By Roger Lowenstein
I can make this review quick by saying that it is about Warren Buffet; enough said. But I would not make justice to the long hours reading this long-also book.
The Making of an American Capitalist is not only the story of Buffet; it is also a deconstruction of what makes value investing, whose insights come directly from one of the most admirable minds in the investing world.
And I personally believe (and I am not pretending to be objective here at all) that Buffet's way of living could be the most correct; measured, thoughtful and driven, with a sense of pourpose and minimalism.
While Lowenstein had the advantage of having direct access to Buffet, other reviewers say that The Snowball: Warren Buffet and the Business of Life is better. But I don't have plans to read it. Too much Buffet for me by now.
Amazon Page for details
My Rating: 9 / 10
Click Here to Read My Notes
I can make this review quick by saying that it is about Warren Buffet; enough said. But I would not make justice to the long hours reading this long-also book.
The Making of an American Capitalist is not only the story of Buffet; it is also a deconstruction of what makes value investing, whose insights come directly from one of the most admirable minds in the investing world.
And I personally believe (and I am not pretending to be objective here at all) that Buffet's way of living could be the most correct; measured, thoughtful and driven, with a sense of pourpose and minimalism.
While Lowenstein had the advantage of having direct access to Buffet, other reviewers say that The Snowball: Warren Buffet and the Business of Life is better. But I don't have plans to read it. Too much Buffet for me by now.
Amazon Page for details
My Rating: 9 / 10
Click Here to Read My Notes
“It’s not that I want money,” Warren replied. “It’s the fun of making money and watching it grow.
“Eventually we were making $50 a week,” he recalled. “I hadn’t dreamed life could be so good.”
“Most of us were trying to be like everyone else,” Norma Jean noted. “The girls all buttoned their sweaters in the back. I think he liked being different.
“He was what he was and he never tried to be anything else.
Sitting in the breakfast nook at home, at an age when other boys didn’t get past the sports pages, he was already studying the stock tables.
Warren replied that college would be a waste. He had delivered almost 600,000 papers and in the process earned over $5,000.23 Money was coming in from newspapers, from Wilson Coin Op, and from a Nebraska tenant farmer. What’s more, he had read at least one hundred books on business. What, in short, did he have to learn?
In fact, he was spending a lot of his time at a brokerage office in Philadelphia, following various stocks. But he didn’t have a system for investing—or if he did, it was haphazard. He would study the charts, he would listen to tips. But he didn’t have a framework. He was searching.
The cover was a joke; Warren’s friend Jerry Orans was one of the editors. In truth, Warren was everything that the cover boy was not. He was a nondrinker, was uncomfortable with women, and was not a big socializer.
Warren usually did not have a date, but—of importance for a future investor—he was comfortable without being part of the crowd.
Ben Graham opened the door, and in a way that spoke to Buffett personally. He gave Buffett the tools to explore the market’s manifold possibilities, and also an approach that fit his student’s temper. Armed with Graham’s techniques, Buffett could dismisss the oracles and make use of his native talents.
The market, they argued, was not a “weighing machine” that determined value precisely. Rather, it was a “voting machine,” in which countless people registered choices that were the product partly of reason and partly of emotion.
The trick was to invest when prices were far below intrinsic value, and to trust in the market’s tendency to correct.
The Graham-and-Dodd investor saw a stock as a share of a business, whose value, over time, would correspond to that of the entire enterprise.
It is an almost unbelievable fact that Wall Street never asks, “How much is the business selling for?”
Graham’s accent was on cheap stocks—“cigar butts,” or stocks that one could pick up almost for free, like spent cigars, and that might have a couple of valuable “puffs” left in them. One of his assignments that year was to research the performance of shares trading for less than $
After we talked for fifteen minutes I knew I was talking to an extraordinary man. He asked searching and highly intelligent questions. What was GEICO? What was its method of doing business, its outlook, its growth potential? He asked the type of questions that a good security analyst would ask. I was financial vice president. He was trying to find out what I knew.
It is extremely difficult to commit one’s capital in the face of ridicule—and this is why Graham was invaluable. He liked to say, “You are neither right nor wrong because the crowd disagrees with you.
He lacked the patience for small talk, and would often disappear to read in the middle of his own dinner parties.
Knapp’s first impression was that “Buffett knew almost every balance sheet on the New York Stock Exchange.
What was most unusual about the young salesman was his appetite for research.
But Buffett was in the wrong job. All that research was wasted on a salesman, who stood to make the same small commission regardless if the idea was any good or not.
I will tell you the secret of getting rich on Wall Street. [Pause.] Close the doors. You try to be greedy when others are fearful and you try to be very fearful when others are greedy.
Graham’s favorite was to hunt for stocks that traded at one-third less than their net working capital—in other words, stocks that were insanely cheap.
Such a trade, taking advantage of price discrepancies in separate markets, is known as arbitrage.
Because of his conservatism, he refused to analyze companies subjectively, preferring to stick to his mathematical guidelines. According to Irving Kahn, an assistant to Graham, when anyone tried to talk to Graham about a company’s products, “Ben would look out the window and get bored.
Buffett was interested in what made one business better than another and wanted to pursue it. But Graham, who mistrusted corporate managements, discouraged Buffett from visiting companies.83 And his formulaic approach cost him.
However elliptical, his answer was the basis for Buffett’s career. Stocks would rise to value; therefore, an investor who trusted his judgment could be patient.
Buffett insisted on not disclosing his stocks because he was afraid that someone would copy him—thus making it more expensive if he wanted to buy more. He wouldn’t talk to anyone—he maintained that he was afraid to talk in bed because his wife might hear.
But behind the cordon of secrecy, he was living a Graham-and-Dodder’s fantasy, picking up small cheap stock after small cheap stock.
People who signed up intuitively grasped that Buffett’s Garbo-like loneness was part of the appeal. When Buffett insisted on secrecy, it was not merely to prevent leaks, but also to prevent intrusions, and to maintain that sweet independence. He wanted no amateur tipsters or second-guessers.
For a stock to merit investment, Buffett had to persuade himself of it, and if he did, what was the use of other opinions?
Temperamentally, he mistrusted advice-givers and financial soothsayers. If the basis for a stock was popular opinion and opinion changed, then what? He was confident that his own analysis would be less fickle.
The next year, Buffett bet $1 million—his biggest plunge ever—on a company that, had they known of it, would have made the doctors gasp. Dempster Mill Manufacturing was an eighty-year-old windmill and farm-implement maker in Beatrice, Nebraska, ninety miles south of Omaha. The windmill business being not exactly another Xerox, Dempster had suffered from static sales and dismal profitability. Buffett had nibbled at the stock—a cheap, typical-Graham play—a few years earlier. In 1961, he snapped up the controlling interest, giving him 70 percent—and staking a fifth of his partnerships’ assets on it. Buffett appointed himself the chairman, a prophetic move (and unusual for a money manager) that signaled an ambition to be something more than just an investor.
Like his teacher, Buffett ruled out any and all high-technology companies as speculative.
Buffett’s passion outside of work was bridge. He had a regular game, the members of which were a sampling of Main Street, U.S.A.—ad executive, Buick dealer, judge, life insurance agent, mortgage man, railroad attorney, and American Automobile Association chapter president. Buffett would show up with a six-pack of Pepsi-Cola and entertain the guys with a stream of jokes and stories. He didn’t talk about the money he was making. The point was, he didn’t have to. He played so intensely he could have been working, only with trumps instead of with stocks and bonds.
What distinguished Buffett was the way he zoned in. He would stare at the cards and calculate the odds like a machine. “He was not emotional,” noted James Koley, a lawyer and occasional partner. “It was just mathematics to him.”
Buffett was enormously dependent on Susie. She paid the bills, took care of the kids, ran their lives. Whatever was outside his range, Susie handled. In particular, Susie shielded Warren from his mother. Even as an adult, he would shake or go mute at the sight of that aging and shriveling tormentor. He did his best to avoid her, and at family gatherings, he would withdraw after dinner on the pretext that he needed to nap.
Buffett was a talker more than a conversationalist. Richard Holland, an Omaha advertising executive, observed that even in social settings, Buffett had a purposeful quality.
He noticed that Buffett was not a chitchatter. “He wanted to talk about something.
Buffett spent the day reading annual reports and business publications and talking on the telephone. With more and more reports to read and stocks to analyze, he was ever in good humor. But it was rather solitary. He often lunched alone, sending out for a cheeseburger and french fries. His tiny staff knew nothing more of his stock picks than his wife did.
Physically, Munger was unimpressive. He had an elfin face, pasty skin, and glasses an inch thick. Though something of a snob and highly judgmental, he had a deep sense of ethics. His smarts were matched by a Churchillian self-assurance and joie de vivre. Asked once if he could play the piano, Munger replied, “I don’t know, I never tried.” Buffett saw in him a kindred intellect and blistering independence.
Like Warren, I had a considerable passion to get rich. Not because I wanted Ferraris—I wanted the independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people. I don’t know where I got that notion from, but I had it. I had lived way under my income for years, saving money.
Bill Otis, a bridge partner, asked him in a kidding vein, “How can you sleep at night after firing all those people?” To Buffett, who had a thin skin where his reputation was concerned, it was no joke. “If we’d kept them the company would have gone bankrupt,” he said. “I’ve kept close tabs and most of them are better off.
Though this has the ring of rationalization, Buffett hated being called a liquidator and vowed that he would “never” lay people off again.
