They don’t need it in their – it’s an unnecessary instrument. Now, you know, they will create instruments that the public will buy. And you can just count on that. Wall Street’s been doing that for – since they met under the buttonwood tree in 1792 or whatever it was on the exchange.

But if you’re investing, if I’m going to buy a half interest in a McDonald’s stand and you’re going to run it, or a McDonald’s franchise, you’re going to run it, I look to the business to determine whether I’ve made a good investment. And I’m concerned about, you know, whether we have new competition, how we do over the years. But it’s the business I look at. When you’re just looking at the price of something, you’re not investing.

I mean, if you buy something, Bitcoin for example, or some cryptocurrency, you’re not looking to the asset itself to produce anything. If you buy an apartment house, you’re looking at how the apartment house does. You buy a farm, you look how the farm does. If you buy a whole business, you’re looking at how the business does. If you buy a part of a business, why shouldn’t you look at how the business is going to do.

People get charmed by lots of action and the fact that things are liquid and all of that. And it does have repercussions back into the market. When you get something like, you know, ETN arrangement on the, you know, super charged on the VIX, I mean, where you can lose 90% of your money in one day, I mean, that really doesn’t belong with the word, “Investment.” I mean, it’s just a gambling form of activity.

And people – if they just think of stocks as pieces of business, they’d be so much better off than thinking of those little things that move around in price.

But some people are not actually emotionally or psychologically fit to own stocks. But I think more of them would be if you get educated on what you’re really buying, which is part of a business. And the longer you hold stocks, the less risky they become, whereas the longer the maturity of a bond, the more risky it becomes.

It’s not easy psychologically for many people. But I’ve been teaching since I was 21. I taught my first class on investments, and I had a class last week with 11 schools, 220 students. And some of them get it and some of them don’t.

Now, people would rather gamble. I mean, the idea that you can double your money in six months, that’s just going to – it’s why people go to the races, why they go to Vegas. You know, whatever it may be. They even know the odds are against them. And they still do it. I mean, it’s a strong instinct to want to get rich fast. And I don’t know how to do it.

The transcript is worth a read. Just be aware, there’s a lot of pointless banter to wade through.

Source:
Transcript: Warren Buffett Speaks with CNBC

This article was republished with permission from Novel Investor.