In 2008, when Warren Buffett had a down period in a 10-year performance bet between his choice (Vanguard's Admiral shares) and a hedge fund, he said: "I just hope that Aesop was right when he envisaged the tortoise overtaking the hare." In fact, he has been a spectacularly successful financial tortoise for over 50 years in good and hairy times.
This is a remarkable book about a remarkable investor AND person. Carol Loomis, my favorite FORTUNE writer for over 40 years, has been professionally and personally close to Warren Buffett for nearly two generations.
In recent years Warren Buffett has been widely acknowledged as the Oracle of Omaha. CEOs flock to seek his advice. His self-deprecating annual Berkshire-Hathaway annual letters (gently edited by Loomis) have become classics of understated financial wisdom. He is regularly ranked among the three richest individuals in the world, along with Bill Gates, his good friend. Recently his and the Gates' personal philanthropy has been at a stratospheric level that make Andrew Carnegie and J. D. Rockefellers look like charitable pikers.
Who is this Buffett fellow, who first merited a modest FORTUNE mention in 1966? What is the secret of his financial wizardry? When and how did he discover his magical financial elixir? To what extent has he adhered to this over the past two generations and more?
Virtually every book that I've read about successful businessmen or investors tells the story within the context of their recent success. Instead, Carol Loomis has decided to describe chronologically the Buffett phenomenon by abstracting from articles (including her own) and from Buffett statements from 1966 to 2012. Loomis adds some comments to provide a relevant historical context.
The result is an unprecedented biographic time line in which we see how and why Buffett reacted to America's financial ups and downs over the past two generations. As he explained, in April, 2008, during the outset of the Great Recession, "I always say you should get greedy when others are fearful and fearful when others are greedy." Most remarkable is Buffett's steady, long-term hand on his financial tiller, however turbulent the financial waters might be.
To best appreciate the Buffett personal style and core principles I abstract below book highlights from his early years to 2012. (In 1966 Berkshire Hathaway Class A stock was about $22. In mid-September, 2012 it was $133,000.)
BASIC BUFFETT
+ Rejected by Harvard Business School, Buffett went to Columbia Business School to study under Benjamin Graham, whose book, THE INTELLIGENT INVESTOR, has captivated him. ("The first rule of investment is not to lose. The second rule is not to forget the first rule.") Buffett later worked for Graham and ingested the Graham dictum of determining the intrinsic value of companies. Buffett absorbed Graham's focus on 'bargains' which he rigidly defined as stocks that could be bought at no more than two-thirds of their net working capital.
+ "When I got out of Columbia University, I went through Moody's manuals....It worked out so well I actually went through the book [s] a second time. 1998
+ In 1969, Warren Buffett, then thirty-nine, was unhappy with the financial world. He regarded the wild excesses of 1969 as insane. "This is a market I don't understand." He announced in 1969 that, after thirteen years of a spectacularly successful operation, he would close Buffett Partnerships at the end of the year.
+ Professor William Sharp of Stanford referred to Buffett as a "five-sigma event."There is only one chance in 3.5 million of compiling an investment record like Buffett's by chance. 1983
+"Things aren't right just because they are unpopular, but it is a good pond in which to fish. You pay a lot on Wall Street for a cheery consensus." 1985 "Rationality is essential when others are making decisions based on short-term greed or fear....That is when the money is made." 1990
+"You can't do well in investment unless you think independently. And the trouble is, you are neither right nor wrong because people agree with you. You're right because your facts and your reasoning are right....That's all that counts." 2002
+"My problem is I don't get 50 great ideas....I'm lucky if I get one or two." (When he does decide to plunge, Buffett bets big.) 1985 Gates on Buffett: "Warren says that in your life you should swing at only a couple dozen pitches, and he advises doing careful homework so that the few swings you take are hits." 1996
+ Gates on Buffett: "He keeps his schedule free of meetings....He likes to sit in his office and read and think." 1996 Buffett is probably one of a few CEOs in America who spends much of the day reading. Buffett doesn't e-mail (but he is in constant touch by telephone). 2002
+ Buffett speaks to a number of business graduate school groups annually. In response to a student's question ("How do you get your ideas?", Buffett said "I just read. I read all day." 2008
+ Buffett tends to do a few calculations in his head and comes up with a bid. He does not own a calculator. 1988 For years Bill Gates tried to convince Buffett that he should at least think about buying a computer. Buffett finally bought one to play online bridge. 1995
+ "I'm doing what I would most like to do in the world and I've been doing it since I was 20....I choose to work with every person I work with. That ends up the most important factor. I don't interact with people I don't like or admire." 1989
+ "It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price." 1990
+ In light of the enormous premium required to buy all of a company, Buffett's strategy has become to obtain partial acquisition. 1992
+ Buffett's policy is to buy stocks at bargain prices and hold them patiently. 1996
+ "I look for businesses in which I can predict what they are going to look like in 10 or 15 or 20 years." 1996 "The key to investing is not assessing how much an industry is going to affect society, or how it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage." 1999
+ "There is no magic to evaluating any financial asset....That method of valuation is exactly what should be used whether you're in 1974 or 1998. If I can't do that, then I don't buy. So I'll wait." 1998
+ "There are a lot of things I'd wish I'd done in hindsight. But I don't think much of hindsight generally in terms of investment decisions. You only get paid for what you do." 1991
+ We have expanded World Headquarters by 252 square feet (17%).1992
+ George Munger, vice chairman of Berkshire Hathaway, regarding litigation involving his company: "They subpoenaed our staffing papers. Not only didn't we have any staffing papers, we didn't have any staff." 1995
+ Bill Gates on Buffett: "Warren is so humble and yet so good at describing complicated things. At the surface level it's funny for him to quote, say, Mae West, when talking about his investment policies, but, of course, he is really saying something much deeper." 1995
+ American Express CEO Ken Chennault on Buffett: "He embodies this incredible blend of high intellect and business judgment with the ability to emotionally engage with people." 2010
+ Buffett said that being called the 'Atlas of America' really means that "if I do something dumb, I can do it on a very big scale." 2003
+ "Berkshire's goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety--but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over an extended period of time this category of investing will prove to be the run-away winner among the three we've examined. More important, it will be by far the safest." 2012
At 83 Buffett still lives in the house he bought at age 25. His meal of choice remains hamburger, French fries, Cherry Coke, and, occasionally, a Dairy Queen sundae.
