To Allocate Capital, You Need a Good Search Strategy

'Keeping America Great' at Columbia with Warren Buffett and Bill Gates

At the 2009 CNBC Town Hall Event called “Keeping America Great” at Columbia University with Warren Buffett and Bill Gates (video here), Buffett said that to allocate capital, you need a good search strategy. Developing this strategy requires a lot of hard work, “turning pages” as Buffett calls it:

If you are going to spend a lot of time on investment, you know I just advise looking at as many things as possible and you will find some bargains. And when you find them, you have to act. … And you have to find them yourself. The world isn’t going to tell you about great deals. You have to find them yourself. And that takes a fair amount of time. So if you are not going to do that, if you are just going to be a passive investor, then I just advise an index fund more consistently over a long period of time. … Good businesses are going to become worth more over time. And you don’t want to pay too much for them so you have to have some discipline about what you pay. But the thing to do is find a good business and stick with it.

It is not possible to pick the bottom. Learn how to value companies, practice until you get good, and buy when you find a good business that you understand, with good management, available at an attractive price.

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