Business schools are often hailed as the best - and sometimes the only - way to get started as an investor. However, they are notoriously expensive and the best ones always have more applicants than open positions. Do you have to have gone to one to be a good investor? Hereâs what Warren Buffett (Trades, Portfolio) had to say on the subject at a Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) shareholder meeting.
Is it worth it?
Buffett himself went to business school, so it is perhaps unsurprising that he is not actively against the idea of studying investing as an academic subject. He does, however, think that business schools can get it wrong:
âWeâre not anti-business school at all. We do think that the âpriesthood,â when talking about efficient market theory 30 to 40 years ago, strayed pretty far from the reality of investing.â
Efficient market theory, broadly stated, is the belief that the price of a security reflects all available information and, therefore, it is impossible for investors to buy stocks at below intrinsic value. Buffett has pointed out on numerous occasions the flaws in this type of thinking - indeed, his own record is living proof that markets are not always efficient - and nowadays it does not hold nearly as much sway as it did in the 1970s and 1980s. It is, however, a good example of how academia can become divorced from the reality that it is attempting to describe.
For this reason, Buffett does not view a business school education as necessary. Indeed, he would much prefer to hire someone with a deep understanding of the value investing philosophy, rather than a top business school graduate:
âIf I could hire one of the top five graduates of the top two or three business schools [or] somebody who was bright, but had chapter eight of âThe Intelligent Investorâ in their bones, I would take the chapter eight person.â
Chapter eight of Benjamin Grahamâs "The Intelligent Investor" is titled "The Investor and Market Fluctuations." In many ways, it is a rebuttal to the efficient market theory, though Grahamâs writing predated most of the academic literature on the subject. I would recommend all value investors read this chapter (and indeed, the whole book - it is a much gentler read than "Security Analysis"), as it explains succinctly the psychological reasons why stocks become over- and undervalued.
As Buffett has said on several occasions, what he does is not overly difficult (though it does seem that way to the rest of us):
âWhat we do is not a complicated business. It is a disciplined business, but it does not require a super-high IQ or anything of the sort. And there are a few fundamentals that are incredibly important - you do have to understand accounting, it helps to think like a consumer, and all of that. But it just doesnât require advanced learning.
I didnât want to go to college - I donât know if I had done better or worse if I had just quit after high school and read the books that I read and all of that. I think if you run into a few great teachers, and they just change the way you see the world youâre lucky - but you can find them in academia and you can find them in ordinary life.â
So Buffettâs point is not that business school isnât worth it. Rather, it is just one of the many ways by which someone can enrich their understanding of investing, as well as seek out mentors and teachers.
Disclosure: The author owns no stocks mentioned.
Read more here:
- Jeffrey Gundlach: Nominal GDP Would Be Negative If the US Did Not Take on Debt
- Seth Klarman: What Happens When Bad Money Drives Out Good Money
- Joel Greenblatt: Look for the Easy Gains
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