2001: Which business schools teach investing correctly?

CHARLIE MUNGER: He wanted to know what business school a young man should —

WARREN BUFFETT: Oh, business schools.

CHARLIE MUNGER: — go to.

WARREN BUFFETT: Yeah. Well, I would say this, that I think Bruce Greenwald’s class at Columbia is very good. He gets in a lot of people that are practitioners. So there’s a lot of practicality to the course.

And I think Bruce is good. He’s got a new book coming out probably within the next six months or so that will deal with that.

And then there also has been endowed, at the University of Florida, certain courses relating to value investing. And I think there’s been one at the University of Missouri.

So I would suggest you at least check out the curriculum at the University of Missouri and Columbia and Florida. And do a little comparison and maybe check with a few graduates — recent graduates — as to what kind of experience they had.

If you can find them, I think that’s the best system for evaluating a place. But those three, at least, have courses that, based on the catalogue, sound like they might be of interest to you.

Charlie?

CHARLIE MUNGER: Yeah. A huge majority of the business school teaching on the field of investment of (inaudible) portfolios of securities is not what we believe and not what Warren was taught years ago by Ben Graham. There’re just little pockets of our attitude left. There’s one at Stanford. Jack McDonald?

WARREN BUFFETT: Yeah, sure. Yeah, that’s graduate school. But yeah.

CHARLIE MUNGER: It’s graduate school. And what’s interesting about that is I think it’s the most popular course in the whole Stanford Business School. They’ve got some kind of a bidding system. And yet, I asked Jack how he felt and he said he felt lonely.

He’s got the most popular course, but in the whole professoriate, dealing with investment matters, the Jack McDonalds are a little clan of their own in a side pocket, so to speak.

Now, they’re right. And they can take whatever consolation they get from that. But mostly, if you go to business school you will learn a lot of things we don’t believe. (Laughter)

WARREN BUFFETT: Jack — Bob Kirby comes in and works with Jack sometimes, too. And Bob has got a terrific mind, in terms of investment. I mean, there’s no question about that.

You know, it’s not the easiest school in the world to get into and it is at the graduate level. But there are these occasional little anomalies, as they would say, in the teaching world.

I mean, what you really want a course on investing to be is how to value a business. That’s what the game is about. I mean, if you don’t know how to value a business, you don’t know how to value a stock.

And if you look at what is being taught, I think you’ll see very little of how to value a business.

And the rest of it is playing around, maybe, with numbers or, you know, Greek symbols or something of the sort. But it doesn’t do you any good. I mean, in the end, you have to decide, you know, whether you’re going to value a business at $400 million or $600 million or $800 million.

And then you compare that with the price. And that’s what investing is. And I don’t know any other kind of investing, you know, basically to do.

And there — that just isn’t taught. And the reason it isn’t taught is because there aren’t teachers around, you know, who know how to teach it.

I mean, they don’t know themselves. And since they don’t know themselves, they teach something that says, “Nobody knows anything,” which is the efficiency market theory. (Laughter)

And if I didn’t know how to do it — and if I ever teach physics, I’m going to come up with a theory that nobody knows anything, because it’s the only way I can get through the day, you know? But — (Laughter)

It’s fascinating to me how, you know, the really great universities operate in this respect.

If you get a sacred writ, I mean, you get in the finance department because you sign on, you know, to whatever the present group thinks. And if they think the world is flat, you’d better think the world is flat too, you know? And your students better answer that the world’s flat when they get it on exams.

I would say investment — finance — teaching in this country, in general, is kind of pathetic.

CHARLIE MUNGER: Well, I think the business schools do a pretty good job when it comes to accounting —

WARREN BUFFETT: Oh, accounting, sure, sure.

CHARLIE MUNGER: — or personnel management, or — there’re a whole lot of subjects I think they do quite well with. But they miss one enormous opportunity.

If you learn to think intelligently about how to invest successfully in businesses, you’ll become a much better business manager than you will if you aren’t good at understanding what’s required for successful investment.

So they’re missing a huge opportunity to improve the management profession by doing such a lousy job in teaching investment.

WARREN BUFFETT: Yeah, see, Charlie and I see CEOs all the time who, in a sense, don’t know how to think about the value of businesses they’re acquiring. And then, you know, so they go out and hire investment bankers.

And guess what? The investment banker tells them what to do, tells them to do it because they get 20X if they do it and X if they don’t do it. And guess how the advice comes out.

So it’s a — when a manager of a business feels helpless, which he won’t say out loud, but inwardly feels helpless in the question of asset allocation, you know, you’ve got a real problem.

And there aren’t — they have not gone to business schools that have given them any real help, I think, in terms of learning how to think about valuation in businesses. And, you know, that’s one of the reasons that we write and talk about it some, because there’s a gap there.