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Tap Dancing To Work
"With few exceptions, when a manager with a reputation for brilliance tackles a business with a reputation for poor fundamentals, it is the reputation of the business which remains intact."
Charlie Munger: "Although humility is a trait I much admire, I don't think I quite got my full share."
When first started investing for others, Buffett set the terms. "I guarantee you a 6% return, and I get 20% of the profits above that. And I won't tell you what we own because that's distracting. All I want to do is hand in a scorecard when I come off the golf course. I don't want you following me round and watching me shank a three iron on this hole and leave a putt short on the next."
Robert Benchley quote: "Having a dog teaches a boy fidelity, perseverance and to turn around three times before lying down."
Bought the textile business Berkshire on the "cigar butt" approach to investing. (If you pick up a discarded cigar butt you can get one puff off it - may not be great, but didn't cost anything) But learnt that this is a foolish approach to investing. First, in a difficult business, as soon as you solve one problem, another appears - there is never just one cockroach in the kitchen. Second, any initial advantage from buying cheap will be eroded by the long term low return.
So lesson Buffett (eventually) learned - there were other similar cockups - that it is far better to buy a wonderful company at a good price than a good company at a wonderful price.
His son Howard farms 406 acres, which Warren owns. The rent is a percentage of the gross profit. But the actual percentage depends upon Howard's weight. Warren thinks his son should weigh no more than 180lbs (he's only 5'8" tall). If he's under that weight, the rent for the land is 22% of gross profit. If he's over (and Howard is close to 200lbs), the rent is 26% of profit.
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"I always look on IQ and talent as the horsepower of the motor, but the output - the efficiency with which the motor works - depends on rationality. A lot of people start out with 400hp motors but get only 100hp of output. It's way better to have a 200hp motor and get it all into output."
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"Pick out the person you admire most, and then write down why you admire them. And then think of person you admire the least, and write down the qualities that turn you off in that person. The qualities you admire are traits that you, with a little practice, can make your own, and if you practice enough, will become habits."
"I can certainly define happiness, because happy is what I am. I get to do what I like to do every day of the year. I get to do it with people I like, and I don't have to associate with anybody who causes my stomach to churn. I tap dance to work ...."
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"I'd advise you that when you go out to work, work for an organization of people you admire, because it will turn you on. I always worry about people who say 'I'm going to have to do this for en years even though I don't like it very much' ... that's like saving up sex for your old age."
"I have turned down business deals that were otherwise decent deals because I didn't like the people I'd have to work with. To get involved with people who make your stomach churn - it's a lot like marrying for money. It's probably a bad idea under any circumstances, but it's absolutely crazy if you're already rich."
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"I'm quite fond of 1929, since that was when it all started for me. My dad was a stock salesman at the time, and after the Crash came, in October, he was afraid to call anyone - all those people who'd been burned. So he just stayed home. And there wasn't television then. Soooo ... I was conceived on or about November 30 1929, and born nine months later, on Aug 30 1930, and I've forever had kind of a warm feeling about the Crash."
(On trying to pick winning industries) A century ago there were 2000 car makers. We are now down to three, themselves not great investments. You could have grasped the huge impact that autos would have, but still found it hard to pick companies that would make you money. What you should have done was short horses. The other great transforming industry is airlines. Yet the sum total of all the money made by all airlines in history is zero. So from investment point of view should have shot the Wright brothers at Kitty Hawk. Karl Marx didn't do as much damage to capitalism as Orville did.
Charles Darwin used to say that when he ran into something that contradicted a conclusion he cherished, he made himself write it down within 30 minutes. Otherwise his mind would work to reject the discordant information.
Fund managers invest with their eyes in the rear vision mirror - generals fighting the last war. They behave just like rank amateurs, but still expect to be paid like experts.
(Ben Graham) "The stock market behaves like a voting machine in the short term, but acts like a weighing machine in the long run."
Buffett rarely buys shares anymore. Instead buys whole companies. Now directly employs 145,000 workers - more than Pepsi or Marriott.
B-H generates over 5 billion dollars a year in cash flow. That means each week, Buffett has to find a way to spend 100 million dollars.
Buffett said that if he taught business school, he would ask every student to come up with a valuation for an Internet company, and then flunk anyone who answered.
Buffett's argument about frictional fees culminated in a Long Bet as to whether a low-cost index fund would out-perform a managed hedge fund. (Other Long Bets included Ted Danson wagering that the Red Sox would win the World Series before US soccer team would win the World Cup, and Ray Kurzweil betting Mitch Kapor that a computer would pass the Turing Test before 2029.
Some basic Buffett investment rules: when a management with brilliant reputation tackles a business with a bad economic reputation, it is usually the reputation of the business that remains intact. You should invest in a business that even a fool could run, because someday a fool will. And, never invest in a business you can't understand.