But he had no problem with the results. After a year, Dempster was trimmer but more profitable, and it had $2 million worth of securities to boot. In 1963, Buffett sold it—netting the partnership a $2.3 million profit and nearly tripling its investment.42 Three things had made it work: the initial bargain price, Buffett’s patience in holding on, and his and Bottle’s turnaround.
This is the cornerstone of our investment philosophy: Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.
What was not so apparent was that Buffett was also beginning to think differently—that is, to think in qualitative terms, as well as in the merely numerical terms that had appealed to Graham. When Buffett looked at a stock, he was beginning to see not just a frozen snapshot of assets, but a live, ongoing business with a unique set of dynamics and potential.
Half of his portfolio now was rooted in two very different stocks, which glared at each other like opposing bookends. In Buffett’s terminology, Berkshire’s appeal was “quantitative”—based on price. American Express was based on a subjective view of “qualitative” factors such as the strength of its products and management.
Though he regarded the softer methodology as the less conclusive, Buffett was uncertain where the balance lay. The “main qualification is a bargain price,” he wrote; but he also would pay “considerable attention” to qualitative factors.
He used the letters not just to report results, but to talk about his approach and to educate his readers in a general sense about investing. School was in.
It must be, he added, that people’s emotional distaste for paying taxes blinded them to acting rationally—a misstep that Buffett was careful to avoid.
I am not in the business of predicting general stock market or business fluctuations. If you think I can do this, or think it is essential to an investment program, you should not be in the partnership.
It was enormously important to Buffett that his partners see him as trustworthy.
Why was it, he wondered, that “the high priests of Wall Street,” with their brains, training, and high pay, couldn’t top a portfolio managed by no brains at all? He found a culprit in the tendency of managers to confuse a conservative (i.e., reasonably priced) portfolio with one that was merely conventional.21 It was a subtle distinction, and bears reflection. The common approach of owning a bag full of popular stocks—AT&T, General Electric, IBM, and so forth—regardless of price, qualified as the latter, but surely not as the former.
Ideally, Buffett would have preferred to spread his assets, provided that he could have found, say, fifty stocks that were equally “superior.” But in the real world, he found that he had to work extremely hard to find just a few.
Diversification had become an article of faith; fund managers were commonly stuffing their portfolios with hundreds of different stocks. Paraphrasing Billy Rose, Buffett doubted that they could intelligently select so many securities any more than a sheik could get to “know” a harem of one hundred girls.
Anyone owning such numbers of securities … is following what I call the Noah School of Investing—two of everything. Such investors should be piloting arks.
Owning so many stocks was an admission that one could not pick the winners.
Buffett scarcely thought about spending his wealth on material comforts. That wasn’t why he wanted it. The money was a proof: a score-card for his favorite game.
Whatever was the object of Scotty Hord’s fantasies—toys, trucks, cars, paintings, jewelry, silks—Buffett could have had. But they didn’t mean a thing to him. Buffett’s fantasy was to be in Kiewit Plaza, piling up more money day after day.
Beneath his becoming lack of acquisitiveness, Buffett had a certain obsession. In his mind, every dime had the potential of Queen Isabella’s lost fortune. When a nickel today could become so much more tomorrow, spending it drove him nuts. He didn’t even buy life insurance, figuring that he could compound the premiums faster than an insurance company.
When it came to money, Buffett seemed to have twin personalities—it was nothing to him and it was everything. He had an overly reverent view of money’s proper role, as if spending were a sort of sinfulness.
He took Susie to the office on Saturdays, as his father had taken him; he threw a football with Howie and helped Pete with his math. But he rarely if ever talked to them about subjects—such as his own parents—that might have exposed his feelings.
Howie, the second child, was a bit of a troublemaker, and was repeatedly frustrated by his dad’s lack of outward feeling.38 “I used to misinterpret his tone to mean that he didn’t care about me,” he said. “It’s the exact same quality that makes him so good as an investor. There was no emotion in it.
Buffett saw that they were riveted to the picture, and he asked himself, in effect, what it would be worth to own a tiny bit of each of those people’s ticket revenues—for today and tomorrow and as many tomorrows as they kept coming back to Disney.
Disney’s stock, meanwhile, was trading at only about ten times earnings. Buffett tried to analyze it not as a stock, but as a whole company, perhaps as a business down the street in Omaha that was willing to sell him a part ownership.
In Buffett’s view, its most valuable feature was its library of old cartoons and films, such as Snow White and Bambi. A Ben Graham would not have been interested in such an imprecise asset.
Buffett, it should be understood, was not abandoning the Graham credo of hunting for securities that were well below “intrinsic value.” But his definition of value was changing, or rather, broadening.
“Susie and I have an investment of $6,849,936, which should keep me from slipping away to the movies in the afternoon.
The investors began to think of themselves as a privileged tribe—as blessed.
Roxanne Brandt, wife of the broker Henry, wrote in her daughter’s baby book under “Three greatest minds of the era”: Schweitzer, Einstein, and Warren Buffett. He was the unassuming genius who drank nothing but Pepsi-Cola and could beat the pants off Wall Street year after year.
Buffett avoided trying to forecast the stock market, and most assuredly avoided buying or selling stocks based on people’s opinions of it.
In such a climate, Buffett’s obsession with secrecy rose to the level of paranoia. His brokers were given to understand that under no circumstance were they to speak of Buffett’s stock picks, even to people in their offices.
The buzz for high-tech was followed by a merger wave, propelled by huge conglomerates such as International Telephone & Telegraph, Litton Industries, and Ling-Temco-Vought.
If the popular stocks were going up, why not simply buy them? The question nagged at Buffett continuously, and he kept a diary of his reactions, as much for his own benefit as for his partners’. “Fashion” investing, he wrote, does not completely satisfy my intellect (or perhaps my prejudices), and most definitely does not fit my temperament. I will not invest my own money based upon such an approach—hence, I will most certainly not do so with your money.
According to his son Peter, Buffett identified with The Glenn Miller Story, the Hollywood epic in which the band leader searches to find his “sound.” For Buffett, the right sound was a matter not just of making money, but of superior reasoning.
Being right on a stock had something of the purity of a perfect move in chess; it had an intellectual resonance.
Buffett, of course, knew this. In a revealing passage, not long before, he had admitted that while he thought of himself primarily as a Graham-style bargain hunter, “the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side.
Certainly he had in mind American Express and Disney. For all that, he still considered Graham-type stocks to be his bread and butter: “the more sure money.” His teacher still had a hold on him.
“I’ve got a test for you. Here are ten questions, true or false. I warn you, they are tremendously difficult.” Nobody got more than half, except for Roy Tolles, Munger’s law partner—who suspected a trick and wrote a T for every one. Graham’s point was that an easy-looking game could well be rigged—a subtle warning regarding the Go-Go era.
When I am dealing with people I like, in businesses I find stimulating (what business isn’t?), and achieving worthwhile overall returns on capital employed (say, 10–12%), it seems foolish to rush from situation to situation to earn a few more percentage points.
Driving past a McDonald’s one day, he told his son Howie, “It takes twenty years to build a reputation and five minutes to ruin it. If you think about that you’ll do things differently.
But what about the famed access of New Yorkers to “inside information?” Buffett replied, “With enough inside information and a million dollars you can go broke in a year.
He stunned his partners with the news that he was liquidating Buffett Partnership. And now, at the height of a bull market, he was getting out. I am not attuned to this market environment, and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.
Rabbi Myer Kripke, whose family were frequent guests at the Buffetts’, thought Buffett a “philo-Semite.” (Buffett used to joke with Kripke that he had “a nice Jewish boy” picked out for his daughter.)
My approach to bonds is pretty much like my approach to stocks. If I can’t understand something, I tend to forget it.
Warren asked questions like crazy. About the marketing, the machinery, about what I thought should be done, where I thought the company was going, the technical end of it, what kind of products were we selling, who we were selling to. He wanted to know everything.
Perhaps eager to change the subject, Buffett told Jack about his own career, recounting his rise as an investor. Jack asked, “How do you do it?” Buffett said he read “a couple of thousand” financial statements a year.
Buffett opposed options for the reason that most CEOs were enamored of them. Options conferred potential—sometimes vast—rewards, but spared the recipients any risk, thus giving executives a free ride on the shareholders’ capital.
More subtly, Buffett wanted managers whose personal interests were in line with those of the stockholders.
A manager who owned options, as distinct from shares, had nothing to lose, and would be more inclined to gamble with the shareholders’ capital.
Then Buffett explained to Chace the basic theory of return on investment. He didn’t particularly care how much yarn Chace produced, or even how much he sold. Nor was Buffett interested in the total profit as an isolated number. What counted was the profit as a percentage of the capital invested. That was the yardstick by which Buffett would grade Chace’s performance.
“I’d rather have a $10 million business making 15 percent than a $100 million business making 5 percent,” Buffett said. “I have other places I can put the money.” He flew back to Omaha that night.
He leaned on Chace to keep the inventory and overhead as low as possible. As Chace said, “One thing Buffett wanted was to come up with cash quickly.
Buffett also followed through with his promise of autonomy. He told Chace not to bother with quarterly projections and other time-wasters. He merely wanted Chace to send him a monthly financial report and to warn him of any unpleasant surprises.
Indeed, Buffett sculpted the relationship to get the most out of it with a minimum of personal contact.
Chace’s freedom had one boundary. Only Buffett could allocate capital. And as most of the previous capital that Seabury had poured into textiles had gone for naught, Buffett was extremely reluctant to put in more. Still, Chace tried. He would propose an investment, backed by careful research and good-looking projections. And Buffett would reply, “Ken, you won’t beat the historical average.
“There is no such thing as a bad risk. There are only bad rates.
