowball and that compounding going into different companies. American Express is much, the same story Berkshires, purchase of Amex were essentially completed in 1995 and coincidentally they also cost. Billion annual dividends received from this investment have grown from 41 million to
three hundred and two million. Those checks to seem highly likely to increase in the future. He's highlighting here. Something that dividend investors are well aware of dividend growth. Warren Buffett is often talked about as not caring about the dividends but he obviously does care about it.
He's highlighting as a part of the secret sauce of his Investments because what our dividends its actual Cold Hard Cash operating income that's being returned back to the investor Warren Buffett looks for companies that return Capital back to the investor. Not just companies that have a good return on Capital but companies actually return
Capital back to the investors. In fact, one of the things that Charlie Munger highlighted is they like companies that spit cash back to them that they can deploy in other places. They don't like companies that just hold onto cash and they never return anything and they never do by back so you never do dividends. Aren't the Investments That Warren Buffett likes. He loves these ones that grow the dividend from a couple million to 704 million.
He loves the Investments like Amex that grow the dividend from 41 million the 302 million. That's what I'm trying to find as well, companies that can grow. Dividends at very fast rates because they'll have continual growth and their operating income, this is what's funded the continual growth of Berkshire Hathaway. All this Capital being returned to them that they can reinvest at another high rate of return above it, just got done. Lighting the entire idea of dividend growth.
He highlighted it with Amex and with Coca-Cola. And again, this is something that's debated, a lot of investors. Don't agree with Warren Buffett here. They think Dividends are irrelevant. They don't mean anything. It's just something you should completely ignore buff it. Obviously does not see it that way. Look at what he's actually writing. He's highlighting it in the first part of his letter, he views dividend growth as a very favorable thing.
He wouldn't be sharing it with other people. If he didn't like that, the divins were growing with this company. Are the dividend growth. He highlights something else. That's another form of returning Capital back to the shareholders which are BuyBacks. Let's go ahead and jump into his thoughts on BuyBacks at Berkshire. We directly increase your interest in our unique collection of businesses by repurchasing. 1.2 percent of the company's outstanding shares.
That's your BuyBacks at Apple and Amex repurchases increased Berkshires ownership, a bit without any cost to you. The math isn't complicated. When the share count goes down your interest in many businesses. Goes up every small bit helps, if free purchases are made at Value accretive prices. That's a very simple principle. Warren Buffett, only invest in companies, and you only holds companies that he thinks are undervalued since their
undervalued. All of these companies that do share repurchases are buying at Value accretive prices, he continues on emphasizing how good BuyBacks are, especially if a company is at or below its intrinsic value gains from the value creative repurchases. It should be emphasized. It all owners in every respect. Imagine if you will three fully and form shareholders of a local auto dealership one of who
manages the business. Imagine further that one of the passive owners wishes to sell his interest back to the company at a price attractive, to the to continuing shareholders. When completed has this transaction harmed, anyone? Obviously the answer is no, is the manager somehow favored over the continuing passive owners? Has the public been hurt? This is something that a lot of politicians don't. Durst and when share repurchases happen this way, there's no
victims. There's no one being harmed in this transaction. When you are told that all repurchases are harmful to shareholders or the country or particularly beneficial to CEOs. You are listening to either an economic illiterate or a silver tongue demagogue characters that
are not mutually exclusive. This is Warren Buffett, I think he's just dropping a bomb on people like Elizabeth Warren, Elizabeth And routinely paints share repurchases as bad, bad bad bad and every situation, she's not the only one, she's just the most outspoken. There's other Democrat members that have routinely advocated for not even increasing taxes, on share repurchases that would harm.
Everybody's 401K it would harm the returns of everyone invested in these companies, but they're outright wanting to ban them, they want to ban share repurchases, they want to make it so companies can only issue more shares? Only dilute the shareholder, but not even of shares outstanding. And that is how economically illiterate many commentators are. And many members of Congress are many members of Congress don't even understand what they're
trying to regulate. They want to ban share repurchases without even understanding what they are, who they benefit how they work. Warren Buffett is directly calling these people out. He's not using their name but he's calling them out on this subject. So we have share repurchases as another big topic that Warren Buffett highlights as being very positive and this is something that I want to highlight. Well, we go through this list of lots of different things that he looks for.
