2022: What sparked the shift in Buffett's investment style?

WARREN BUFFETT: And you can say, why would it take guys that long to learn?

And — well, we’ve got a few minutes before lunch. We should — let’s address that problem. Because I did bring something along on that.

I started buying stocks when I was 11. I’d been reading every book in the library on it. I loved it. My dad loved — you know, it was his business and I’d get to go down to his office and I’d read the books down there.

And I saved the money, and finally, by the time I was 11, I could buy a stock. And I could tell you, at that time — I went to New York Stock Exchange when I was nine. My dad took us to New York — each kid to New York once — and he took me, and I went to the New York Stock Exchange, and I was in awe of it.

I could tell you how the specialist system worked, and the odd lot arrangements, and I could tell you the history of finance, and all of these things.

And then I got very interested in technical analysis, and charted stocks, and did all kinds of crazy things. Hours and hours and hours. And saved money to buy other stocks. And tried shorting. And I just did everything.

And then, when I was either 19 or 20, and I can’t remember exactly where I did it or something, I picked up a book someplace.

It wasn’t a textbook at school, but it was in Lincoln, Nebraska. And I — you know, I looked at this book, and I saw one paragraph, and it told me I’d been doing everything wrong. (Laughs)

I just had the whole approach wrong.

I thought I was in the business of trying to pick stocks that would go up.

And, in one paragraph, I saw that that was totally foolish.

And I’ve brought something that is really interesting. Let’s put up — what did we call this chart?

Oh, here we are, yeah.

Let’s put up [slide] illusion one. Done. There we have it.

You know, now if you look at that, some people will see two faces, some people will see a vase, and some people will look a long time and only see two faces. But the mind flips from one side to another, and there’s some name for it that — they call it “ambiguous illusions” or something of the sort.

There’s other things that talk about aha moments — or, in the old comic strips with Popeye, Wimpy would have a little balloon over his head, and the lightbulb would go on.

There’s this point where all of a sudden you see something you haven’t seen. Well, it took me — I had an illusion that I was looking at, we’ll say in that one, two faces.

Go to the — let’s go to the one labeled two.

And if you’re looking at it from one side, it looks like a rabbit, and if you look the other way, it looks like you’re looking at a duck.

And, you know, the mind is a very funny place.

And I think people call it an apperceptive mass, when you have all kinds of things going on in your mind. And they go on for years, and they sit there and get lost (laughs).

And then, all of a sudden, you see something different than what you were seeing before.

Now, it took me, in stocks, which I was intensely interested in, and I had a decent IQ, and I was reading and thinking, you know. And it was important to me to make some money on it. I had every motivation in the world. And then I read a chapter — I read a paragraph, actually — in chapter 8, I think it was, of the Intelligent Investor, and it told me that I wasn’t looking at the duck, I was looking, you know — now it was the rabbit — whatever it may be.

And whether you call it a lightbulb” — whether you call it, you know, a moment of truth — whatever it may be — and that happened to me in Lincoln. I mean, it changed my life.

If I hadn’t read that book, I don’t know how long I would have gone on looking for head-and-shoulders formations, and 200-day moving averages, and the odd lot ratios, and a zillion things. And I love that kind of stuff. Except it was the wrong stuff I was looking at.

And I’ve had that happen — and Charlie’s had it happen, I’m sure. It happens a few times in your life. And all of a sudden, you see something important that, why in the hell didn’t I see this in the first place? Maybe it’s a week ago, maybe it’s a year ago, maybe it’s five years ago.

Maybe it’s learning how to get along with people, you know. I mean, whether, actually, it’s better to be, you know, kind, or not, you know.

Or whether —I mean, they’re just — learning how — if you want the world to love you, what you have to do, or whatever.

You know it when you see it, but you didn’t see it for ten years before.

And I don’t know whether Charlie’s got some thoughts on that or not, but that’s happened in a few situations in business, where I’ve looked at a company for a decade. And then there’s something that just all gets rearranged in your mind, and, you know, you can say, well, why didn’t I see this five years ago?

But I’ve had it happen a few times, obviously — and everybody here has — just in different areas of their lives.

And you think, how could I have been so stupid?

Well, that’s what Charlie’s — when he was in the law practice, he had a partner, Roy Tolles. And every smart guy that would get in trouble — usually it was guys, and usually it was with women — and, you know, they’d come into the office, and they’d look, you know, down-faced and everything. And they’d say, it seemed like a good idea at the time, you know. I mean — (Laughter)

And their lives unraveled, you know, in many cases.

So, there is that apperceptive mass that’s sitting in there inside somehow, and every now and then it produces some insight.

It’s better, actually, if it produces insight into your behavior than whether it produces insight to make money.

And some people never get it. And they wonder why — you know, whether their kids hate them, or whether there’s nobody in the world that would give a damn whether they live or die.

In fact, they prefer they die because they’ve been courting them for their art collection, or whatever it may be. It’s just —

Charlie would say, you know, just write your obituary and reverse engineer it.

And not a crazy idea, but, Charlie, I don’t know. What do you know about apperceptive masses? Which are (laughs) you know, optical illusions.

CHARLIE MUNGER: Well, I know that that’s the way the brain works. And that it’s easy to get it wrong. And part of the trick is to get so you correct your own mistakes. And we’ve done a lot of that.

WARREN BUFFETT: Yeah.

CHARLIE MUNGER: Frequently way too late.

WARREN BUFFETT: Yeah. We’ve done better with the mistakes than we have with the good — the reasonably good ideas.