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442- Sketchy Going Public

InvestED: The Rule #1 Investing Podcast

CHAPTER

Warren Buffett's Standards and Observing Companies During a Recession

This chapter explores the possibility of an individual conducting case studies on companies that meet Warren Buffett's standards and discusses the importance of observing how a company navigates through a recession. It highlights the various problems that a company can face during a recession and concludes by stating that good companies become stronger while bad companies may go bankrupt.

00:00
Speaker 2
I think that's true. Yeah. Maybe he's doing that for fun on the side. I wish I could. I would love it if he would do that. Oh, wouldn't that be fun? Like, I would just love a case study. Like, what would he pick out of some tiny little company? I mean, maybe, maybe there are not companies that are up to his standards. That's the big question. I mean, that's what we've been talking about. Are these companies up to a Buffett standard? And I mean, what you basically said is almost all of them are probably not, but some might be. Yeah.
Speaker 1
And one of the problems is they may not have a very long track record as a company, right? They might not have been around a number of years. And one of the things that Warren has taught me is that I really want to be looking for a business that's been around long enough to go through a recession. And the way he puts it is, you know, we want to see 10 years of data. Well, up until just the last decade, 10 years of data always included a recession, always for 140 years, 10 years of data would give you a recession. So it's only the last 13 years where that hasn't happened. So in general, you're going to want to see this through a recession. Well, I
Speaker 2
mean, we do get to see the pandemic influence,
Speaker 1
right? That was too quick.
Speaker 2
You think that
Speaker 1
was too quick? Yeah. Well, you know, I think it's instructive. It's a really good point. That would be a time period where if you were leveraged, yeah, you could have real problems. Yeah.
Speaker 2
It showed supply chain problems. It showed international problems. It showed communication problems. It showed the ability to shift quickly or not. I found it instructive. I mean, yes, it's not a true recession, but yeah. Right.
Speaker 1
Right. So it was a month, this lasted like several weeks before they poured so much money into the economy that it took us out of it. And then it was just, you know, if you can't get your stuff, which would not be a normal business problem in a recession, you know, or
Speaker 2
if you're, you know, office real estate, that showed a few problems in that industry, didn't
Speaker 1
it? Yeah. But generally speaking, we want to see that the tide goes out. What happens to this company? Right. Because Warren again quips that, you know, when the tide goes out to get, you get to see who's been swimming naked. And what he means by that is who, who, what companies out there have overextended themselves in such in ways that you might not perceive on just short term numbers, which
Speaker 2
is what you're saying about the debt load. Yeah.
Speaker 1
Yeah. That's one of the problems of a new company that's out there with a pink chick listing. You may not be able to see enough time where this thing has really gone through a bad bump in the economy. So good companies will come out of a recession stronger than they went in. And bad companies may not come out of it at all. They may go bankrupt. Would you come out of it
Speaker 2
weaker?

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