And one thing that I think a lot of investors that even study Warren Buffett continually Miss is that he does have a big emphasis on return of capital return of capital. That's different than return on Capital return. On capital is investing into a business and having a high rate of return, return of capital is when the company makes so much excess profit that it can return money back to the shareholder, it can do that in one of two ways by backs.
Or dividends those are two different ways of returning Capital back to you. The shareholder. Warren Buffett in a large part of this letter highlighted. How much he loves both of them. He highlighted dividend growth as being something that he loves and that he's tracking the numbers in many ways. He's doing what we do in qualtrics and tracking our dividend growth over time and then he looks at share repurchases.
That's another thing that I highlight all the time I bring up the shares outstanding chart and I look at this year's going down of the companies I'm invested in, he highlights both of these and he defends both of them. He loves Capital being returned back to him the shareholder and he's operated that way his entire career. Most of the companies that Warren Buffett invest in do two
things. They pay a dividend and they do BuyBacks almost every single one he invest in does that but still we have the next Warren Buffett's and these Warren Buffett wannabes investing in companies that dilute shareholders and don't pay a dividend, they expect to outperform Warren Buffett by not following one of the basic things that he's routinely outlined as being crucial. Oil. Now, this next topic we're going to jump into is one that I just love.
I loved reading this part because I've made video after video calling different companies Liars, for the way that they present their financial statements. I think it's intentionally deceptive. They fabricate profits out of thin air by adjusting numbers by coming up with free cash flow, that doesn't even factor in the payment of employees by doing these things that are. So I think deceiving making their companies look so much
better than they actually are. And I've been trying to Highlight this, I don't like when companies do this, I don't want to invest in companies that do this. I like companies that are very straight forward with their profitability, Warren Buffett does as well. Finally, an important warning, the sounds like he's making a YouTube video. When I read this an important warning from Warren Buffett. Even the operating earnings, this is where you get sent to the warning.
The operating earnings figure that we favor can easily be manipulated by managers who wish to do so such tampering is Even thought of as sophisticated by the CEOs and the advisors and reporters and analysts embraced this existence as well. They do. He's 100% correct. This is the most perplexing part of this. I feel like I'm yelling into a void.
When I point out, the things that these companies are doing, that's intentionally deceiving the analyst embrace it, they eat this stuff up, he says beating expectations, this way is heralded as managerial triumphs Activity is disgusting. He calls it, disgusting it requires no talent to manipulate numbers. Only a deep desire to deceive is required. Again, when I use the term Liars, in my videos, I use that term very carefully.
I do not call out companies that I think are being truthful forthcoming, honest, with their financial metrics. I call it ones that I think are being intentionally deceiving. He says, quote, bold and Adjective accounting as a CEO. Once described his deception to me has become one of the shames of capitalism. I don't think there's a bigger combination that Warren Buffett could give to people that do this type of accounting. It is repugnant, it's disgusting. That companies do this.
They are intentionally deceiving their shareholders and to painting one picture about how the company is actually performing than what, it's actually doing a recent example of this and one that I'll call out with their most recent earnings report is another example, Pulled it out. Highlight as disgusting. The company's zoom zoom just released their most recent quarter. And here we have, the presentation they're giving to
investors, right? They have these nice glossy presentations where they talk about how great the company is. But one of the things that they emphasize right here from the start, this is one of the first pages is the strong financial performance strong financial year 2023 performance. One of the things they emphasize right here is a 27 percent. Free cash flow margin right at the beginning of their earnings report. Okay. Zoom, you had very strong financial performance.
