Oracle of Omaha offers words of wisdom
Georgina Russell, WG'07
Issue date: 2/27/06 Section: News
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Lovelace is none other than Blake Lovelace, the outgoing president of the Investment Management club. Blake wasn't accompanied by a bull rider or a bucking bronco, but by a Brit and trip organizer extraordinaire, Timothy Viles and several other Wharton students. And Blake wasn't driving a truck, but instead a mini-van. Although he did sport a modestly sized monogram belt buckle, he traded in his boots for a pair of New Balance running shoes.
The group of Wharton students was scheduled to arrive in Omaha, via Chicago, by plane, Thursday evening. But after hours on the tarmac in Philly and numerous cancellations of connecting flights in Chicago due to poor weather, the students were left with no alternative but to drive all night to get to Omaha by morning. The caravan left the Chicago airport around 9pm, and made it into Omaha around 4am. They "hit the hay" for a few hours of rest at the Crowne Plaza Omaha, and got up in time for a 10am meeting at Berkshire Hathaway Headquarters.
Students met with Mr. Buffett at his office, where he did a formal question and answer session for 90 minutes, after which the group headed to lunch at Gorat's Steakhouse.
Buffett agreed to discuss anything except "what we're buying and selling." While there were twelve questions asked during the formal session, and many more over lunch, he emphasized three themes, which I have termed: Do Something You Love, Realize how Lucky You Are, and Investing Made Simple.
"It's in the Genes" - Do Something You Love and have a competency in
"Rose Blumkin," proclaims Buffett, "is my kind of woman."
Blumkin is the founder of what is now the Nebraska Furniture Mart. She came to America not speaking a word of English, and with $500 she started the business in 1937. Blumkin was smart, said Buffett, but smarter about her "circle of competence." She knew furniture and carpet, and stuck to those, because she had an advantage there. "Ms. B" as he calls her, worked until she was 103, and died at 104.
"When I hire managers or buy owner operated businesses, I ask: Do they love the money or love the business? If they love the business, then they are jumping out of bed to go to work. You've got something in you when you do something like Ms. B did. It's not just a high I.Q or solid education. We have a number of managers who dropped out of high school." These managers, Buffett says, have the "business gene," and a love for what they do.
"Ms. B never spent much time at home - she was always at the store," Buffett recalled. She never had many people over to her home, but Buffett visited her on occasion.
"She had little green price tags hanging from all of the furniture in her house because it made her feel at home, she said. That's my kind of woman."
"I think to some extent I have an investing gene," Buffett said, but he was quick to point out, "I was very lucky in getting this gene at this time and this place in the world's history."
"Having the investing gene wouldn't do much good," he said, "if I were in Africa running from lions, screaming 'I allocate capital!'"
Which brings us to his next theme.
"The Ovarian Lottery" - Realize how lucky you are
Prompted by a question regarding the obligations of the wealthy to society, Warren Buffett posed the following scenario to Wharton students.
Suppose a genie comes to you twenty four hours before you're born and asks you to design the world into which you are going to be born - the social rules, the political rules, and so on. The catch is that you have to go to a barrel of six billion tickets, and pick one at random. The ticket identifies what you will be when you enter this world, for example, rich or poor, black or white, retarded or bright, male or female. Given the "randomness" of this trait assigning process, what kind of world would you want to design?
Buffett sees this process as analogous to the one we go through in real life, which he has termed the "Ovarian Lottery." Given the circumstances outlined by the genie, Buffett believes that first you would want a "bountiful world," one with no system that stifles capacity or production. Our country, he says, has done pretty well in setting up equality of opportunity. Second, you would want a prosperous and just society. He however pointed out that some people are just not going to fit very well in any world you design. And finally, you would want to minimize fear and terror in your society. When setting policy, Buffett believes a rich society should make it a policy goal to minimize the terror and fear experienced by its members. After presenting us with his view of the "ideal world," Buffett asked rhetorically, "Did any of you males peek at your ticket when setting policy? Any whites peek?"
Buffett emphasized that Wharton students should spend some amount of time realizing how lucky we got with our "tickets," and asked, "Would any of you go back to that theoretical barrel and pick out 100 tickets at random, and then, after looking at each one, trade who you are today for what's written on one of those 100?" He answered for us, "Probably not."
"IN, OUT, and TOO HARD" - Investing Made Simple
Warren Buffett is arguably the world's greatest investor. And like anyone who is an expert at something, be it an Olympic athlete, an Academy Award winning actor or a world renowned musician, he makes his craft seem easy.
When asked how he felt about Joel Greenblatt's recent bestseller, "The Little Book that Beats the Market," Warren Buffett said "I agree with buying good companies cheap." Sounds simple, but he also gave us a well-known framework for doing it - a Benjamin Graham three-point mantra, so to speak:
1) A stock is a piece of a business. If you don't want to own the business don't buy the stock
2) Market is there to serve you not to instruct.
The market is a psychotic, drunk, manic depressive selling 4,000 companies everyday. "If you buy a farm, you look to the farm to determine the value of your interest, not to some guy coming by giving you a quote everyday."
3) Know your "Margin of Safety" with every investment.
That too, doesn't seem so difficult. So what's the catch? After hearing it over and over again, not just from Warren Buffett but from many of the experts who make their way through Wharton, you realize it's not being able to say 1, 2, and 3, but to actually recognize and act on them by identifying businesses you want to own, realizing when the market is and isn't your friend, and knowing how to calculate your margin of safety.
Perhaps the complexity in just doing 1, 2 and 3 is why Buffett looks to minimize the difficulty he faces elsewhere, and invests exclusively in businesses that are easy to understand. Business Wire, purchased by Berkshire Hathaway in January, is a company that distributes over 1,000 corporate press releases a day to over 60 news agencies, and charges a fee for it : simple. General Motors, on the other hand, is something Buffett will never venture to understand, "It's too complicated," he says.
"I have three boxes on my desk, IN, OUT, and TOO HARD," says Buffett.
Overall, this was a great trip, well worth risking life and limb on I-80 to meet with the world's greatest investor.