But Buffett did not think of Berkshire as necessarily a textile company, but as a corporation whose capital ought to be deployed in the greenest possible pastures.
Whereas textiles, which required reinvestment in plant and equipment, were cash-consuming, insurance was cash-generating.
Most older entrepreneurs such as Abegg are eager to retire when they sell out, and the new owners (while praising their storied careers) usually are anxious to show them the door. Buffett was different. Running a bank, a claims office, or a retail chain was out of his arc, and he had no desire to try. Indeed, he felt, if he didn’t like the way the business was run, why buy it?
He looked for a type: the self-starter with a proven record.
None of these multimillionaires needed to work, but Buffett understood that most people, regardless of what they say, are looking for appreciation as much as they are for money. He made it clear that he was depending on them, and he underlined this by showing admiration for their work and by trusting them to run their own operations.
One time, a discontented fabric buyer at Sears, Roebuck called Buffett and tried to pull an end run around Ken Chace. The buyer reminded Buffett that they had a common friend from college, and asked him to change the salesman on his account. Buffett despised the old-boy routine (it appealed to sentiment, not reason) and bluntly told the man from Sears that such matters were up to Chace.35 Naturally, such shows of loyalty only increased Chace’s dedication to Buffett.
Encouraged by Susie, Warren put his toe in the water. Their private trust, the Buffett Foundation, began to provide more than fifty scholarships a year to black college students.
Wead complained that Buffett “didn’t understand the cycle of poverty.” The truth was to the contrary. Buffett understood the cycle well enough to keep his wallet zipped. Without the hope of a return, he was no more willing to invest in the Community Bank than he was in textiles.
Despite his ideals, Buffett was suspicious of the liberal impulse to simply spend money.
He measured social projects through the same lens as business ventures: he wanted a return.
Ralph Rigby, the textile salesman, visited Omaha and found Buffett in a state of ecstasy. “He said a lot of guys studied baseball stats or the Racing Form,” Rigby said, “He just had a hobby that made him money. That was relaxation to him.
In the evenings, Buffett would go to Cris Drugstore, on 50th Street, for the late edition of the World-Herald, which carried the closing stock prices. Then he would go home and read a stack of annual reports. For anyone else it would have been work. For Buffett it was a night on the town.
It’s a lot different going out to Kalamazoo and telling whoever owns the television station out there that because the Dow is down 20 points that day he ought to sell the station to you a lot cheaper. You get into the real world when you deal with a business. But in stocks everyone is thinking about relative price. When we bought 8 percent or 9 percent of the Washington Post in one month not one person who was selling to us was thinking that he was selling us $400 million [worth] for $80 million. They were selling to us because communication stocks were going down, or other people were selling, or whatever reason. They had nonsensical reasons.
Buffett saw advertising as a free ticket on the media business. Why free? Unlike, for instance, a certain mill in New Bedford, an ad agency did not require capital—merely a desk and a couple of pencils. To Buffett, the lack of assets was a plus, because the profits flowed directly to the owners.
There was so little interest in Berkshire that newspapers didn’t quote its share price. Anyone in the public could have bought the stock and gotten a free rid on Buffett’s coattails (without paying an override, as in the partnership).
Buffett was as fearful of inflation as anyone. His response was to hunt for stocks, such as newspapers, that would be able to raise rates in step. Similarly, he avoided companies with big capital costs. (In an inflationary world, capital-intensive firms need more dollars to replenish equipment and inventory.)
In September, Graham emerged from retirement to speak to security analysts, urging them to awaken to what he termed a “renaissance of value.” Investing, he reminded them, did not require a genius. What it needs is, first, reasonably good intelligence; second, sound principles of operation; third, and most important, firmness of character.
I call investing the greatest business in the world because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.
His approach to life—of particular use to an investor—was to ask what could go wrong.
He liked to quote the algebraist Carl Jacobi: “Invert, always invert.” Thus, at a high school commencement, Munger gave a sermon not on the qualities that would lead to happiness, but on those that would guarantee a miserable life. Always invert.
Investors often assume that book value approximates, or at least is suggestive of, what a company is “worth.” In fact, the two express quite different concepts.
Book value is equal to the capital that has gone into a business, plus whatever profits have been retained. An investor is concerned with how much can be taken out in the future; that is what determines a company’s “worth” (or its “intrinsic value,” as Buffett would say).
Since book value is blind to intangibles such as brand name, for a company such as See’s it is meaningless as an indicator of value.
Maybe grapes from a little eight-acre vineyard in France are really the best in the whole world, but I have always had a suspicion that about 99% of it is in the telling and about 1% is in the drinking.
“Charlie is very funny, and also very pompous,” said a member of Buffett’s circle. “He believes in the aristocratic point of view, that there is a select group of accomplished, talented people in the world, and that he is one of them.
Yet Munger was a formidable armchair psychologist and, in particular, a student of behavior. He saw the devil in such phenomena as the inability of people to change their minds, or what he termed “first-conclusion bias”: “This is why organizations solicit public pledges. Hell, it’s the reason for the marriage ceremony.
To Buffett, the very word “partner” had a powerful implication, suggesting a raft of unspoken responsibilities and loyalties, such as he had felt toward the investors in Buffett Partnership.
The modern portfolio manager saw stocks in two dimensions; they flickered across the screen, and at the push of a button they disappeared. Buffett and Munger wanted a larger role.
They often talked about how managing money was not enough. As Munger recalled, “I said to Warren, ‘We don’t want to be like Russell Sage, a shrewd, miserable accumulator.
We didn’t want to be remembered by friends and family for nothing but pieces of paper.”
The secret to his seduction was his patience. It seemed to exert a magnetic pull on her. And the more she got to know him, the more she liked his ideas.
Before long, Buffett made a major suggestion—that the Post buy back a big portion of its own stock.
Graham thought this was crazy. If a company returned its capital, how could it grow? Buffett’s point was that overall growth didn’t matter—merely growth per share. It was like shrinking the number of slices in a pizza. If the shares could be retired cheaply—and Post stock was still quite cheap—there would be more cheese on every slice. Buffett took her through the math, penciling it out in the book-lined study in Georgetown.
Another friend said that “the Washington Post really changed his life. It changed whom he was exposed to.” Suddenly, Warren Buffett of Omaha was mixing with the likes of Henry Kissinger.
“Washington society is agog because Mr. B. drinks Pepsi-Cola with his meals, no matter how chic the gathering.” Buffett did not like splashy affairs, but he liked meeting bigwigs in the controlled setting of Graham’s home.
Buffett would make similar doe-eyed remarks about their offstage lives. He often commented that he had been unhappy until he had met Susie, or that he wouldn’t have turned out well without her.
Buffett was cool to cellular and to cable TV because they required a lot of capital.
He was skeptical of start-ups and of new technology because they were, well, new. They’d be like switching from hamburgers to foreign foods.
If Buffett couldn’t see a business, he wasn’t comfortable with it.
If he didn’t understand a venture—he, personally—he felt that he’d be speculating.
Buffett gave the Grahams a way of thinking about the business that was oriented to the shareholders, and at a time when media companies were devoted to acquiring empires.
He insistently reminded them—as he had Ken Chace, so many years earlier, outside the textile mill—that size was not the goal; the return to shareholders was.
Opportunities were missed, but he saved the Post from the business error that is truly a tragic error—throwing the profits from a good business into a bad one.
At about the time of GEICO’s troubles, Graham asked Buffett to coauthor a revised edition of The Intelligent Investor. They corresponded, but Buffett found that he and his teacher had some basic disagreements. Buffett wanted a section on how to identify “great businesses” (such as See’s Candy); Graham didn’t think the average reader could do it. Also, Graham recommended a ceiling of 75 percent of one’s assets in stocks; the gamer Buffett was willing to invest his whole kitty if prices were right.
We talked to maybe 2:00, 3:00 A.M. He wanted to know the things I would do. What did I think of our ability to survive? I remember we talked late at night about families, other stuff. But mostly the conversation was GEICO. I’m sure I did 80 percent of the talking.
One time, Buffett said an investor should approach the stock market as if he had a lifetime punch card. Every time he bought a stock he punched a hole. When the card had twenty holes he was done—no more investing for life. Obviously, the investor would filter out every idea but the best. Lou Simpson, who was managing GEICO’s portfolio, said this parable had a profound impact on him.
Some years later, Buffett admitted that the stocks he was buying were entirely different from those that Graham would buy.
Much later, when Buffett was speaking to the author about Buffett’s own career, he remarked with unmistakable affection: “The best thing I did was to choose the right heroes. It all comes from Graham.” When the author mentioned that he had spoken to some of Graham’s children, Buffett’s voice suddenly broke. “I wish you could talk to Graham,” he replied.
Buffett explained that he evaluated stocks exactly as he would an entire business: he looked for companies he understood, run by honest and competent managers, with favorable long-term prospects, and available at a decent price. He made no attempt to anticipate the short-term price action.
When a friend suggested that Buffett try his hand in real estate, Buffett grinned. “Why should I buy real estate when the stock market is so easy?
Guerin, though, was deeply touched by Buffett’s willingness to drop everything for him. “He has enormous compassion,” Guerin said, “but people don’t see that. To me it was just an amazing gift—the gift of time.
Shareholders pressed Buffett to split his stock. The rationale—and it is an article of faith at virtually every public company—is that a lower share price is more affordable and thus tends to enhance the public’s interest in a stock. But in his 1983 letter, Buffett ruled out a split. Slicing the pie into more pieces would hardly increase its value. (Try it with a pizza.)
