If you can get good at destroying your own wrong ideas, that is a great gift.
Black-Scholes works for short-term options, but if it's a long-term option and you think you know something [about the underlying asset], it's insane to use Black-Scholes.
I also want to raise the possibility that there are, in the very long term, "virtue effects" in economics- for instance that widespread corrupt accounting will eventually create bad long term consequences as a sort of obverse effect from the virtue-based boost double-entry book-keeping gave to the heyday of Venice. I suggest that when the financial scene starts reminding you of Sodomand Gomorrah, you should fear practical consequences even if you like to participate in what is going on.
The beauty of a financial institution is that there are a lot of ways to go to hell in a bucket. You can push credit too far, do a dumb acquisition, leverage yourself excessively - it's not just derivatives [that can bring about your downfall].
Quoting Demosthenes, 'For what each man wishes, that he also believes to be true.' I would rather make money playing a piano in a whorehouse than arguing that no cost is incurred when employees are paid in stock options instead of cash. I am not kidding.
I'm very pleased when the smartest people come [to the U.S.] and almost never pleased when the very bottom of the mental barrel comes in.
Beta and modern portfolio theory and the like - none of it makes any sense to me.
How could economics not be behavioral? If it isn't behavioral, what the hell is it?
There's no way that you can live an adequate life without making many mistakes.
I'd say 3/4 of advertising works on pure Pavlov. Think how association, pure association, works. Take Coca-Cola company (we're the biggest share-holder). They want to be associated with every wonderful image: heroics in the Olympics, wonderful music, you name it. They don't want to be associated with presidents' funerals and so-forth.
Since those don’t hit financial reports, the opportunities you had but didn’t accept, most people don’t bother thinking about them very much. At least that is a mistake we don’t make. We rub our own noses in our mistakes in blowing opportunities, as we just did.
We tend to buy things - a lot of things - where we don't know exactly what will happen, but the outcome will be decent.
Avoid working directly under somebody you don't admire and don't want to be like.
I think the notion...that liquidity is this - of tradable common stock - is a great contributor to capitalism - I think that is mostly twaddle... The liquidity gives us these crazy booms, which have many problems as well as virtues.
There are exceptional loyalties and there are old fashion ideas about how you get loyalties, and after all the auditorium is full of people who have co-owned shares with the managers for many decades, and in many cases they co-invested when everyone was young and obscure. Also when you come back to a place like that you are celebrating old loyalties, and of course the basic idea behind so much of Berkshire is the old fashioned idea that the best way to get loyalty is to deserve loyalty.
I think gold is a great thing to sew onto your garments if you're a Jewish family in Vienna in 1939, but civilized people don't buy gold, they invest in productive businesses.
In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables - like the discount warehouses of Costco.
Don't do cocaine. Don't race trains. And avoid AIDS situations.
Black-Scholes is a know-nothing system. If you know nothing about value - only price - then Black-Scholes is a pretty good guess at what a 90-day option might be worth. But the minute you get into longer periods of time, it's crazy to get into Black-Scholes. For example, at Costco we issued stock options with strike prices of $30 and $60, and Black-Scholes valued the $60 ones higher. This is insane.
[With] closet indexing....you're paying a manager a fortune and he has 85% of his assets invested parallel to the indexes. If you have such a system, you're being played for a sucker.
With so much money riding on reported numbers, human nature is to manipulate them. And with so many doing it, you get Serpico effects, where everyone rationalizes that it's okay because everyone else is doing it. It is always thus.
Fixable but unfixed bad performance is bad character and tends to create more of itself, causing more damage to the excuse giver with each tolerated instance.
All the equity investors, in total, will surely bear a performance disadvantage per annum equal to the total croupiers' costs they have jointly elected to bear. This is an inescapable fact of life. And it is also inescapable that exactly half of the investors will get a result below the median result after the croupiers' take, which median result may well be somewhere between unexciting and lousy.
I don't invest in what I don't understand. And I don't want to understand Facebook.
I think you'll make more money in the end with good ethics than bad. Even though there are some people who do very well, like Marc Rich-who plainly has never had any decent ethics, or seldom anyway. But in the end, Warren Buffett has done better than Marc Rich-in money-not just in reputation.
