An interview with Warren Buffett at the MPW Summit - Part 3

Confidence is like oxygen
Buffett has his own philosophy when it comes to investment. He said that it is obvious. If there is a need to invest, then the investment must go to a company that can survive with it. When running a company, and the daily commercial bills satisfies the needs, then you will not care whether the date of payment is 43 days or 17 days. There will not be delay in payments because short term loan is more cost-effective than long term loan and you will not be happy to pay more interest for a long term loan. All the workers will work hard, unless they have no more confidence. Confidence is like oxygen, we need it to live but we were never aware of its existence. What will happen if we cannot get a breadth of oxygen for 5 minutes?

Buffett thinks that that is the best interpretation for confidence. The whole world and US economy needs to go together with confidence. Buffet said that if there are no confidence, Berkshire would not have materialized the 6.5 billion USD payment on 6 October and will stop the deal with Mars-Wrigley and put the funds in Chicago or some other places.

Buffet said that those who liked him, the US public, are worried what happened to that sum of money. He said that when he attended a gathering, his few friends asked him is his financial market safe? Buffett said that the financial market system cannot be said with words. You need to have confidence and it must be reasonable confidence. In actual fact no one can be 100% sure that her/his credit will always be good. The only way is to trust the US government with the aid of the FED. This is the reasonable confidence on the market financial system workings.

When will US economy recover?
On the problem of when will US economy recover, Buffet did not give a clear answer. Buffett thinks that it depends on how the economic situation. Buffett said that it is wrong to think that the funding is almighty. He said that people should not have to high an expectation. If without that funding, all will be a disaster. But even with that funding, there will still be a lot of problems.

In 1790, US population is about 4 million, China population is about 290 million, Europe population is about 100 million. No matter how much the population, they had the same weather and natural resources. In 218 years or longer, US built an economic system which is about 25% of the world's GDP. As such, it is an extraordinary system, it released the limitless potential of human beings and it has never happened before. Buffett said that just in the 20th century, every person's actual living standard grew about 1/7. In the past few thousand years, US has only been through a few hundred, but its economy grew in 1/10 of a thousand years.

Buffet said that up till now, US has been through the great depression, 2 world wars, flu virus attack, crude oil crisis, you count it, those bad things have caused various effects on US economy but the US economy is still able to grow 1/7. The DJIA started at 66 in the 20th century, now it is about 10,000 or so. As such, much of the system is still working relatively well. Those systems cannot be perfect, but it has governing rules, it is the market system we built which conforms to people's need.

Buffett says that there is a saying that is quite meaningful. No matter whether a woman is working at home or she has started work 75 years ago, the world still spins as per normal. We have improved and had a correct direction. What needs to be done is let the US people maintain more productivity. Buffett wants to encourage them but it is a difficult task. In the future there may be good operations but now it is a mess.

What Buffett is more worried about is whether the fund to save the market is used timely enough and adequately. One ounce of prevention can cure a pound of pain and this pound of cure can delay a tonne of treatment. Buffet said that we received an economy 'Pearl Harbor' attack and spent a few weeks to discuss whose is at fault. You know that the ships are all docked outside the harbor, how are we to come out with a plan based on the battle? How to make sure how many war ships are really needed? Thus, when things get more and more bad and people are standing by watching, the conclusion will be the need to spend more money to resolve the problem.

[An interview with Warren Buffett at the MPW Summit - Part 1 here.]
[An interview with Warren Buffett at the MPW Summit - Part 2 here.]