But Buffett had thought about it quite a bit. He was consciously trying to assemble a tribe of like-minded shareholders, who would focus, as he did, on long-term value. If people bought for reasons that had nothing to do with value—such as a stock split—so, too, would they one day sell. As much as possible, Buffett wanted to dissuade such infidels from becoming his partners.
This suggests the depth of Buffett’s commitment to Berkshire; it was a “job” to him in the sense that England was a job to Churchill.
His aim was to profit from the long-term growth of (hopefully) well-chosen businesses, but not from nimbly entering and exiting them, or from financial legerdemain, or from various forms of pie-splitting and (at foolish prices) pie-acquiring.
But the 1980s were no ordinary period in finance. America was home to the hostile takeover, the junk bond, the leveraged buyout. The archetypal business figure was no longer the rough-and-ready entrepreneur, the Oliver Chace, but the sheer and dicer on Wall Street. The mantra of this age was “liquidity”; not only corporate shares, but whole companies, too, were flipped like trading cards (indeed, flipped, and then dissected, and then reassembled and repartitioned).
One question Buffett always asked himself in appraising a business is how comfortable he would feel having to compete against it, assuming that he had ample capital, personnel, experience in the same industry, and so forth.
Her method was her motto: “Sell cheap and tell the truth.”
Mrs. B’s formula was irresistibly simple; she bought in volume, kept expenses bone-trim, and passed on the savings.
Mrs. B never took a vacation. “I never lied,” she said. “I never cheated. I never promised I couldn’t do. That brought me luck.
In Buffett’s terms, if he couldn’t trust the Blumkins, why become their partner?
Norman Lear, the Hollywood producer, said, “Warren’s admiration for Mrs. B is like a child’s. He talks about her the way a small boy would talk about his grandmother.
When the Omaha World-Herald inquired as to her favorite movie, Mrs. B replied, “Too busy.” Her favorite cocktail? “None. Drinkers go broke.” Her hobby, then? Driving around and spying on competitors.
Mrs. B didn’t spend much time there and never entertained. “I don’t like rich society people,” she noted. “Rich people are rude to you when you’re poor; I don’t forget that.
When compared to Ronald O. Perelman, who epitomized the takeover artists, Buffett was closer to its inverted image. Both men were highly acquisitive and were shrewd judges of companies, and they shared more traits as investors than one might suppose. Perelman eschewed high-tech and looked for strong cash flow. Like Buffett, he took a long-term view and was, at heart, a financial person, not a manager.
He once told Forbes that he carefully read ten annual reports a week.
I wanted to see that little piece of paper that said I was the owner of Cities Service Company, and I felt that the managers were there to do as I and a few other co-owners said. And I felt that if anybody wanted to buy that company, they should come to me.
Since Buffett defined investing as an attempt to profit from the results of the enterprise, as distinct from the price action,40 the LBO artists did not really qualify as “investors.” They merely transferred assets from one pocket to the next. They did not “create” value, which Buffett defined as adding to the sum of socially useful or desirable products and services. Most often, their profits stemmed merely from the huge tax savings that derived from converting equity to debt (interest payments being deductible).
Now when you read about Boone Pickens and Jimmy Goldsmith and the crew, they talk about creating value for shareholders. They aren’t creating value—they are transferring it from society to shareholders. That may be a good or bad thing but it isn’t creating value—it’s not like Henry Ford developing the car or Ray Kroc figuring out how to deliver hamburgers better than anyone else.… In the last few years … one [company] after another has been transformed by people who have understood this game. That means that every citizen owes a touch more of what is needed to pay for all the goods and services that the government provides.
His day was a veritable stream of unstructured hours and cherry colas. He would sit at the redwood horseshoe desk and read for hours, joined to the world by a telephone (which he answered himself) and three private lines: to Salomon Brothers, Smith Barney, and Goldman Sachs.
When Keough ran into Buffett—at a 1986 White House reception—he thought his old neighbor unchanged: “a personable guy who loved life.
This spartan style was part of a deliberate effort to minimize what Buffett termed “institutional dynamics.”37 he had hired a floor of traders, they would have found something to trade; lawyers, no doubt, would have found someone to sue.
A compact organization lets all of us spend our time managing the business rather than managing each other.
Buffett’s Kiewit coworkers were little more than a backdrop—unobtrusive, robotlike, and unerringly dependable. According to daughter Susie, “All of the people in that office are the same. They don’t talk. They just do their work.
He was much better at motivating with a carrot than with a stick; while he disliked confrontation, he was a master flatterer.
I have never met a man who could forecast the market. WARREN BUFFETT, BERKSHIRE HATHAWAY ANNUAL MEETING, 1987
But on October 19, 1987, investors had fallen dumbly under his spell, selling stocks—any stocks—tick for miserable tick. This proved to Buffett what he had already known—that Graham had been abandoned.
Instead of price and value, Buffett lamented in a postmortem, “professionals and academicians talk of efficient markets, dynamic hedging and betas.
The monks of finance had shunned him as a heretic, while in Buffett’s eyes, these abbots and friars were engaged in an incestuous effort to prove, with ever greater elegance and seeming precision, that the earth, indeed, was truly flat.
The premise of Buffett’s career was that stockpicking, though difficult and subjective, was susceptible to reasoned analysis. Occasionally, certain stocks sold for far less than they were “worth.” An astute investor could profit by buying them.
Buffett would taunt the scholars with the evidence of his career, and implicit in his taunts was a simple question: “If you’re so smart, how come I’m so rich?
As Samuelson explained it, “intelligent people” were “constantly shopping around for good value,” buying bargain stocks and selling dear ones and, in the process, eliminating such opportunities even as they arose.
But Samuelson did not change his mind. Part of the theory’s allure was that it extended the classical economics of Adam Smith to financial markets.
Investors such as Buffett thought of intrinsic value as an inherent quality; it lay “behind, or beneath, the prices observed in the marketplace.
The prices themselves were approximations.
If you buy a bond, you know exactly what’s going to happen, assuming it’s a good bond, a U.S. Government bond. If it says 9 percent, you know what the coupons are going to be for maybe thirty years.… Now, when you buy a business, you’re buying something with coupons on it, too, except, the only problem is, they don’t print in the amount. And it’s my job to print in [to figure out] the amount on the coupon.
Pay no attention to macroeconomic trends or forecasts, or to people’s predictions about the future course of stock prices. Focus on long-term business value—on the size of the coupons down the road.
Stick to stocks within one’s “circle of competence.” For Buffett, that was often a company with a consumer franchise. But the general rule was true for all: if you didn’t understand the business—be it a newspaper or a software firm—you couldn’t value the stock.
Look for managers who treated the shareholders’ capital with ownerlike care and thoughtfulness.
Study prospects—and their competitors—in great detail. Look at raw data, not analysts’ summaries.
Trust your own eyes, Buffett said. But one needn’t value a business too precisely. A basketball coach doesn’t check to see if a prospect is six foot one or six foot two; he looks for seven-footers.
The vast majority of stocks would not be compelling either way—so ignore them. Merrill Lynch had an opinion on every stock; Buffett did not. But when an investor had conviction about a stock, he or she should also show courage—and buy a ton of it.
But given its earning power, Buffett thought he was getting a Mercedes for the price of a Chevrolet.
A few of Buffett’s negotiated deals, such as Salomon, did arise from personal connections, and Buffett’s circle of such contacts was extensive. But most of his investments were market-traded stocks. And, in fact, he instructed his brokers not to distract him with their hot ideas.37 According to Munger, he used his contacts to investigate prospects after he had a lead.
Most of what Buffett did, such as reading reports and trade journals, the small investor could also do. He felt very deeply that the common wisdom was dead wrong; the little guy could invest in the market, so long as he stuck to his Graham-and-Dodd knitting.39 But people, he found, either took to this approach immediately or they never did. Many had a “perverse” need to make it complicated.40 This truism extended to Buffett’s family.
From Buffett’s viewpoint, everybody wanted a piece of him, like camera-toting tourists pursuing a colorful native. His defense, as Kay Graham recognized, was to set his own agenda, in philanthrophy as in so much else. Holding on to his money was a way of keeping control. Even as a boy, when he hadn’t owned a part of Kay Graham’s newspaper but had merely delivered it, he wouldn’t let his mother touch the money.
“Warren’s a great collector of friends”
Among history’s great capitalists, Buffett stands out for his sheer skill at evaluating businesses. What John D. Rockefeller, the oil cartelist, Andrew Carnegie, the philanthropic steel baron, Sam Walton, the humble retailer, and Bill Gates, the software nerd, have in common is that each owes his fortune to a single product or innovation. Buffett made his money as a pure investor: picking diverse businesses and stocks.
As he commented in a recent letter, “We like to buy. Selling, however, is a different story.”19 In a sense, his whole career has been an act of holding on—of refusing to say goodbye.
What is “investing” if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value—in the hope that it can soon be sold for a still-higher price—should be labeled speculation.
He still plays bridge, but usually via a computer (which he refuses to use for work) many miles away from his partners.
Buffett does enjoy being a billionaire, but in offbeat ways. As he put it, though money cannot change your health or how many people love you, it lets you be in “more interesting environments.
But the public legacy is secure. Buffett’s uncommon urge to chronicle made him a unique character in American life, not only a great capitalist but the Great Explainer of American capitalism. He taught a generation how to think about business, and he showed that securities were not just tokens like the Monopoly flatiron, and that investing need not be a game of chance. It was also a logical, commonsensical enterprise, like the tangible businesses beneath. He stripped Wall Street of its mystery and rejoined it to Main Street—a mythical or disappearing place, perhaps, but one that is comprehensible to the ordinary American.