BUFFETT TORTOISOLOGY
+ "Stocks mean business and owning businesses is much more interesting than owning gold or farmland...if you buy at appropriate prices." 1977
+ "I wasn't against it....It's just that I don't understand the semiconductor business, and I don't go into businesses that I can't understand, that my sister can't understand." 1978
+ Buffett, in his 1982 letter to Berkshire-Hathaway shareholders: regarding recent acquisitions, "managerial intellect wilted in competition with managerial adrenaline."
+ Regarding derivatives, Buffett wrote: "We don't need more people gambling in nonessential instruments identified with the stock market in this country, nor brokers who encourage them to do so." 1987
+ Buffett wanted every CEO to affirm in his annual report that he understands each derivatives contract his company has entered into...."Put that in, and I suspect that you'll fix just about every problem that exists." 1995
+ In his 2002 Berkshire annual report, Buffett describes derivatives as "financial weapons of mass destruction."
+ "Many institutions that publicly report precise market values for their holdings of CDOs and CMOs are in truth reporting fiction. They are marking to model rather than marking to market. The recent meltdown in much of the debt market, moreover, has transformed this process into marking to myth." 2007
+ "Underneath the mathematical elegance--underneath all these betas and sigmas--there was quicksand." 1998
+ "You never know who's swimming naked until the tide goes out." 1998
+ "Unfortunately, the subject of pension assumptions, certainly important though it is, almost never comes up at a corporate board meeting." 2001
+ About the tech bubble, "It was a mass hallucination...by far the biggest in my lifetime." 2002
+ "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is usually the reputation of the business that remains intact. You should invest in a business that even a fool can run, because someday a fool will." 2009
+ "Never invest in a business you cannot understand." 2009
+ Buffett wrote, in the 2011 Berkshire-Hathaway annual report: "Gold is a barren asset; bonds are seldom rewarding to the investors; well-chosen productive assets like common stocks and land are the logical prospects to deliver superior returns."
+ In 1997, when Salomon Brothers was on the edge of bankruptcy, Buffett temporarily abandoned his much-cherished lifestyle. He was the only individual who was trusted by the secretary of the treasury and the president of the New York Federal Reserve to step in to prevent a massive financial disaster. For ten months, Buffett, moving to New York, personally rescued Salomon Brothers.
BUFFETT ON PHILANTHROPY
+ In 2006 Buffett announced that he planned to give away his Berkshire-Hathaway fortune (then about $40 billion), much of which would go to the Bill and Melinda Gates Foundation. With a time lag, he required that his contributions be spent rather than added to endowment.
+ He was asked whether it was ironic that the second-richest man in the world was giving this money to the richest man. Buffett expressed supreme faith in the Gates' philanthropic priorities and their ability to implement these effectively. 2006
+ Once his estates was closed, which Buffett estimated would take three years, every dollar of his gifts must be spent within ten years. There were also family foundations and he had made appropriate arrangements for family members. 2007
+ Buffett pledged to give more than 99% of his wealth to charity during his lifetime or after. 2010
+ In June, 2010 Buffett and the Gates announced the Giving Pledge, their initiative to expand the thinking of billionaires about how much to give to charity.
+ By September, 2012 92 billionaires have signed the Giving Pledge. Buffett and the Gates have organized private dinners for billionaires in the United States and as far away as India and China. They remain dedicated to signing up many more billionaires to contribute at least 50% of their wealth to targeted charitable objectives.
Buffett's total charitable gifts ay amount to over $50 billion. (Bill and Melinda Gates' charitable gifts may eventually be of a similar magnitude). The largest previous individual charitable givers, in current dollars, have been Andrew Carnegie ($7.2 billion), John D. Rockefeller ($7.1 billion) and John D. Rockefeller, Jr. ($5.5 billion).
There never will be another Warren Buffett.
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