Berkshire Hathaway's shareholder meeting was this past Saturday. Warren Buffett, age 86.75 and indisputably the greatest investor ever, and Charlie Munger, age 93.25 and indisputably the greatest investing sidekick ever, answered questions on stage for about 6 hours [please find link to webcast here]. Even we didn't have the stamina to watch the entire program in one sitting; the emcees, with a combined age of 180, however, are apparently indefatigable.
In any event, listening to the two sages from Omaha opine on investing crystalized something in our minds--namely, the two essential investing questions that one must answer before committing capital to any idea [note this does not apply to an arbitrage, workout or other similar special situation, where the relevant calculation is expected value, based on probabilities of outcomes]. These are as follows:
1. Is one willing to hold the investment for 10 years, even if the market were closed for the entire period? [Buffett's key quote in this respect is 'If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes']; and
2. Is there a margin of safety in the price paid versus the value received? [Buffett's key quote here is 'Price is what you pay, value is what you get.']
In a nutshell, these are really the only two investing questions that matter. One will of course need to do much work in order to answer the questions for any potential investment, but if the answer to either is in the negative, one simply can't buy, no matter how tempting the situation might appear on its surface. Doing so would be speculation, not investment. And to conclude with another Buffett quote, 'Speculation is neither illegal, immoral nor--in our view--financially fattening.'