In Munger’s phrase, he strove to be more than a “miserable accumulator,” in particular by treating investors and investees as partners, with no fingers crossed and no “exit strategies.”
As he wrote to his partners in 1969, with regard to Berkshire Hathaway: I certainly have no desire to sell a good controlled business run by people I like and admire, merely to obtain a fancy price.
The public became obsessed with twenty-something website promoters, and it was commonly said that Buffett was outmoded, an old-economy relic, and so forth.
“Never lose money” is an unyielding standard; it forecloses the option of taking any speculative risks.
As a portfolio manager, Buffett has always tried to concentrate on a few stocks—a very few—that he both understood and felt comfortable with.
“Eventually we were making $50 a week,” he recalled. “I hadn’t dreamed life could be so good.”
“Most of us were trying to be like everyone else,” Norma Jean noted. “The girls all buttoned their sweaters in the back. I think he liked being different.
“He was what he was and he never tried to be anything else.
Sitting in the breakfast nook at home, at an age when other boys didn’t get past the sports pages, he was already studying the stock tables.
Warren replied that college would be a waste. He had delivered almost 600,000 papers and in the process earned over $5,000.23 Money was coming in from newspapers, from Wilson Coin Op, and from a Nebraska tenant farmer. What’s more, he had read at least one hundred books on business. What, in short, did he have to learn?
In fact, he was spending a lot of his time at a brokerage office in Philadelphia, following various stocks. But he didn’t have a system for investing—or if he did, it was haphazard. He would study the charts, he would listen to tips. But he didn’t have a framework. He was searching.
The cover was a joke; Warren’s friend Jerry Orans was one of the editors. In truth, Warren was everything that the cover boy was not. He was a nondrinker, was uncomfortable with women, and was not a big socializer.
Warren usually did not have a date, but—of importance for a future investor—he was comfortable without being part of the crowd.
Ben Graham opened the door, and in a way that spoke to Buffett personally. He gave Buffett the tools to explore the market’s manifold possibilities, and also an approach that fit his student’s temper. Armed with Graham’s techniques, Buffett could dismisss the oracles and make use of his native talents.
The market, they argued, was not a “weighing machine” that determined value precisely. Rather, it was a “voting machine,” in which countless people registered choices that were the product partly of reason and partly of emotion.
The trick was to invest when prices were far below intrinsic value, and to trust in the market’s tendency to correct.
The Graham-and-Dodd investor saw a stock as a share of a business, whose value, over time, would correspond to that of the entire enterprise.
It is an almost unbelievable fact that Wall Street never asks, “How much is the business selling for?”
Graham’s accent was on cheap stocks—“cigar butts,” or stocks that one could pick up almost for free, like spent cigars, and that might have a couple of valuable “puffs” left in them. One of his assignments that year was to research the performance of shares trading for less than $
After we talked for fifteen minutes I knew I was talking to an extraordinary man. He asked searching and highly intelligent questions. What was GEICO? What was its method of doing business, its outlook, its growth potential? He asked the type of questions that a good security analyst would ask. I was financial vice president. He was trying to find out what I knew.
It is extremely difficult to commit one’s capital in the face of ridicule—and this is why Graham was invaluable. He liked to say, “You are neither right nor wrong because the crowd disagrees with you.
He lacked the patience for small talk, and would often disappear to read in the middle of his own dinner parties.
Knapp’s first impression was that “Buffett knew almost every balance sheet on the New York Stock Exchange.
What was most unusual about the young salesman was his appetite for research.
But Buffett was in the wrong job. All that research was wasted on a salesman, who stood to make the same small commission regardless if the idea was any good or not.
I will tell you the secret of getting rich on Wall Street. [Pause.] Close the doors. You try to be greedy when others are fearful and you try to be very fearful when others are greedy.
Graham’s favorite was to hunt for stocks that traded at one-third less than their net working capital—in other words, stocks that were insanely cheap.
Such a trade, taking advantage of price discrepancies in separate markets, is known as arbitrage.
Because of his conservatism, he refused to analyze companies subjectively, preferring to stick to his mathematical guidelines. According to Irving Kahn, an assistant to Graham, when anyone tried to talk to Graham about a company’s products, “Ben would look out the window and get bored.
Buffett was interested in what made one business better than another and wanted to pursue it. But Graham, who mistrusted corporate managements, discouraged Buffett from visiting companies.83 And his formulaic approach cost him.
However elliptical, his answer was the basis for Buffett’s career. Stocks would rise to value; therefore, an investor who trusted his judgment could be patient.
Buffett insisted on not disclosing his stocks because he was afraid that someone would copy him—thus making it more expensive if he wanted to buy more. He wouldn’t talk to anyone—he maintained that he was afraid to talk in bed because his wife might hear.
But behind the cordon of secrecy, he was living a Graham-and-Dodder’s fantasy, picking up small cheap stock after small cheap stock.
People who signed up intuitively grasped that Buffett’s Garbo-like loneness was part of the appeal. When Buffett insisted on secrecy, it was not merely to prevent leaks, but also to prevent intrusions, and to maintain that sweet independence. He wanted no amateur tipsters or second-guessers.
For a stock to merit investment, Buffett had to persuade himself of it, and if he did, what was the use of other opinions?
Temperamentally, he mistrusted advice-givers and financial soothsayers. If the basis for a stock was popular opinion and opinion changed, then what? He was confident that his own analysis would be less fickle.
The next year, Buffett bet $1 million—his biggest plunge ever—on a company that, had they known of it, would have made the doctors gasp. Dempster Mill Manufacturing was an eighty-year-old windmill and farm-implement maker in Beatrice, Nebraska, ninety miles south of Omaha. The windmill business being not exactly another Xerox, Dempster had suffered from static sales and dismal profitability. Buffett had nibbled at the stock—a cheap, typical-Graham play—a few years earlier. In 1961, he snapped up the controlling interest, giving him 70 percent—and staking a fifth of his partnerships’ assets on it. Buffett appointed himself the chairman, a prophetic move (and unusual for a money manager) that signaled an ambition to be something more than just an investor.
Like his teacher, Buffett ruled out any and all high-technology companies as speculative.
Buffett’s passion outside of work was bridge. He had a regular game, the members of which were a sampling of Main Street, U.S.A.—ad executive, Buick dealer, judge, life insurance agent, mortgage man, railroad attorney, and American Automobile Association chapter president. Buffett would show up with a six-pack of Pepsi-Cola and entertain the guys with a stream of jokes and stories. He didn’t talk about the money he was making. The point was, he didn’t have to. He played so intensely he could have been working, only with trumps instead of with stocks and bonds.
What distinguished Buffett was the way he zoned in. He would stare at the cards and calculate the odds like a machine. “He was not emotional,” noted James Koley, a lawyer and occasional partner. “It was just mathematics to him.”
Buffett was enormously dependent on Susie. She paid the bills, took care of the kids, ran their lives. Whatever was outside his range, Susie handled. In particular, Susie shielded Warren from his mother. Even as an adult, he would shake or go mute at the sight of that aging and shriveling tormentor. He did his best to avoid her, and at family gatherings, he would withdraw after dinner on the pretext that he needed to nap.
Buffett was a talker more than a conversationalist. Richard Holland, an Omaha advertising executive, observed that even in social settings, Buffett had a purposeful quality.
He noticed that Buffett was not a chitchatter. “He wanted to talk about something.
Buffett spent the day reading annual reports and business publications and talking on the telephone. With more and more reports to read and stocks to analyze, he was ever in good humor. But it was rather solitary. He often lunched alone, sending out for a cheeseburger and french fries. His tiny staff knew nothing more of his stock picks than his wife did.
Physically, Munger was unimpressive. He had an elfin face, pasty skin, and glasses an inch thick. Though something of a snob and highly judgmental, he had a deep sense of ethics. His smarts were matched by a Churchillian self-assurance and joie de vivre. Asked once if he could play the piano, Munger replied, “I don’t know, I never tried.” Buffett saw in him a kindred intellect and blistering independence.
Like Warren, I had a considerable passion to get rich. Not because I wanted Ferraris—I wanted the independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people. I don’t know where I got that notion from, but I had it. I had lived way under my income for years, saving money.
Bill Otis, a bridge partner, asked him in a kidding vein, “How can you sleep at night after firing all those people?” To Buffett, who had a thin skin where his reputation was concerned, it was no joke. “If we’d kept them the company would have gone bankrupt,” he said. “I’ve kept close tabs and most of them are better off.
Though this has the ring of rationalization, Buffett hated being called a liquidator and vowed that he would “never” lay people off again.
But he had no problem with the results. After a year, Dempster was trimmer but more profitable, and it had $2 million worth of securities to boot. In 1963, Buffett sold it—netting the partnership a $2.3 million profit and nearly tripling its investment.42 Three things had made it work: the initial bargain price, Buffett’s patience in holding on, and his and Bottle’s turnaround.
This is the cornerstone of our investment philosophy: Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.
What was not so apparent was that Buffett was also beginning to think differently—that is, to think in qualitative terms, as well as in the merely numerical terms that had appealed to Graham. When Buffett looked at a stock, he was beginning to see not just a frozen snapshot of assets, but a live, ongoing business with a unique set of dynamics and potential.
Half of his portfolio now was rooted in two very different stocks, which glared at each other like opposing bookends. In Buffett’s terminology, Berkshire’s appeal was “quantitative”—based on price. American Express was based on a subjective view of “qualitative” factors such as the strength of its products and management.
