There we were: a bunch of awkward, mature-looking students on a getaway field trip with business suits as uniforms. Some of us were freshly pressed and bright-eyed, while others trudged along and still mildly reeked of the festivities from the night before. We were off to meet the legend himself: Warren Buffett, on his turf. This was the spring of 2009, our second and final year of MBA-dom, a time when we mortgaged our futures and capped off all the strategery with trips to exotic destinations: Punta Cana, Turks and Caicos, Mt. Kilimanjaro, and you know, Omaha, Nebraska.
I yawned at security, wondering if the TSA would notice the abnormally plentiful copies of Letters to Shareholders in our train of carry-ons.
A short and sleepy flight later, we landed. Our shuttle rumbled by clapboard houses, grassy knolls, and the occasional light manufacturing facility, with very few people in sight for a city of 200,000+.
“You’re the first to arrive,” a the receptionist said warmly. “Feel free to take a seat anywhere and help yourselves.” She gestured towards a row of Borsheim’s Fine Jewelry gift bags filled with daily desk calendars of Buffett-isms and catalogs displaying glittery baubles we hoped to one day afford.
I took a seat and cased what I saw: a copy of Moody’s Banks-Insurance-Real Estate Investment Trusts Handbook c. 1951, a Korean stock analysis guide from 2004, a wireless microphone, and two cans of Cherry Coke.
But no McDonald’s.
Buffett suddenly entered, moving with an spry energy surprising for his 78 years. He smiled at the intimate crowd of 150 students — far cry from the 40,000+ attendees at a typical BRK annual shareholders’ meeting. He kicked off the session with a friendly hello and picked up the copy of Moody’s.
“Can everybody hear me? Nod if you mean ‘yes’.
Speaking of which — you know my colleague Charlie [Munger]? Well, I used to think he had a hearing problem. I remember this one time I was standing across this large room and his back was towards me.I called out, ‘Hey Charlie, should we buy Microsoft at 19?’
He didn’t respond.
So I moved to the middle of the room and asked again, ‘Charlie, should we buy Microsoft at 19?’
No response again.
So I walked up right behind him and said, “CHARLIE, SHOULD WE BUY MICROSOFT AT 19?’
Charlie said, ‘For the third time, YES!’”
Over our laughter, he said he wasn’t fond of long speeches and asked that instead we jump right into Q&A. Up shot a hundred hands.
When asked what he might do with his life if he was 25 again and had no money, Buffett said,
“If I was that young again and had no money, I would still do what I love, but that’s not what people always tell you. Though I was told you should only work for someone you admire — so I decided to work for myself.”
When asked what he would do differently and what lessons he had learned in his career, Buffett responded by admitting while there were no major upheavals, there were some lesser mistakes — primarily around selling too late. He acknowledged the challenges of the textile industry and wished he had gotten out sooner, then mentioned US Airways as yet another example of having divested too late. He stressed maintaining a proper “batting average” above all and not agonizing over the small stuff.
When asked what he thought of the collapse of Bear Stearns and the fate of comparable banks, Buffett pointed out the banks underwent a similar crisis in the 1930’s. He said safety nets like the FDIC originated from such situations and asserted that whoever survives will rebound.
When asked whether recent government bailouts for the banking and auto industries ruined the capitalist structure of America, Buffett responded with a firm no. He stated that country banks — including several in Omaha — were not taken seriously due to trip hammer effects during Roosevelt era. “Our government is pro-capitalist,” he asserted. “Back in September [‘08, around the time of Lehman’s downfall], when banks had trouble rolling their paper and the money market funds were collapsing, the federal bailout prevented what could have been a historically unprecedented run on the banks, an ‘economic Pearl Harbor.’”
Buffett railed about the challenges of Wall Street in regaining the public’s trust, admitting he had never seen this kind of change in consumer behavior. He cited how in just a quarter, GEICO had witnessed increased enrollment of 40–50,000 accounts — with no change in its competitive position, just in how people think. He described a never before seen ‘recalibration of the American mindset’ as the reason for changes in savings behavior and steep drops in the sale of consumer discretionary products.