A good, 20 22. Let's take a look at the year of 2022 and how this company did when we can look at last quarter and see that the company had net cash provided by operating activities of 211 million. That's the operating activity income. Then they paid their developers, their employees, 518 million dollars in stock. This is their strong Performance having two hundred, eleven million dollars of income and paying over half a billion in stock. We bring this up on qual term,
just to illustrate. How deceiving the Satchel is, we bring up their free cash flow quarter by quarter, right hair. And then we introduced stock-based compensation. And this is what it looks like stock based compost over double their free cash flow last quarter in, this is the same company that's highlighting in its investor presentation that it has strong free, cash flow margins of the same year.
So after talking about return of capital in the The importance of dividend growth and share BuyBacks Warren Buffett, lays out this warning about companies that participate in deceptive accounting. Practices ones that try to make the economics of their business. Look much better than they actually are. Now I've created tools and software that really dig through this and make it so that they can't do this BS against us, but many investors are still being
deceived by this. They bite into this Hook Line and Sinker. And so Warren Buffett's trying to help out investors trying to warn people about Out this type of thing as well. So overall this is the completed list of this letter and there's so much. I think we can gain from this one letter that many investors are not doing these are things that give us an edge as investors, we can go through what investors do. That's not what Warren Buffett says the best thing to do.
Number one, buying companies with great economics gray economics. Again High Returns on Capital employed, Buffett calls it high Returns on tangible assets, very similar companies that have very high Margins that's number one and most investors get lost right at this step they buy companies with a low P/E ratios and poor economics companies with unproven business models companies that don't generate real free cash flow beyond the level of dilution.
They buy companies that are optically cheap companies that make our durable goods and highly cyclical Industries. These are not companies that have very favorable economics. So even a number one many investors get lost, they don't even follow the first step. The next step is companies that have long and during good Economics.
The long duration is a consequence of a moat having a competitive Advantage. I've done analysis on Berkshires portfolios, and many of the companies that he invests in have natural monopolies. He invests in railroads that is a naturally monopolistic business. He invested an apple. That's a company that has basically a monopoly. Everybody uses the app store, which again is a toll bridge with excellent economics and it has very high barriers to entry. Try competing with apple.
Go ahead. Give it a shot. Even Samsung is having a difficult. Difficult time. So in number two investors don't give enough attention to the mo of the company, they invest in companies that are highly risky and industries that are highly cyclical that are ripe for disruption. They invest in Innovative companies that are unproven that come and go that are in Ever Changing Industries with unknown threats. Buffett doesn't do that. He invest in companies that have concentrated Industries.
There's usually a couple leaders. They have very high barriers to entry. Times their outright regulated and he builds up a large stakes in these companies out of the first two pieces of advice, I would say 80% of investors. Don't even follow those two pieces of advice so obviously they're not going to outperform them. They don't follow the first two
pieces of advice. Then we have number three, which I think is perhaps the most difficult step to follow, which Buffett has perfected the mental game. This one I think is the definition of easier said than done. It's easy to say. Yeah, I love you. My doc says businesses I won't focus on the price and and and you know look at the Ebbs and flows of price everyday. Investors are looking at the price of their companies every single day they're glued to
their brokerage looking. If it goes up two percent or down 2% and then they don't spend enough time even reading the investor relations and the reports of how their businesses are actually doing. If you added up the amount of time that investors look at Price compared to the amount of time that they actually do analysis on businesses. It's probably 90 percent on price and 10% on analysis on the She'll company, Buffett has perfected the mental game.
He has decoupled, the price from the intrinsic value and operating performance of the business. And this is something again that I know anecdotally from my own experience being a YouTuber and interacting with a lot of investors that this simply isn't the case with most investors. Every single company that I've invested in that the price went down every single, one of them. I have sentiment following. I'll get comments about how it was a poor investment.
Vestment how the companies no longer doing well, how everything looks - and bad. Even if the price went down while the operating performance increased, even if the company is doing better, when I was buying Texas Roadhouse, the price went down while the intrinsic value and operating performance was increasing. Most comments. I got at the time being in the red with the price down was at the company's doing poorly. And why would I invest in this?