Though he regarded the softer methodology as the less conclusive, Buffett was uncertain where the balance lay. The “main qualification is a bargain price,” he wrote; but he also would pay “considerable attention” to qualitative factors.
He used the letters not just to report results, but to talk about his approach and to educate his readers in a general sense about investing. School was in.
It must be, he added, that people’s emotional distaste for paying taxes blinded them to acting rationally—a misstep that Buffett was careful to avoid.
I am not in the business of predicting general stock market or business fluctuations. If you think I can do this, or think it is essential to an investment program, you should not be in the partnership.
It was enormously important to Buffett that his partners see him as trustworthy.
Why was it, he wondered, that “the high priests of Wall Street,” with their brains, training, and high pay, couldn’t top a portfolio managed by no brains at all? He found a culprit in the tendency of managers to confuse a conservative (i.e., reasonably priced) portfolio with one that was merely conventional.21 It was a subtle distinction, and bears reflection. The common approach of owning a bag full of popular stocks—AT&T, General Electric, IBM, and so forth—regardless of price, qualified as the latter, but surely not as the former.
Ideally, Buffett would have preferred to spread his assets, provided that he could have found, say, fifty stocks that were equally “superior.” But in the real world, he found that he had to work extremely hard to find just a few.
Diversification had become an article of faith; fund managers were commonly stuffing their portfolios with hundreds of different stocks. Paraphrasing Billy Rose, Buffett doubted that they could intelligently select so many securities any more than a sheik could get to “know” a harem of one hundred girls.
Anyone owning such numbers of securities … is following what I call the Noah School of Investing—two of everything. Such investors should be piloting arks.
Owning so many stocks was an admission that one could not pick the winners.
Buffett scarcely thought about spending his wealth on material comforts. That wasn’t why he wanted it. The money was a proof: a score-card for his favorite game.
Whatever was the object of Scotty Hord’s fantasies—toys, trucks, cars, paintings, jewelry, silks—Buffett could have had. But they didn’t mean a thing to him. Buffett’s fantasy was to be in Kiewit Plaza, piling up more money day after day.
Beneath his becoming lack of acquisitiveness, Buffett had a certain obsession. In his mind, every dime had the potential of Queen Isabella’s lost fortune. When a nickel today could become so much more tomorrow, spending it drove him nuts. He didn’t even buy life insurance, figuring that he could compound the premiums faster than an insurance company.
When it came to money, Buffett seemed to have twin personalities—it was nothing to him and it was everything. He had an overly reverent view of money’s proper role, as if spending were a sort of sinfulness.
He took Susie to the office on Saturdays, as his father had taken him; he threw a football with Howie and helped Pete with his math. But he rarely if ever talked to them about subjects—such as his own parents—that might have exposed his feelings.
Howie, the second child, was a bit of a troublemaker, and was repeatedly frustrated by his dad’s lack of outward feeling.38 “I used to misinterpret his tone to mean that he didn’t care about me,” he said. “It’s the exact same quality that makes him so good as an investor. There was no emotion in it.
Buffett saw that they were riveted to the picture, and he asked himself, in effect, what it would be worth to own a tiny bit of each of those people’s ticket revenues—for today and tomorrow and as many tomorrows as they kept coming back to Disney.
Disney’s stock, meanwhile, was trading at only about ten times earnings. Buffett tried to analyze it not as a stock, but as a whole company, perhaps as a business down the street in Omaha that was willing to sell him a part ownership.
In Buffett’s view, its most valuable feature was its library of old cartoons and films, such as Snow White and Bambi. A Ben Graham would not have been interested in such an imprecise asset.
Buffett, it should be understood, was not abandoning the Graham credo of hunting for securities that were well below “intrinsic value.” But his definition of value was changing, or rather, broadening.
“Susie and I have an investment of $6,849,936, which should keep me from slipping away to the movies in the afternoon.
The investors began to think of themselves as a privileged tribe—as blessed.
Roxanne Brandt, wife of the broker Henry, wrote in her daughter’s baby book under “Three greatest minds of the era”: Schweitzer, Einstein, and Warren Buffett. He was the unassuming genius who drank nothing but Pepsi-Cola and could beat the pants off Wall Street year after year.
Buffett avoided trying to forecast the stock market, and most assuredly avoided buying or selling stocks based on people’s opinions of it.
In such a climate, Buffett’s obsession with secrecy rose to the level of paranoia. His brokers were given to understand that under no circumstance were they to speak of Buffett’s stock picks, even to people in their offices.
The buzz for high-tech was followed by a merger wave, propelled by huge conglomerates such as International Telephone & Telegraph, Litton Industries, and Ling-Temco-Vought.
If the popular stocks were going up, why not simply buy them? The question nagged at Buffett continuously, and he kept a diary of his reactions, as much for his own benefit as for his partners’. “Fashion” investing, he wrote, does not completely satisfy my intellect (or perhaps my prejudices), and most definitely does not fit my temperament. I will not invest my own money based upon such an approach—hence, I will most certainly not do so with your money.
According to his son Peter, Buffett identified with The Glenn Miller Story, the Hollywood epic in which the band leader searches to find his “sound.” For Buffett, the right sound was a matter not just of making money, but of superior reasoning.
Being right on a stock had something of the purity of a perfect move in chess; it had an intellectual resonance.
Buffett, of course, knew this. In a revealing passage, not long before, he had admitted that while he thought of himself primarily as a Graham-style bargain hunter, “the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side.
Certainly he had in mind American Express and Disney. For all that, he still considered Graham-type stocks to be his bread and butter: “the more sure money.” His teacher still had a hold on him.
“I’ve got a test for you. Here are ten questions, true or false. I warn you, they are tremendously difficult.” Nobody got more than half, except for Roy Tolles, Munger’s law partner—who suspected a trick and wrote a T for every one. Graham’s point was that an easy-looking game could well be rigged—a subtle warning regarding the Go-Go era.
When I am dealing with people I like, in businesses I find stimulating (what business isn’t?), and achieving worthwhile overall returns on capital employed (say, 10–12%), it seems foolish to rush from situation to situation to earn a few more percentage points.
Driving past a McDonald’s one day, he told his son Howie, “It takes twenty years to build a reputation and five minutes to ruin it. If you think about that you’ll do things differently.
But what about the famed access of New Yorkers to “inside information?” Buffett replied, “With enough inside information and a million dollars you can go broke in a year.
He stunned his partners with the news that he was liquidating Buffett Partnership. And now, at the height of a bull market, he was getting out. I am not attuned to this market environment, and I don’t want to spoil a decent record by trying to play a game I don’t understand just so I can go out a hero.
Rabbi Myer Kripke, whose family were frequent guests at the Buffetts’, thought Buffett a “philo-Semite.” (Buffett used to joke with Kripke that he had “a nice Jewish boy” picked out for his daughter.)
My approach to bonds is pretty much like my approach to stocks. If I can’t understand something, I tend to forget it.
Warren asked questions like crazy. About the marketing, the machinery, about what I thought should be done, where I thought the company was going, the technical end of it, what kind of products were we selling, who we were selling to. He wanted to know everything.
Perhaps eager to change the subject, Buffett told Jack about his own career, recounting his rise as an investor. Jack asked, “How do you do it?” Buffett said he read “a couple of thousand” financial statements a year.
Buffett opposed options for the reason that most CEOs were enamored of them. Options conferred potential—sometimes vast—rewards, but spared the recipients any risk, thus giving executives a free ride on the shareholders’ capital.
More subtly, Buffett wanted managers whose personal interests were in line with those of the stockholders.
A manager who owned options, as distinct from shares, had nothing to lose, and would be more inclined to gamble with the shareholders’ capital.
Then Buffett explained to Chace the basic theory of return on investment. He didn’t particularly care how much yarn Chace produced, or even how much he sold. Nor was Buffett interested in the total profit as an isolated number. What counted was the profit as a percentage of the capital invested. That was the yardstick by which Buffett would grade Chace’s performance.
“I’d rather have a $10 million business making 15 percent than a $100 million business making 5 percent,” Buffett said. “I have other places I can put the money.” He flew back to Omaha that night.
He leaned on Chace to keep the inventory and overhead as low as possible. As Chace said, “One thing Buffett wanted was to come up with cash quickly.
Buffett also followed through with his promise of autonomy. He told Chace not to bother with quarterly projections and other time-wasters. He merely wanted Chace to send him a monthly financial report and to warn him of any unpleasant surprises.
Indeed, Buffett sculpted the relationship to get the most out of it with a minimum of personal contact.
Chace’s freedom had one boundary. Only Buffett could allocate capital. And as most of the previous capital that Seabury had poured into textiles had gone for naught, Buffett was extremely reluctant to put in more. Still, Chace tried. He would propose an investment, backed by careful research and good-looking projections. And Buffett would reply, “Ken, you won’t beat the historical average.
“There is no such thing as a bad risk. There are only bad rates.
But Buffett did not think of Berkshire as necessarily a textile company, but as a corporation whose capital ought to be deployed in the greenest possible pastures.
Whereas textiles, which required reinvestment in plant and equipment, were cash-consuming, insurance was cash-generating.
Most older entrepreneurs such as Abegg are eager to retire when they sell out, and the new owners (while praising their storied careers) usually are anxious to show them the door. Buffett was different. Running a bank, a claims office, or a retail chain was out of his arc, and he had no desire to try. Indeed, he felt, if he didn’t like the way the business was run, why buy it?
He looked for a type: the self-starter with a proven record.
None of these multimillionaires needed to work, but Buffett understood that most people, regardless of what they say, are looking for appreciation as much as they are for money. He made it clear that he was depending on them, and he underlined this by showing admiration for their work and by trusting them to run their own operations.