When asked whether DCF and forecasting were meaningful exercises in valuing companies, Buffett responded that DCF was the only way to value a business. He also said that most people apply different discount rates to different assets (e.g. Gillette versus Coca-Cola), whereas Buffett applies the same discount rate.
According to Buffett, the fundamentals of investing are attributable to Aesop, who stated in 600 BC, “A bird in the hand is worth two in the bush.” He then asked how can we be sure certain bushes have birds, concluding it was our job to identify those businesses. He suggested we look towards the certainty of payoff, interest rates, and comparable opportunities, then cited several examples. First Gillette, which he described as having smartly joined the cavalcade of professional sports to become the companion of every young male as he became an adult. “Subsequent generations grew up with their products,” declared Buffett. “And 100 years later, Gillette still has 70% market share with 80% gross margin…no one will dislodge them. They’re not going to drop.”
“Take Coca-Cola,” he added. “Everyday 1.6 B 8 oz servings are sold around the world every day — you can’t dislodge them either.” As for See’s Candies, he informed us that in 1972, when his longtime business partner Charlie Munger made the call to purchase the company, 38 million people in California had a positive association with the brand.
“When you buy a box of chocolates, you want to be kissed. If you bring Russell Stover, you’ll get slapped. You want a favorable impression of rekindling the first date. $70M in revenues made on $40M of tangible assets. $55M done around the holidays. See’s is like a 350–400 lb. man. You can’t say exactly what he weighs but you know that he’s fat.”
Buffett further recommended we stick with businesses we understand. “Mrs. B [Rose Blumkin of the Nebraska Furniture Mart, a BRK subsidiary] built the largest furniture store in the US on nothing. She has what I call a “circle of competency” — within this circle: retail, real estate, hard work, people. But she didn’t know stocks. You should know the perimeter of your circle of competency just as well as you know that of others.”
When asked why people are less successful at investing, Buffett said,
“You don’t need a lot of brains to do what I do. You need reasonable intelligence but really need temperament — to be unaffected with what people are doing or thinking. You need to think, ‘the stock market is there to serve me.’ Read Chapter 8 of the Intelligent Investor — some day versus tomorrow is the key. You need to have an ‘emotional detachment’ from almost any other stimuli around. You need to have an inner scorecard: keep your own batting averages and score. Most people want words to tell them they’re right, to validate their decisions. Working with $10,000 versus now was just as fun. It was the game that interested me — the number of zeros didn’t make any difference. Buy every stock like it’s a private business — as if you would not mind if it didn’t sell any stock or went public, but that you’d just be happy owning a business.”
When asked about succession planning at Berkshire Hathaway, Buffett said he had identified three individuals who could do a better job — people with a strong sense of capital allocation and strong managerial skills. He said these traits were naturally important, even if 99% of his net worth will go to charities upon his passing. “The real test of Wal-Mart was what happened when Sam died.,” Buffett said. “Managers wouldn’t tolerate big change and due to their strong culture, they’ve more than survived.” He contrasted Berkshire with GE: “Within GE, you have internal managers competing for CEO. At Berkshire, managers have the jobs they love. There is no turmoil or jealousy.”
He then said, “But really, when I die, I’ll just speak to my people and issue instructions via ouija board,” earning an chuckle from the crowd.
When asked what will happen with money market funds, Buffett defended them as favored instruments intended for the public — useful tools that have been around for a long time. He admitted however, “these days it’s all about having a service oriented business versus manufacturing — a system that unleashes more human potential over time. We make progress in that direction — technology.”
Buffett responded to these and many other questions with his characteristic good nature and folksy style, balancing insight with humor, and historical fact with hysterical anecdotes.
After ending the talk with smile at our standing ovation, Buffett offered to drive four guests to our lunch destination — the Piccolo Pete’s, an Omahan and Buffett tradition. Tiny beads of excitement formed on the forehead of my roommate, a longtime Buffett fan since college days. She was politely asking who wanted to go when several of us nudged her forward, chanting “Go Jane, go!”
As if riding shotgun in Buffett’s Cadillac and plying the billionaire investor with golf questions weren’t enough, Jane had the opportunity to sit right next to him at lunch — where he asked her about the Cubs while dodging requests from MIT Sloan students to advise the fund they were starting (!).
