Warren Buffett is taking a victory lap leading up to the annual meeting of Berkshire Hathaway on May 2. It will mark his 50th year at the helm of the company. A dollar invested in 1965 with Buffett would be worth $1,820.000 today, give or take. An astonishing record.
Buffett’s annual shareholder letters have become famous for their plain spoken, sage advice. This year’s can now be read online and is a special case since it includes a look back over the whole 50 years. It is accompanied by a similarly tart, if less homespun discussion by Charlie Munger, Buffett’s alter ego and sounding board. They are must reads. Find them here: http://www.berkshirehathaway.com/letters/2014ltr.pdf.
Many Americans have become rich by fair means or foul, but Buffett has special appeal because of his everyman quality and Main Street mindset. He embodies for me Midwestern virtues that I admired in my father who came from the same generation as Buffett’s father. My Dad never made a billion (or a million), but he did his work with honor. He gave honest weight as they used to say. He was a genial man who was utterly trustworthy, smart enough not to be foolish, but too smart to be enchanted with his own cleverness. He didn’t lie. He didn’t sugarcoat. He didn’t complain. He didn’t blame. He was decent and expected others to behave the same.
In many of these ways Buffett reminds me of him. His anniversary letter is filled with humility. It begins with a couple mistakes early in his career, one of which he characterizes as “colossal.” He has tried never to repeat them, which is about the best use to which mistakes can be put. One of them was buying the company that gave Buffett’s firm the Berkshire name. Only the name survives, perhaps retained as a daily reminder that he can make mistakes.
Buffett goes to some length to credit Munger with being the architect of Berkshire and calls himself only the general contractor, and the CEOs of Berkshire’s various subsidiaries the subcontractors who are “doing the real work.” He explains how Munger, early on in their relationship, broke him of a few bad habits and how they haven’t had a fight in 53 years because whenever they disagree Munger says, “think it over and you’ll agree because you’re smart and I’m right.” The chief lesson Buffett credits Munger with drilling into him is to quit buying fair businesses at wonderful prices and instead seek only wonderful businesses at fair prices.
Buffett is repeatedly scornful of get rich quick schemes, Wall Street shenanigans, stock touts and the like. He says the core competence of most money managers is salesmanship. He advises the average investor to turn a deaf ear to them. “Don’t ask the barber whether you need a haircut.” Instead, they should read John Bogle’s “The Little Book of Common Sense Investing” which advises buying and holding a broad index fund of stocks.
He also advisees against buying with borrowed money, investing in fixed income, active trading, and market timing. And he warns those thinking of buying Berkshire not to do so unless they plan on holding it a minimum of five years.
Buffett buys not just companies, but their managers whom he trusts to excel. He also expects them to be “all in” for the company they run, not for themselves. He believes “character is crucial.” He isn’t in business to make a quick buck but to build “the Gibraltar of American business,” capable of weathering any storm. To do so he keeps a cash hoard larger than most companies. So much so that in the scary days of 2008, when banks were teetering, Berkshire had money to lend. He threw a $15 billion lifeline to some businesses in trouble, kept them afloat, and profited in the process.
He believes to his bones in America. Indeed he is fond of saying he’s a member of the lucky sperm club for having been born in a country that allowed him the opportunity to use his gifts. In many other places on earth he would now be poor or dead or both. As an investor he believes in minimizing risk. As a manager he believes in compensating his employees generously when they perform and in fighting against “the ABCs of business decay, which are arrogance, bureaucracy and complacency.” His businesses employ tens of thousands, but his own executive office in Omaha numbers just twenty-five.
A characteristic bit of candor and resolve comes in his discussion of BNSF’s performance in 2014. The railroad “disappointed many customers” due to some operating problems. As a result it lost share to its biggest competitor, Union Pacific, and also underperformed UP in earnings. Many corporate titans would respond to such a problem by covering it up, lopping off heads, finding someone to blame, cooking the books or trying to weasel out of the situation. Buffett says they will invest $6 billion in 2015, 26% of revenues, in order to fix the service problems and insure superior performance for many years into the future and to win back customers’ confidence.
This is the kind of behavior you expect of grown-ups and rarely get, certainly not in rosy annual reports. Buffett may disarm by playing the ukulele and contract bridge, by living modestly and talking like the guy next door, but he has won his devoted following not by playing a part but by playing it straight and delivering the goods. Near the end of the letter he thanks his shareholders for sticking with him and repeats the credo of his business: “Although our form is corporate, our attitude is partnership.” Easy to say, rarely done.
No wonder around 39,000 shareholders and devotees of Warren will join him in Omaha for the annual meeting, styled “Woodstock for Capitalists.” They can buy Berkshire products at a discount, dine at Buffett’s favorite restaurants, enter a newspaper throwing contest against the master (his boyhood job), and enjoy a giant BNSF train set, a parade, a magic show.
Lots of fun, but what they really come for to be in his presence for a five hour Q and A in which Buffett and Munger answer questions that have not been pre-selected or vetted. For that, and for a glimpse of what old-fashioned American character, like my Dad’s, looks like. In a world awash in sleazy role models, Buffett gives one hope. You can do right and do well at the same time.