Warren

Buffett: How to make $3.5bn on a $500m investment

16th December 2014 by Alec Hogg

WARREN BUFFETT: We sold it from 160 to 200 or something like that.

INTERVIEWER: A nice, tidy profit.

WARREN BUFFETT: Yeah, we made about $3.5bn on a $500m investment, as it turned out. I still

sold it way, too soon. Since I sold it, they must have gone off and said ‘Warren sold. It’s time to let it

go up’.

INTERVIEWER: Yes, you lost money on the table.

WARREN BUFFETT: A lot of money.

INTERVIEWER: Dummy. That’s what Charlie Munger would say.

WARREN BUFFETT: Dummy. That’s exactly right. Charlie would say ‘you’ve done it again’.

INTERVIEWER: But you can’t always, keep trying. For the average person, who’s maybe never

bought a stock before, what’s your advice about that? You can’t constantly sit there and wait, and say

‘it’s going to go higher’.

WARREN BUFFETT: We don’t even think about that. What we think about is ‘how much is it

selling for’ and ‘how much do we think it’s worth’. We bought it at 35-billion, effectively. I thought

the company was worth at least, $100bn.

INTERVIEWER: How did it come to your attention? How do you find a stock like PetroChina?

WARREN BUFFETT: I sat there in my office and I read an annual report, which fortunately, was in

English and it described a very good company. It talked about the oil reserves, talked about the

refining, and talked about the chemical and everything else. I sat there and read it, and thought to

myself ‘this company’s worth about 100-billion’. Now, I didn’t look at the price first. I look at the

business first, and try to figure out what it’s worth because if I look at the price first I’ll be influenced

by that. I look at the company first. I try to value it. Then I look at the price and if the price is way

less than what I’ve just valued it at, I’m going to buy it.

INTERVIEWER: How do you value it?

WARREN BUFFETT: Well, that’s the trick. It’s essentially, what I would pay for the whole

business if I could buy it. When we sold the stock, it was valued at probably 250 to 275-billion and

we thought that was a fair price. Now oil had gone up from $30.00 per barrel to $75.00 per barrel –

and now it’s up even further. Today…well, yesterday anyway, I believe PetroChina is the second

most highly valued company in the world – higher than VE – next to ExxonMobil.

INTERVIEWER: Have you sold the entire stake?

WARREN BUFFETT: Yeah, I have. I wish I hadn’t, but I have.

INTERVIEWER: As of when?

WARREN BUFFETT: Well, we sold it over a period of time. If it goes down a lot, we’d buy it

back.

INTERVIEWER: Would you ever buy or sell a stock, based on political pressure?

WARREN BUFFETT: No.

INTERVIEWER: People, being upset about Darfur had nothing to do with why you sold the stock.

WARREN BUFFETT: No. The Chinese Government owns 88 percent of PetroChina. They also

own control 29 out of 30 of the largest companies in China. The Chinese Government is the one that

has a position in relation to the Sudan. If you own any one of the 30 largest publicly traded

companies in China, you would have the Chinese Government as your majority partner. The question

is: are you responsible for their actions?

INTERVIEWER: You’re going to China next week for a ribbon-cutting ceremony.

WARREN BUFFETT: That’s sort of the limit of my abilities. That’s what they use me for.

INTERVIEWER: You’re pretty good at cutting ribbons.

WARREN BUFFETT: I’ve gotten used to it, yes.

INTERVIEWER: Are you looking at other companies in China?

WARREN BUFFETT: The answer is, pretty much, no. I don’t look based on countries or that sort

of thing. I just read any report I can and I try to figure out whether something is cheap.

INTERVIEWER: But how would you have found a report like PetroChina four years ago? This

was not a name that many people would have heard.

WARREN BUFFETT: Other guys read Playboy. I read annual reports.