We ate just like Buffett that day, devouring plates of chicken parmesan and crinkle cut fries with a side of iceberg lettuce (Nebraskan for salad) sitting limply in the corner.
We drank ice cold Cherry Cokes then sucked down mini versions of his signature root beer float, as if consuming his favorite beverages would somehow imbue us with an iota of his investment savvy.
For all his intelligence and extraordinary earnings, Buffett is hardly a gourmand. Though delicious, this unremarkable, rather unhealthy meal has been his consistent midday fare for countless years, so representative of his no frills philosophy and predictable way of life.
We marveled at his relatively low operating costs, from his eating habits to his humble single family home to his polite disregard for an entourage a man of his stature could easily retain.
He apparently prefers to drive himself everywhere (though he does have a plane!).
After lunch, Buffett invited us to take photos in the parking lot across the street. There he proved to be an utter and complete ham, alternating staid poses with silly antics.
He was awesomely playful — standing back to back as one of Charlie’s smartest Angels, whispering stock tips in secretive fashion, trading eye glasses, and flashing gang signs (the “W’s” not for Westside but for Warren).
He even let yours truly pretend to steal his wallet. I put my weight into it but he had a strong grip on the sucker.
The close to our day? A tour of Borsheim’s, the fine jewelry store and subsidiary of Berkshire Hathaway.
Though loaded with an array of bejeweled treasures, this finish was anticlimactic — even with the shareholder discount offered by the manager.
For all the shine and glimmer of those precious gemstones, they paled in comparison with the priceless opportunity to hear the Oracle speak. Indeed, Jane said it best, remarking on our way back to the airport that “This was one of the greatest days of my life.”
OTHER BUFFETTISMS FROM THAT DAY — -
On Wall Street today:
“Wall Street is in the position of a man who cheats on his wife. What he lost in 5 seconds — her confidence — will take more than 5 minutes to regain.”On derivatives:
“Derivatives are financial weapons of mass destruction.”On healthcare:
“Healthcare is an embedded system, that is not looking for change. A country with $47,000 GDP per capita should have a basic level of healthcare for everyone.”On oil consumption:
“If we don’t make usage changes, the inefficiency of diminished supply will make them for us.”On leadership:
“We need leaders who can motivate people to do unpleasant or less pleasant activities. It is hard to sell people on things that seem opposed to their self-interest. I voted for Obama due to a belief in his ability to do this. It is a tough thing to ask a politician to do something that will cost him votes.”On marriage:
“The biggest decision you’ll ever make is who you marry. Be careful. Did you hear that Zsa Zsa Gabor listed her occupation as “housekeeper” on her IRS forms? It’s because she got to keep the house!”“If you’re interested in a marriage that will last, it’s not about humor, character, brains or temperament. The trick is to have low expectations. Take Charlie Munger, who when once asked who he was most thankful for in all his life, answered he was most thankful for his wife Nancy’s previous husband. Why? Because he was a drunk. You need to make sure the competition is weak.”
On parenthood:
“Parenthood will be the most important role in your lifetime, should you choose it. Whatever you do, don’t be sarcastic to your children. My children are in music, early childhood education and farming — they are all doing something worthwhile and giving back. I set up foundations for my children 10–12 years ago — separate entities to enable them to express themselves and not engage in rivalry.”On maintaining a work-life balance:
“What balance? I maintain a work-work balance. My wife leads the home, taking care of 99% of the domestic duties. But I know this kind of imbalance doesn’t work for everyone. I am really lucky because I get to do everything I like to do. I have the luxury of working with people I like to work with, on projects I like to work on — and at night, I get to play bridge on the internet. Women have the tougher end — [my wife] has a much bigger extracurricular commitment. 9 times out of 10, she’ll get the call if a kid is hurt.”
Writer’s note:
This is an edit of an article I wrote several years ago for our program’s newspaper.
I’ve reposted at the request of a friend and by my own mandate to write more frequently. Since this is a rewrite, I sorta feel like this is cheating so more original content to come. Enjoy!
