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Any business proposition is worthwhile for the right price: Morning Brief

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Yahoo Finance’s Myles Udland breaks down why it pays to think like billionaire Warren Buffett.

Video Transcript

JULIE HYMAN: Looking to Warren Buffett for some wisdom, and it has to do with what price you're willing to pay. If you're a value investor, you know, in theory, you would make most investments. It's just a question of at what cost? And I love the anecdote that you take to sort of illustrate that, Myles. It has to do with space and underwriting space travel, which was the subject of a question during the meeting this weekend. So retell this anecdote, if you would.

MYLES UDLAND: Yeah, we chatted about this a little bit in the 11 o'clock hour on Monday. We didn't get to it during our hours. And basically, the question was whether Berkshire Hathaway would be interested in ensuring a SpaceX flight and really, I guess, kind of ensuring anything that Elon Musk was doing. Ajit Jain, who runs Berkshire Hathaway's insurance operations, said that he's not interested. He would just-- he said that-- the way he finished it up is he's generally in the practice of not insuring things on which Elon would be my counterparty.

Now, Warren Buffett's response was, well, it depends on the premium. And he told Musk to call him if he is looking maybe for an insurance policy. And really, the point that Buffett is making here and that Sam Rowe put together in the Morning Brief today is that there's a price at which everything is reasonable. And I think we can see this in a lot of different contexts in our daily lives. I mean, we are seeing this, to some extent, in all of our local housing markets right now. And there is a price at which everything will sell. Sometimes it is quite a bit higher than what you would have thought. And people are coming to market for that reason.

But Sam goes all the way back to the 1989 Berkshire Hathaway shareholder letter. All the letters great wells of knowledge, great ways to pull out what you could call this Evergreen type investing content. And there, Buffett talks about the difference between, you know, basically just buying good companies at reasonable prices and the cigar butt strategy, which is, you know, the idea you pick up a cigar, but you get one puff from it. So it was worth more than when you found it. That still doesn't mean it's a nice cigar at the end of the day.

And I think, really, it speaks to the misunderstanding that a lot of people come away with when they look at how Buffett goes about building his securities portfolio, when they think about what his style of investing is. It's not just buying things that have gone down a lot. It's buying things that he thinks are a good value at the right price. Warren Buffett thinks that ensuring Elon Musk's flight to Mars would be a good value at the right price.

Ajit is more of the dogmatic value investing, which might say something like I would never do that because Amazon doesn't make profits, right? I would never buy this company because the PE is too high. And I think that the Buffett mindset, though he missed on Amazon and has discussed that a number of times, might be more like, well, if I can look at it a different way and I think the price is reasonable, then it might be a good buy. And I think it gets to the current market environment, right?

And we've discussed this in the context of the FAANG names. Sure, they're expensive, and sure they've gone up a lot. But you can get yourself-- and I think most analysts do because pretty much everybody's bullish on them-- you can get yourself to a point where you say, OK, but the cash generation over the next five years or 10 years is likely to be X. And if I'm paying Y for that today, I'm still comfortable with that risk-reward. It's not just an absolute. It is always a relative judgment.

And again, I think that is sort of a way that Buffett gets fundamentally misunderstood. And I think this example where he's talking about insuring Elon Musk is a great way, where he's saying there's always a price. So if you're going to write something out or screen something out of your process, then you're probably going to miss something that was a better opportunity than maybe it seemed.

JULIE HYMAN: And I think that's a good point about the FAANG stocks, too, tying it back to that, because I think most people who are buying those stocks, you buy something because you think it's a good value, and you think it's going to keep going up, right? Whether it's called growth or value, that's the goal, right? And you think you're getting it at the right price. So whatever you term it, that's obviously the goal.