One time, a discontented fabric buyer at Sears, Roebuck called Buffett and tried to pull an end run around Ken Chace. The buyer reminded Buffett that they had a common friend from college, and asked him to change the salesman on his account. Buffett despised the old-boy routine (it appealed to sentiment, not reason) and bluntly told the man from Sears that such matters were up to Chace.35 Naturally, such shows of loyalty only increased Chace’s dedication to Buffett.
Encouraged by Susie, Warren put his toe in the water. Their private trust, the Buffett Foundation, began to provide more than fifty scholarships a year to black college students.
Wead complained that Buffett “didn’t understand the cycle of poverty.” The truth was to the contrary. Buffett understood the cycle well enough to keep his wallet zipped. Without the hope of a return, he was no more willing to invest in the Community Bank than he was in textiles.
Despite his ideals, Buffett was suspicious of the liberal impulse to simply spend money.
He measured social projects through the same lens as business ventures: he wanted a return.
Ralph Rigby, the textile salesman, visited Omaha and found Buffett in a state of ecstasy. “He said a lot of guys studied baseball stats or the Racing Form,” Rigby said, “He just had a hobby that made him money. That was relaxation to him.
In the evenings, Buffett would go to Cris Drugstore, on 50th Street, for the late edition of the World-Herald, which carried the closing stock prices. Then he would go home and read a stack of annual reports. For anyone else it would have been work. For Buffett it was a night on the town.
It’s a lot different going out to Kalamazoo and telling whoever owns the television station out there that because the Dow is down 20 points that day he ought to sell the station to you a lot cheaper. You get into the real world when you deal with a business. But in stocks everyone is thinking about relative price. When we bought 8 percent or 9 percent of the Washington Post in one month not one person who was selling to us was thinking that he was selling us $400 million [worth] for $80 million. They were selling to us because communication stocks were going down, or other people were selling, or whatever reason. They had nonsensical reasons.
Buffett saw advertising as a free ticket on the media business. Why free? Unlike, for instance, a certain mill in New Bedford, an ad agency did not require capital—merely a desk and a couple of pencils. To Buffett, the lack of assets was a plus, because the profits flowed directly to the owners.
There was so little interest in Berkshire that newspapers didn’t quote its share price. Anyone in the public could have bought the stock and gotten a free rid on Buffett’s coattails (without paying an override, as in the partnership).
Buffett was as fearful of inflation as anyone. His response was to hunt for stocks, such as newspapers, that would be able to raise rates in step. Similarly, he avoided companies with big capital costs. (In an inflationary world, capital-intensive firms need more dollars to replenish equipment and inventory.)
In September, Graham emerged from retirement to speak to security analysts, urging them to awaken to what he termed a “renaissance of value.” Investing, he reminded them, did not require a genius. What it needs is, first, reasonably good intelligence; second, sound principles of operation; third, and most important, firmness of character.
I call investing the greatest business in the world because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.
His approach to life—of particular use to an investor—was to ask what could go wrong.
He liked to quote the algebraist Carl Jacobi: “Invert, always invert.” Thus, at a high school commencement, Munger gave a sermon not on the qualities that would lead to happiness, but on those that would guarantee a miserable life. Always invert.
Investors often assume that book value approximates, or at least is suggestive of, what a company is “worth.” In fact, the two express quite different concepts.
Book value is equal to the capital that has gone into a business, plus whatever profits have been retained. An investor is concerned with how much can be taken out in the future; that is what determines a company’s “worth” (or its “intrinsic value,” as Buffett would say).
Since book value is blind to intangibles such as brand name, for a company such as See’s it is meaningless as an indicator of value.
Maybe grapes from a little eight-acre vineyard in France are really the best in the whole world, but I have always had a suspicion that about 99% of it is in the telling and about 1% is in the drinking.
“Charlie is very funny, and also very pompous,” said a member of Buffett’s circle. “He believes in the aristocratic point of view, that there is a select group of accomplished, talented people in the world, and that he is one of them.
Yet Munger was a formidable armchair psychologist and, in particular, a student of behavior. He saw the devil in such phenomena as the inability of people to change their minds, or what he termed “first-conclusion bias”: “This is why organizations solicit public pledges. Hell, it’s the reason for the marriage ceremony.
To Buffett, the very word “partner” had a powerful implication, suggesting a raft of unspoken responsibilities and loyalties, such as he had felt toward the investors in Buffett Partnership.
The modern portfolio manager saw stocks in two dimensions; they flickered across the screen, and at the push of a button they disappeared. Buffett and Munger wanted a larger role.
They often talked about how managing money was not enough. As Munger recalled, “I said to Warren, ‘We don’t want to be like Russell Sage, a shrewd, miserable accumulator.
We didn’t want to be remembered by friends and family for nothing but pieces of paper.”
The secret to his seduction was his patience. It seemed to exert a magnetic pull on her. And the more she got to know him, the more she liked his ideas.
Before long, Buffett made a major suggestion—that the Post buy back a big portion of its own stock.
Graham thought this was crazy. If a company returned its capital, how could it grow? Buffett’s point was that overall growth didn’t matter—merely growth per share. It was like shrinking the number of slices in a pizza. If the shares could be retired cheaply—and Post stock was still quite cheap—there would be more cheese on every slice. Buffett took her through the math, penciling it out in the book-lined study in Georgetown.
Another friend said that “the Washington Post really changed his life. It changed whom he was exposed to.” Suddenly, Warren Buffett of Omaha was mixing with the likes of Henry Kissinger.
“Washington society is agog because Mr. B. drinks Pepsi-Cola with his meals, no matter how chic the gathering.” Buffett did not like splashy affairs, but he liked meeting bigwigs in the controlled setting of Graham’s home.
Buffett would make similar doe-eyed remarks about their offstage lives. He often commented that he had been unhappy until he had met Susie, or that he wouldn’t have turned out well without her.
Buffett was cool to cellular and to cable TV because they required a lot of capital.
He was skeptical of start-ups and of new technology because they were, well, new. They’d be like switching from hamburgers to foreign foods.
If Buffett couldn’t see a business, he wasn’t comfortable with it.
If he didn’t understand a venture—he, personally—he felt that he’d be speculating.
Buffett gave the Grahams a way of thinking about the business that was oriented to the shareholders, and at a time when media companies were devoted to acquiring empires.
He insistently reminded them—as he had Ken Chace, so many years earlier, outside the textile mill—that size was not the goal; the return to shareholders was.
Opportunities were missed, but he saved the Post from the business error that is truly a tragic error—throwing the profits from a good business into a bad one.
At about the time of GEICO’s troubles, Graham asked Buffett to coauthor a revised edition of The Intelligent Investor. They corresponded, but Buffett found that he and his teacher had some basic disagreements. Buffett wanted a section on how to identify “great businesses” (such as See’s Candy); Graham didn’t think the average reader could do it. Also, Graham recommended a ceiling of 75 percent of one’s assets in stocks; the gamer Buffett was willing to invest his whole kitty if prices were right.
We talked to maybe 2:00, 3:00 A.M. He wanted to know the things I would do. What did I think of our ability to survive? I remember we talked late at night about families, other stuff. But mostly the conversation was GEICO. I’m sure I did 80 percent of the talking.
One time, Buffett said an investor should approach the stock market as if he had a lifetime punch card. Every time he bought a stock he punched a hole. When the card had twenty holes he was done—no more investing for life. Obviously, the investor would filter out every idea but the best. Lou Simpson, who was managing GEICO’s portfolio, said this parable had a profound impact on him.
Some years later, Buffett admitted that the stocks he was buying were entirely different from those that Graham would buy.
Much later, when Buffett was speaking to the author about Buffett’s own career, he remarked with unmistakable affection: “The best thing I did was to choose the right heroes. It all comes from Graham.” When the author mentioned that he had spoken to some of Graham’s children, Buffett’s voice suddenly broke. “I wish you could talk to Graham,” he replied.
Buffett explained that he evaluated stocks exactly as he would an entire business: he looked for companies he understood, run by honest and competent managers, with favorable long-term prospects, and available at a decent price. He made no attempt to anticipate the short-term price action.
When a friend suggested that Buffett try his hand in real estate, Buffett grinned. “Why should I buy real estate when the stock market is so easy?
Guerin, though, was deeply touched by Buffett’s willingness to drop everything for him. “He has enormous compassion,” Guerin said, “but people don’t see that. To me it was just an amazing gift—the gift of time.
Shareholders pressed Buffett to split his stock. The rationale—and it is an article of faith at virtually every public company—is that a lower share price is more affordable and thus tends to enhance the public’s interest in a stock. But in his 1983 letter, Buffett ruled out a split. Slicing the pie into more pieces would hardly increase its value. (Try it with a pizza.)
But Buffett had thought about it quite a bit. He was consciously trying to assemble a tribe of like-minded shareholders, who would focus, as he did, on long-term value. If people bought for reasons that had nothing to do with value—such as a stock split—so, too, would they one day sell. As much as possible, Buffett wanted to dissuade such infidels from becoming his partners.
This suggests the depth of Buffett’s commitment to Berkshire; it was a “job” to him in the sense that England was a job to Churchill.
His aim was to profit from the long-term growth of (hopefully) well-chosen businesses, but not from nimbly entering and exiting them, or from financial legerdemain, or from various forms of pie-splitting and (at foolish prices) pie-acquiring.
