2008: “If we can’t make a decision in five minutes, we can’t make it in five months.”

AUDIENCE MEMBER: Hello, Mr. Buffett. Hello, Mr. Munger. My name is (inaudible) (PH), and I’m from Munich, Germany. I would like to get back to your point that, as a professional investor, one should be able to act quickly and decisively. That means being able to know what the intrinsic value is and to act within a day or within an hour if the market offers an opportunity.

My question is, how large is the universe of companies which you have in your head whose intrinsic value you know, where you would be able to act within a day or two if the market offered an attractive price to you? And, secondly, how come you suddenly invest in southern Korea or China?

WARREN BUFFETT: Yeah. We can act — our immediate decision is whether we can figure the — what’s being offered out to us or not. I mean, there’s a go/no-go signal.

And Charlie and I are often thought to be rude when we think we’re just being polite and not wasting the other person’s time. So as they start mid-sentence in their first conversation with us, we just say, “Forget it.” And Charlie is pretty good at that, and I’m picking it up. (Laughter)

It’s — we know very, very, very early in a conversation whether somebody’s talking about something that there’s any chance is actionable by us. And we don’t worry about the ones we miss. We want to make sure that we don’t waste any time thinking about things that, when we get all through thinking about them, we’re not going to know enough to make the decision on. So we just rule those out. And that rules a lot of things out.

But then, if it gets through a couple of these filters and makes it into an area where it says this is something that we know enough about to make a decision on, we’re ready to move right then. So we make decisions — we can make a decision in five minutes very easily. I mean, it just is not that complicated.

Now, we know about a number of businesses and industries, and there’s a lot of businesses and industries we don’t know anything about. We know a lot of things about certain kinds of bonds, and we know — there’s a variety of things we know about, and it’s nice if we can expand that universe of knowledge. But the most important thing is that anything that gets through is in an area of knowledge.

And the truth is, if we can’t make a decision in five minutes, we can’t make it in five months. You know, we’re not going to learn enough in the following five months to make up for the fact that we went in deficient in the first place.

So it’s just not a problem around Berkshire. If we get a call and somebody says either they’ve got a business for sale or — that’s what we’re going to get on the calls — or if I’m reading a paper, or a magazine, or an annual report, or a 10-K, and I look at a price and there’s a significant differential between price and value, we move right then. And Charlie and I don’t need to talk to each other about it. I mean, we both think the same way, and we have generally similar spheres of knowledge.

Charlie?

CHARLIE MUNGER: It’s — the answer to your question is, we could make a lot of decisions about a lot of things very fast and very easily. And the — and we’re unusual in that respect. And the reason we’re able to do that is there’s such an enormous other lot of things that we won’t allow ourselves to think about at all. It’s just that simple.

I mean, I have a little phrase when people make pitches to me, and about halfway through the first sentence, I say, “We don’t do startups.” They don’t exist. Well, if you blot out startups, there’s a whole layer of complexity that goes out of your life. And we’ve got other little blotter-out systems. And using those, we finally find out that what remains is still a pretty large territory that we can handle. You think that’s fair, Warren?

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: Yeah.

WARREN BUFFETT: And an awful lot of giveaways that people, in the first sentence or two, throw out that, you know, we just know we aren’t — you know, it isn’t going to work. (Laughs)

And we waste very — I would say — we waste a lot of time, but we waste it on things we want to waste our time on. (Laughs) We’re very selective about that, and then we’re good at it. We waste a lot of time. But we’re not going to waste it on things we don’t want to waste it on.