How To Start an Investment Fund | Warren Buffett

What I was worried about was not how I would behave, but how they would behave. A father-in-law that gave me everything he had in the world, you know. And I didn't mind taking everything he had in the world. Why do people, very bright people, risk losing something that's very important to them to gain something that's totally unimportant?

I don't think you want to manage other people's money until you have a vehicle and can reach the kind of people that will be in sync with you. I think you ought to have your own ground rules as to what your expectations are, when they should send you roses and when they should throw bricks at you.

It'd be almost impossible to go broke without borrowed money being in the equation.

Well, it's a very interesting question because I've faced that and I sold securities for a while, but in May of 1956, I had a number of members of my family. I'd come back from New York and they wanted me to help them out with stocks as I had earlier before I'd taken a job in New York. And I said I did not want to get in the stock sales business, but I wanted to — I enjoyed investing. I was glad to figure out a way to do it, which I did through a partnership form. But I would not have done that if I thought there was any chance really that I would lose them money. And what I was worried about was not how I would behave but how they would behave because I needed people who were in sync with me. So when we sat down for dinner in May of 1956 with seven people who either were related to me or one was a roommate in college and his mother, I showed them the partnership agreement. I said, 'You don't need to read this. You know, there's no way that I'm doing anything in the agreement that there's any way that you know — you don't need a lawyer to read it or anything of the sort.' But I said, 'Here are the ground rules as to what I think I can do and how I want to be judged, and if you're in sync with me, I want to manage your money because then I won't worry about the fact that you will panic if the market goes down or somebody tells you something different.' So, we have to be on the same page. And if we're on the same page, then I'm not worried about managing your money. And if we aren't on the same page, I don't want to manage your money because you may be disappointed when I think that things are even better to be investing and so on. So I don't think you want to manage other people's money until you have a vehicle and can reach the kind of people that will be in sync with you. I think you ought to have your own ground rules as to what your expectations are, when they should send you roses and when they should throw bricks at you, and you want to be on the same page. And that's one reason we didn't have a single institution in the partnership, because institutions meant committees, and committees meant that...

What's that?

Yeah. Well, and a father-in-law that gave me everything he had in the world, you know, but I didn't mind taking everything he had in the world as long as he would stick with me and wouldn't get panicked by headlines and that sort of thing. And so it's enormously important that you don't take people that have expectations of you that you can't meet. And that means you turn down a lot of people. It means you'd probably start very small and you get an audited record. And when you've got the confidence where if your own parents came to you and they were going to give you all their money and you were going to invest for them, you've got the kind of confidence that you'll say, 'I may not get the best record, but I'll be sure that you get a decent record over time.' That's when you're ready to go on it. Let me tell you a story that I tell young lawyers who frequently come to me and say, 'How can I quit practicing law and become a billionaire instead?' And so I say, 'Well, that reminds me of a story they told about Mozart.' A young man came to him and he said, 'I want to compose symphonies and I want to talk to you about that.' And Mozart said, 'How old are you?' And the man said, '22.' And Mozart said, 'You're too young to do symphonies.' And the guy says, 'But you were writing symphonies when you were 10 years old.' He says, 'Yes, but I wasn't running around asking other people how to do it.'