But the 1980s were no ordinary period in finance. America was home to the hostile takeover, the junk bond, the leveraged buyout. The archetypal business figure was no longer the rough-and-ready entrepreneur, the Oliver Chace, but the sheer and dicer on Wall Street. The mantra of this age was “liquidity”; not only corporate shares, but whole companies, too, were flipped like trading cards (indeed, flipped, and then dissected, and then reassembled and repartitioned).
One question Buffett always asked himself in appraising a business is how comfortable he would feel having to compete against it, assuming that he had ample capital, personnel, experience in the same industry, and so forth.
Her method was her motto: “Sell cheap and tell the truth.”
Mrs. B’s formula was irresistibly simple; she bought in volume, kept expenses bone-trim, and passed on the savings.
Mrs. B never took a vacation. “I never lied,” she said. “I never cheated. I never promised I couldn’t do. That brought me luck.
In Buffett’s terms, if he couldn’t trust the Blumkins, why become their partner?
Norman Lear, the Hollywood producer, said, “Warren’s admiration for Mrs. B is like a child’s. He talks about her the way a small boy would talk about his grandmother.
When the Omaha World-Herald inquired as to her favorite movie, Mrs. B replied, “Too busy.” Her favorite cocktail? “None. Drinkers go broke.” Her hobby, then? Driving around and spying on competitors.
Mrs. B didn’t spend much time there and never entertained. “I don’t like rich society people,” she noted. “Rich people are rude to you when you’re poor; I don’t forget that.
When compared to Ronald O. Perelman, who epitomized the takeover artists, Buffett was closer to its inverted image. Both men were highly acquisitive and were shrewd judges of companies, and they shared more traits as investors than one might suppose. Perelman eschewed high-tech and looked for strong cash flow. Like Buffett, he took a long-term view and was, at heart, a financial person, not a manager.
He once told Forbes that he carefully read ten annual reports a week.
I wanted to see that little piece of paper that said I was the owner of Cities Service Company, and I felt that the managers were there to do as I and a few other co-owners said. And I felt that if anybody wanted to buy that company, they should come to me.
Since Buffett defined investing as an attempt to profit from the results of the enterprise, as distinct from the price action,40 the LBO artists did not really qualify as “investors.” They merely transferred assets from one pocket to the next. They did not “create” value, which Buffett defined as adding to the sum of socially useful or desirable products and services. Most often, their profits stemmed merely from the huge tax savings that derived from converting equity to debt (interest payments being deductible).
Now when you read about Boone Pickens and Jimmy Goldsmith and the crew, they talk about creating value for shareholders. They aren’t creating value—they are transferring it from society to shareholders. That may be a good or bad thing but it isn’t creating value—it’s not like Henry Ford developing the car or Ray Kroc figuring out how to deliver hamburgers better than anyone else.… In the last few years … one [company] after another has been transformed by people who have understood this game. That means that every citizen owes a touch more of what is needed to pay for all the goods and services that the government provides.
His day was a veritable stream of unstructured hours and cherry colas. He would sit at the redwood horseshoe desk and read for hours, joined to the world by a telephone (which he answered himself) and three private lines: to Salomon Brothers, Smith Barney, and Goldman Sachs.
When Keough ran into Buffett—at a 1986 White House reception—he thought his old neighbor unchanged: “a personable guy who loved life.
This spartan style was part of a deliberate effort to minimize what Buffett termed “institutional dynamics.”37 he had hired a floor of traders, they would have found something to trade; lawyers, no doubt, would have found someone to sue.
A compact organization lets all of us spend our time managing the business rather than managing each other.
Buffett’s Kiewit coworkers were little more than a backdrop—unobtrusive, robotlike, and unerringly dependable. According to daughter Susie, “All of the people in that office are the same. They don’t talk. They just do their work.
He was much better at motivating with a carrot than with a stick; while he disliked confrontation, he was a master flatterer.
I have never met a man who could forecast the market. WARREN BUFFETT, BERKSHIRE HATHAWAY ANNUAL MEETING, 1987
But on October 19, 1987, investors had fallen dumbly under his spell, selling stocks—any stocks—tick for miserable tick. This proved to Buffett what he had already known—that Graham had been abandoned.
Instead of price and value, Buffett lamented in a postmortem, “professionals and academicians talk of efficient markets, dynamic hedging and betas.
The monks of finance had shunned him as a heretic, while in Buffett’s eyes, these abbots and friars were engaged in an incestuous effort to prove, with ever greater elegance and seeming precision, that the earth, indeed, was truly flat.
The premise of Buffett’s career was that stockpicking, though difficult and subjective, was susceptible to reasoned analysis. Occasionally, certain stocks sold for far less than they were “worth.” An astute investor could profit by buying them.
Buffett would taunt the scholars with the evidence of his career, and implicit in his taunts was a simple question: “If you’re so smart, how come I’m so rich?
As Samuelson explained it, “intelligent people” were “constantly shopping around for good value,” buying bargain stocks and selling dear ones and, in the process, eliminating such opportunities even as they arose.
But Samuelson did not change his mind. Part of the theory’s allure was that it extended the classical economics of Adam Smith to financial markets.
Investors such as Buffett thought of intrinsic value as an inherent quality; it lay “behind, or beneath, the prices observed in the marketplace.
The prices themselves were approximations.
If you buy a bond, you know exactly what’s going to happen, assuming it’s a good bond, a U.S. Government bond. If it says 9 percent, you know what the coupons are going to be for maybe thirty years.… Now, when you buy a business, you’re buying something with coupons on it, too, except, the only problem is, they don’t print in the amount. And it’s my job to print in [to figure out] the amount on the coupon.
Pay no attention to macroeconomic trends or forecasts, or to people’s predictions about the future course of stock prices. Focus on long-term business value—on the size of the coupons down the road.
Stick to stocks within one’s “circle of competence.” For Buffett, that was often a company with a consumer franchise. But the general rule was true for all: if you didn’t understand the business—be it a newspaper or a software firm—you couldn’t value the stock.
Look for managers who treated the shareholders’ capital with ownerlike care and thoughtfulness.
Study prospects—and their competitors—in great detail. Look at raw data, not analysts’ summaries.
Trust your own eyes, Buffett said. But one needn’t value a business too precisely. A basketball coach doesn’t check to see if a prospect is six foot one or six foot two; he looks for seven-footers.
The vast majority of stocks would not be compelling either way—so ignore them. Merrill Lynch had an opinion on every stock; Buffett did not. But when an investor had conviction about a stock, he or she should also show courage—and buy a ton of it.
But given its earning power, Buffett thought he was getting a Mercedes for the price of a Chevrolet.
A few of Buffett’s negotiated deals, such as Salomon, did arise from personal connections, and Buffett’s circle of such contacts was extensive. But most of his investments were market-traded stocks. And, in fact, he instructed his brokers not to distract him with their hot ideas.37 According to Munger, he used his contacts to investigate prospects after he had a lead.
Most of what Buffett did, such as reading reports and trade journals, the small investor could also do. He felt very deeply that the common wisdom was dead wrong; the little guy could invest in the market, so long as he stuck to his Graham-and-Dodd knitting.39 But people, he found, either took to this approach immediately or they never did. Many had a “perverse” need to make it complicated.40 This truism extended to Buffett’s family.
From Buffett’s viewpoint, everybody wanted a piece of him, like camera-toting tourists pursuing a colorful native. His defense, as Kay Graham recognized, was to set his own agenda, in philanthrophy as in so much else. Holding on to his money was a way of keeping control. Even as a boy, when he hadn’t owned a part of Kay Graham’s newspaper but had merely delivered it, he wouldn’t let his mother touch the money.
“Warren’s a great collector of friends”
Among history’s great capitalists, Buffett stands out for his sheer skill at evaluating businesses. What John D. Rockefeller, the oil cartelist, Andrew Carnegie, the philanthropic steel baron, Sam Walton, the humble retailer, and Bill Gates, the software nerd, have in common is that each owes his fortune to a single product or innovation. Buffett made his money as a pure investor: picking diverse businesses and stocks.
As he commented in a recent letter, “We like to buy. Selling, however, is a different story.”19 In a sense, his whole career has been an act of holding on—of refusing to say goodbye.
What is “investing” if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value—in the hope that it can soon be sold for a still-higher price—should be labeled speculation.
He still plays bridge, but usually via a computer (which he refuses to use for work) many miles away from his partners.
Buffett does enjoy being a billionaire, but in offbeat ways. As he put it, though money cannot change your health or how many people love you, it lets you be in “more interesting environments.
But the public legacy is secure. Buffett’s uncommon urge to chronicle made him a unique character in American life, not only a great capitalist but the Great Explainer of American capitalism. He taught a generation how to think about business, and he showed that securities were not just tokens like the Monopoly flatiron, and that investing need not be a game of chance. It was also a logical, commonsensical enterprise, like the tangible businesses beneath. He stripped Wall Street of its mystery and rejoined it to Main Street—a mythical or disappearing place, perhaps, but one that is comprehensible to the ordinary American.
In Munger’s phrase, he strove to be more than a “miserable accumulator,” in particular by treating investors and investees as partners, with no fingers crossed and no “exit strategies.”
As he wrote to his partners in 1969, with regard to Berkshire Hathaway: I certainly have no desire to sell a good controlled business run by people I like and admire, merely to obtain a fancy price.
The public became obsessed with twenty-something website promoters, and it was commonly said that Buffett was outmoded, an old-economy relic, and so forth.
“Never lose money” is an unyielding standard; it forecloses the option of taking any speculative risks.
As a portfolio manager, Buffett has always tried to concentrate on a few stocks—a very few—that he both understood and felt comfortable with.