During Warren Buffett's India visit, there was some time for the Oracle to show his funny side to the Indian media. Yes, he did speak about inflation, and investment opportunities, but it is what he had to say about rebirth and his family that you may want to know. He also spoke about his mantra for improved earnings and his recipe for success - Be in the right business and with the right people.
Q: Which countries are you looking at investing in and where does India rank among your list of countries to invest in?
A: We are looking to make big investments anywhere in the world, if we can find really good businesses run by people we admire and trust and where we understand the business. Certainly, India is in the top four-five countries in the world that have the sort of business that we are looking for. So, I have been dropping my phone number around as I have covered the city and I hope that it rings on Monday morning with good news.
Q: The best case scenario for inflation in India next year is projected between 5% and 6%. We are going end this fiscal, that’s March 31, 2011 at about 8%. I know you have often said that inflation dwindles the equity investor and it is perhaps the best alternative amongst other alternatives as a hedge against inflation. But given the fact that we are dealing with fairly high levels of inflation in India, what would your advice be to people who are investing what should they change, what should they do?
A: Inflation, someone said many years ago that it is an invisible tax that only one man in a million really understands. It is a tax on people that have had faith in their currency, the governments issued it. The best investment against inflation is to improve your own earning power, your own talent. Very few people maximize their talent. If you increase your talent, they can’t tax it or they can’t take it away from you.
So, if you become more useful in your activities, your profession, doctor or whatever may be, that is the best protection against a currency that might decline at a rapid rate and the best passive investment is a good business. If you own an interest in a good business, you are very likely to maintain purchasing power no matter what happens with the currency. It’s interesting that in the United States
Inflation is a very cruel tax on people who believe in fixed dollars but things can work out pretty well even during inflationary times. If somebody told me when I was born that the dollar bill is going to go to 6 cents I might have said let me go back. I am not interested in emerging into that kind of a world. But actually it has worked out pretty well. I have no complaints.
Q: An article that you wrote in 1977 said that companies should be doing one of five things - hiking turnover, cheaper leverage, more leverage, lower income taxes, wider operating margins on sales. What would you now say to companies who are looking at bettering their return on equity?
Buffet: I do look at those qualities in terms of businesses. When I look at something like a Coca-Cola which has been around since 1886, I say to myself ‘They are now selling 1.6 billion eight ounce servings of Coca-Cola products everyday throughout the world.’ Everybody in this room has something in their mind about Coca-Cola and I hope it’s good incidentally.
What are the chances that Coca-Cola will be selling more products five or 10 years from now than presently? I would say it’s almost a certainty. There will be more people, they will have more purchasing power; this product is a huge bargain.
If you buy it on weekend specials like I do, this product sells at about twice the price that it sold at about 100 years ago. There aren’t many products like that. The cost of this represents for the average person maybe a minute or two of their earning power and it provides a moment of refreshment, happy memories and all kinds of things.
Will they be selling more Coca-Cola few years from now than they are right now? Almost certainly, they are Coca-Cola products. Will they be able to price their products so as to counteract the effects of inflation? Sure. It’s a simple type of evaluation. I stick with products where I can really see what’s likely to happen over 5-20 years and then those variables that we talk about in terms of return on equity enter into my calculations.
The important thing is to be in the right business and with the right people. If you are in the right business, you don’t go crazy in terms of what you pay for it. It’s just like my buying the farm. I didn’t go crazy in terms of what I paid for the farm; I had an honest guy running it. It happened to be my son. Now corn is selling for over twice the price it was in the mid 80’s, soybeans are selling at three times the price.
So, the farm is worth more money than before and over the years it’s just kept delivering a cheque to me every year. That’s what investment is about. It’s really looking at the future income potential of the business and comparing it to what you have to lay out now to get that income potential.
When you get into buying something where you just betting on whether people will pay a little more for it next year but it doesn’t produce anything, there is nothing illegal about it. It is not illegal, it’s not immoral and probably it isn’t financial fattening either but you are betting on investor attitude or speculator attitude rather than betting on the asset itself.
Q: Since we are talking about money, I want to talk to you about your decision to give yours away. That makes you a selfless man to the world, it makes you the ambassador of philanthropy. But what about your family, does your family sees you as a selfless man as well? How did you get them to buy into your decision, to give away 99% of your wealth?
A: They haven’t talked to me for quite a while. My family is going to be in the upper quarter of 1% or something like that of humanity in terms of the funds that they have at their disposal. My goal originally was to leave my children enough so that they could do anything, but not enough so that they could do nothing. I have gotten a little more frivolous as time has passed so they are even getting a little more than that.
Q: You are in India. This is the land of Karma and spirituality, do you believe in god, in a higher being, in a higher consciousness? This is also the land that believes in the concept and idea of rebirth. If you were to be reborn, what would you like to be reborn as? If you could do anything differently then what would it be?
A: Probably I could be reborn as Sophia Loren’s boyfriend.
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