VIDEO: Warren Buffett Interview on Fox Business (Oct. 18,2007)

The Fox Business Network which commenced operations last week, hit it off to a great start with this great one-hour interview with Warren Buffett. The interview was conducted by Liz Clayman, formerly of CNBC, who recently joined the network. This was not her first interview with Buffett, and as always, Buffett's humility, candor and wisdom does not disappoint.

Below are some of the video excerpts from the interview, along with the gems that I extracted and some personal thoughts (in blue and tagged with 'IV').

On the Economy (6 Minutes)

"We don't really worry that much about Fed policy, and actually we don't really worry that much about a recession - I hope I live to see a couple recessions."

IV: Value Investors do not pay too much attention to macroeconomic figures such as interest rates, inflation, unemployment figures or the trade balance. They only focus on the fundamentals of the business they are analyzing. As they are long term investors, they know that the businesses they invest in will one day go through a recessionary period. It is inevitable. It is for this reason that when analyzing a company, Value Investors look at the 10-year financial history, and assess how well the business fared during the tougher years.

IV: "I hope I live to see a couple recessions." - This is typical of the Value Investing philosophy - Value Investors love market weakness - as these are the times when the best buying opportunities are available. Incidentally, I recently met with the Managing Director of one of Israel's largest mutual funds businesses, and he was telling me how tough this environment was for him, and how these were dark times for the business. His fund managers are not seeking bargains now, but rather taking the market's lead, and exiting their positions.

"When the tide goes out, you see who's been swimming naked".

IV: This is one of my favorite Buffett quotes - one he has used many times. What he means by this is that it is easy to do well as an investor when the market has been rising and you are buoyed by it. The real test however is when the market suffers significant weakness, and investors flee to 'quality' and defensive companies. One such company is Buffett's Berkshire Hathaway (Ticker:BRK)- which has increased 20% since last July.

On Selling Petrochina (5 Minutes)

"Unfortunately I sold it a little too soon..... we made about $3.5 billion on a $500m investment... I still sold it way too soon.... Charlie would say 'you've done it again!".

IV: This type of comment is vintage Buffett, and which has endeared him to fans and investors around the world. He doesn't speak with bravado declaring 'look I turned $500m into $3.5b but rather - 'I screwed up' - I sold it too soon. It's this type of candid talk which Value Investors look for in the management of businesses they are analyzing.

"It was a 100% decision based on valuation."

"We think about 'how much is it selling for?... 'how much do we think it's worth?"

IV: Value Investors do not try to time the market. They do not seek 'bottoms' or 'tops'. Their investments are based on their estimate of what the entire business is worth.

When asked 'How did [Petrochina] come to your attention? How do you find a stock like that'?

"I sat there in my office, and read an annual report, which fortunately was in English - and it described a very good company..... I sat there and said to myself this company's worth about $100 billion (and at the time it was trading for $35 billion). Now I didn't look at the price first. I looked at the business first, and tried to figure out what its worth - because if I look at the price first I'll get influenced by that. I look at the business first, I try to value it and then I look at the price. If the price is way less than what I just valued it at, I'm going to buy it."

"Other guys read Playboy. I read annual reports....I just read every report I can and figure out whether something is cheap."

IV: Buffett's message is clear. You've got to do the work yourself. No shortcuts. Don't listen to analyst reports or rumors. Do your own independent research. Read the annual reports. Look for what the rest of the market is not seeing.

On Buffett's Best Investment Ever (30 seconds)

IV: Those who know Buffett's history will know already that this investment is GEICO. The story goes that whilst studying at Columbia under his mentor Benjamin Graham, the 21-year old Buffett discovered that Graham was on the Board of GEICO. One Saturday morning, he boarded a train and headed to GEICO's headquarters, which were closed. He found a janitor and pleaded with him to take him to someone who worked for the company. The janitor took him up to the only person in the building at the time - Lorimar Davidson, GEICO's Chief Investment Officer. The young Buffett made enough of an impression on the senior executive that Davidson ended up chatting with him for 5 hours. By the end of that Saturday Buffett recognized GEICO business potential, and why Graham had invested in the business. Soon after Buffett invested 75% of his net worth - $9,000 and sold a couple of years later for a 50% profit. In the late '70's Buffett returned to GEICO, and invested more than $47 million into the company. Today that investment is worth more than $9 billion.

You can read a 1951 analysis of GEICO written by a young Buffett here - "The Security I Like Best" - (thanks to Oded for the link).

Buffett on Bear Stearns (50 seconds)

Buffett on the Yankees (2 mins)

Buffett on Succession (1 min. 41 secs)

"All Three [CEO's] of them are far better than I am".

IV: In my opinion, this is one of the secrets to Buffett's success. Buffett's investment company owns 49 private businesses, that employ more than 217,000 employees. The CEO's that run these businesses are all independently wealthy and do not really need to work. Yet they continue to work under and remain extremely devoted and loyal to Buffett. The reason for this is simple: Buffett refuses to take credit for Berkshire's success. Rather he gives all the credit to his managers, often making statements like "All three are far better than me". This is how you earn long-term loyalty. In contrast, a CEO who takes all the credit for himself will inevitably chase away great executives and managers.