Obviously poorly ran company. The same thing with Vici the price went Down and the sentiment followed many negative comments about that company. The same thing follows with every single company, right now, the price has gone down with Amazon and Google and many people are speaking negatively about the company's sentiment follows price. That's almost like a law of physics with investors inevitably. Every one of them will have that challenge. Warren Buffett has broken that
law. He does not allow the price to dictate his sentiment on a stock. He only follows the actual operating performance. So between this step step 3 and the The other two I think we've lost 95% of investors. I think right off the bat there we've lost the huge majority. Most of them aren't going to buy companies with great economics because they're not studying enough to find companies that really have these modes.
Great economics, number two, they're not buying companies that really have durable competitive advantages. And the number three, the mental game perfecting that as well, I think is a huge Challenge. And I think once you get past this step, you've lost 95% of investors number four and five are pretty simple. These are companies That have dividend growth that grow the dividend over time and their companies that produced this year, count over time.
These are the two forms of Return of capital Buffett routinely emphasizes this. He likes companies that spit cashback Adam and he likes companies that buy back their own shares in increases interest. He loves both of them, he gave equal time to each of them. He emphasizes this over and over again. But many people say, it doesn't really matter. They're irrelevant and you know, how they return, Capital doesn't
really matter. Buffett obviously doesn't think so. So and the number six, last but not least, avoiding companies that have deceiving accounting practices. This has been a major, I'd say focal point and our emphasis that I've that I've done over the past six months, I've really tried to give investors a lot of
warning about this. I'm glad to see Warren Buffett doing the same thing here, and I think it's important, I think a lot of investors right now are being suckered into companies that they didn't fully understand the financial condition. The company was in and I don't think that's their fault. I think that there's a lot of slick accounting practices that are Deceptive. So we have tools to see past this and I think we can follow
step 6 as well. These six steps I really do believe will lead to outperformance. I think of investors follow these six steps that will outperform and many investors. Say it's impossible to outperform the markets to efficient and it's better to just buy index funds. I don't have anything against index funds but Buffett has one more point that he highlights on this topic. One of the things that Warren Buffett directly addresses in this letter. Is the efficient market hypothesis.
One of the advantages of our publicly traded segment. Is that episodically, it becomes easy to buy pieces of wonderful businesses at wonderful prices. It's crucial to understand that stocks often trade at truly foolish prices, both high and low efficient market exists. Only in textbooks, efficient market only exist in textbooks in truth markable stocks and bonds are baffling their behavior usually Understandable. Only in retrospect, controlled businesses are a different
breed. They sometimes command. Ridiculously higher prices than Justified but are almost never available at bargain valuations. Unless under duress, the owner of a controlled business gives. No thought to selling at Panic type valuations. So right Harry highlights a couple things. He says that basically the people promoting efficient market hypothesis are fools that are existing in textbooks and not the real world and he also highlights that you have a bigger advantage.
Age in the publicly traded market, then you do the private Market because in private Market, if things go down in price, they simply don't sell the business. A good example of this is stripe. Stripe was going to sell the business in the public market at a high price prices went down and then they decided just to not IPO so Buffett's highlighting that as an investor in the public market. We actually have a greater Advantage than people working in the private markets.
So I do think that investors can outperform the market I think they can Eats pie but I think it will take something that most investors are unwilling to do. They actually have to follow Warren Buffett's advice. They can't just follow a couple cliche statements like Buy Low, sell High. Buy the dip be greedy when others are fearful. They actually have to look at what he's done in detail and
follow the things that he says. 90% of investors are not going to do that, they're not going to put in the time or energy so they're not going to beat the market but I think investors at do really well, that's all for this episode and I hope you enjoyed and if you haven't already, try out the patreon, there's 100 exclusive episodes. We even have more coming in the future. You get access to Quality. Mm, I think you'll really enjoy it.
We have some big updates coming on that and of course you get access to the Discord Community, where we have thousands of members. So hopefully, I'll see you there. Other than that. See you in the next one. and I hope you enjoyed and if you haven't already, try out the patreon, there's 100 exclusive episodes. We even have more coming in the future. You get access to Quality. Mm, I think you'll really enjoy it.
We have some big updates coming on that and of course you get access to the Discord Community, where we have thousands of members. So hopefully, I'll see you there. Other than that. See you in the next one.