(New Yorker review)
Warren Buffett's tastes haven't changed much over the years. "I like today what I liked fifty years ago," he told me the other day. "I like reading 10-Ks. I like playing bridge. I haven't acquired a lot of new habits. I was happy when I was in my twenties, and I don't see a reason to change things." We were having lunch with Carol Loomis, one of his closest friends, who is the editor of Tap-Dancing to Work, a new anthology of Fortune writings by and about Buffett. As if to illustrate his point, lunch was the same lunch he's probably been eating since he was a kid: a hamburger and fries, followed by vanilla ice cream, "strong on the chocolate syrup." It isn't just his tastes, though: as the new book shows, Buffett's philosophy of investing has stayed remarkably consistent.
What has changed is Buffett's reputation. No longer just America's favorite investor, in recent years he's become a kind of public sage, a role exemplified by his crusade to get the government to raise taxes on the wealthy - a crusade enthusiastically invoked by President Obama both in last January's State of the Union address and in the recent Presidential campaign. Somehow, at a time when public hostility toward the super-rich has never been greater, he's become not only the second-richest man in America but also one of the most revered.
Buffett's disdain for the trappings of wealth can be exaggerated - "When I get rid of the plane, you'll know I'm broke," he told me - but it's obviously a big part of his appeal to ordinary Americans. How can you not like a billionaire who still lives in a house that he bought in 1958? But Buffett's popularity doesn't stem from his life style alone. More important, his success evokes an economy very different from today's risky, unstable one. These days, workers are told that they need to adapt to a world of perpetual change, constantly reinventing themselves. The investing world is dominated by a manic-depressive style, in which the average mutual fund turns over nearly its entire portfolio every year. Yet Buffett has prospered by ignoring all this. As an investor, he's known for his patience - he says that he likes holding stocks "forever" - and he prefers a few big bets to an endless number of small ones. "If you go from flower to flower, you have to find a lot of flowers to make a lot of money," he told me. "There aren't that many great ideas out there."
The way Buffett runs his company, Berkshire Hathaway, which owns more than eighty other companies outright, is similarly out of tune with the times. In the current stereotype of corporate acquirers, firms like Bain Capital load companies with debt, downsize their workforces, and strip them of assets. Buffett doesn't do hostile acquisitions or major restructurings, and he almost never sells the companies he buys. He admits that this isn't purely rational, although Berkshire is very profitable. But it plays to his strengths (he likes buying companies and building them) and mitigates his weaknesses (as he told me, he hates confrontation). "You've got to create the structures consistent with what your temperament needs to be," he said. Whatever the personal reasons for his approach, it's one that seems reassuring.
Another crucial aspect of Buffett's public appeal is his unnervingly even persona. He's not placid - at eighty-two, he's a garrulous bundle of energy, his conversation punctuated by little bursts of laughter - but he projects an aura of profound cool. During the financial crisis, he was the human equivalent of one of those "Keep Calm and Carry On" signs. It isn't that he's indifferent to danger. He was, after all, a prescient critic of the perils of program trading, derivatives, and the boom in speculation, and in conversation he seems skeptical about the prospects of really taming the markets: "Once you let genies out of the bottle in financial markets, you don't get them back." But his stern critiques of casino capitalism are leavened by a fundamental optimism about the future. "We've still got pretty damn good capital markets," he said, and added that one should “bet that the intelligent thing will eventually get done.” You can dismiss this as Pollyanna-ish - or, alternatively, as what you would say if you were worth forty-five billion dollars. But it's part of what makes Buffett likable: his quintessentially American conviction that there's no problem we can't solve.
You can see this at work in his campaign to get the rich to pay more in taxes. There's certainly a moral dimension to it - he calls the fact that he pays a lower tax rate than his secretary "an outrage." Yet his tone is less hectoring than utilitarian: we need more revenue to narrow the deficit, and having the wealthy pay more in taxes won't hurt them or the economy. His decision to give away ninety-nine per cent of his wealth feels similarly rational. As he told me, what his wealth amounts to is a giant pile of "claim checks" on the world's resources, claim checks that are largely "worthless" to him but potentially valuable to others.
We live in a moment when any argument for higher tax rates is bound to ruffle conservative feathers. Twice in the past year, Buffett has been publicly told to "shut up" about taxation, and last year Fox News labelled him a 'socialist.' Yet Buffett's positions are hardly radical, and the sight of an unrepentant capitalist out there talking about the greater good reassures ordinary people that the system is not beyond saving. Rather than fret about Buffett's being a traitor to his class, Wall Street and the super-rich should see that his message helps keep the pitchforks at bay. If Buffett didn't exist, the rich would have had to invent him.
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