Warren Buffett en Berkshire Hathaway

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

De legende 'Warren Buffett' wordt in drie artikelen ontleed.
Met zijn toestemming vooraf, en andere gedachten achteraf.

Zijn laatste investering van $26,3 miljard (van een vrije liquide
reserve van $26,9 miljard) is ook een beveiliging tegen mogelijke
inflatie ;)

Groet / Cees

Interview With Alice Schroeder: One Big Misconception About Buffett
http://www.fool.com/investing/general/2009/11/06/interview-with-alice-schroeder-one-big-misconcepti.aspx

By Mac Greer
November 6, 2009

Berkshire Hathaway (NYSE:  BRK-A)  (NYSE:  BRK-B) announced on Tuesday
that it was buying railroad company Burlington Northern Santa Fe (NYSE:
BNI) for $44 billion. Warren Buffett called the acquisition an "all-in
wager on the economic future of the United States." Buffett's big bet on
Burlington comes as he continues to take some of his Moody's chips off
the table. Berkshire recently reduced its stake in the credit ratings
business for the third time in a little over three months.

So what's behind Buffett's buying and selling? What's the biggest
misconception about Buffett? Does he see his success as self-made? And
what's his primary focus going forward?

Motley Fool media maven Chris Hill recently had a chance to talk with
Buffett biographer Alice Schroeder, author of The Snowball: Warren
Buffett and the Business of Life.

In this first of three installments, Schroeder talks about Buffett's
investing philosophy, debunks a few misconceptions, and unpacks the
Buffett snowball.

Opportunity knocks
Chris Hill: Your book was published in the fall of 2008, right about the
time that the financial markets were collapsing. What is your take on
how the last year has played out for Warren Buffett?

Alice Schroeder: Yeah, it has been an exciting year. My book was
published on the day of the largest point loss in the history of the Dow
Jones Industrial Average. (Laughs.)

Hill: Now, Alice, is that a cause-and-effect thing?

Schroeder: (Laughing.) I don't think so. It certainly was not something
that I was excited about, but with Warren, in many ways it has been a
characteristic year for him, because he is an opportunist, more so than
is usually publicly described. In the book, you see over and over that
he is very flexible in adapting to changing circumstances. He is sitting
in his office in Omaha, the phone rings and the fly comes into the
spider's web, and all these deals come to him, and he is grabbing the
most attractive, whether it is Goldman Sachs (NYSE: GS) or GE (NYSE: GE)
or Constellation Energy (NYSE: CEG) or something else. He has had a
great year doing that sort of thing.

Where you saw some mistakes made, and this is very interesting, is that
starting in 2003, he began to forecast that derivatives were financial
weapons of mass destruction, and he could clearly have this unfolding
vision of the disaster ahead. He began warning of it a little more
vividly, and certainly in our conversations from '06 forward, and yet he
did not actually see it coming or how bad it would be.

So that in 2007 and early 2008, and after Bear Stearns was bought by
JPMorgan Chase (NYSE: JPM), he actually made some business commitments
then that would express a lot of optimism about the stock market right
before the huge collapse came. He made a bet on ConocoPhillips that was
the biggest stock loss Berkshire has ever had, right as oil prices were
at their peak. And then when Bear Stearns fell, he thought he was doing
some cherry picking and buying some cigar butts in the credit default
swap market, and they turned out to be things that he lost a lot of
money on because they weren't cheap.

So he is not infallible. But the margin-of-safety concept that he talks
about all the time, which is to leave room for error and always make
sure that you are not reaching for a price when you buy, saved him, and
that is something that has happened for decades. He will say, rule No.
1, don't lose money; rule No. 2, don't lose money. The margin of safety
is, when you do lose, you just don't lose that much.

Misconceptions and surprises
Hill: You spent a lot of time with him. What most surprised you about
him as you were writing this book?

Schroeder: The big surprise was to see how he turns the women around him
into these maternal figures -- that a man who was 26 years older than me
would be relating to me like a kid. It was really interesting. And this
is true with all the women around him. I had to really resist it as an
author because (a) I am not his mother, and (b) I was there to report
and to be objective. But he didn't have a great childhood, and he didn't
have the kind of mother that you would want, so he is sort of always
looking for that. He is quite vulnerable. That was a big surprise.

Hill: Do you think that is the biggest misconception about him? His
vulnerability?

Schroeder: I think in the personal side, yes. On the business side, I
think the biggest misconception about him is that he is a "buy and hold
forever investor." He has never said that, but people take little
snippets and slices of things that he said, and they turn them into
mantras or slogans. I think that people have made a mistake of pulling a
few words or a sentence or two here and there and treating that as an
all-weather investing technique. It doesn't really work because Warren
himself is quite opportunistic, and he does trade and he does adapt. So
anybody who thought that you could buy four or five big-cap growth
stocks at a fair price and then you could just sit back and just go to
sleep -- that has not worked out very well, and he would be the first to
say so.

Buffett's big snowball
Hill: For the benefit of people who have not yet read the book, where
did you come up with The Snowball?

Schroeder: The Snowball is from a saying of Warren's about life being
like a snowball. It is really a metaphor for compounding, for the way
that things tend to grow at an exponential rate when they are rolling
forward over time. So his money has obviously been like a huge snowball,
but it also refers to relationships and to knowledge and all the
different things that tend to grow and layer upon each other.

Hill: To get a snowball, you need the right conditions. I think a lot of
people think of Warren Buffett as a self-made man. Is that how he views
his success?

Schroeder: It is not. He would describe himself as almost entirely a
creature of luck, […] having been born in the United States from a
family that valued education and encouraged him in his entrepreneurial
investing efforts, and also having been born at a time when his
investing talents could be put to work in an extremely cheap stock
market. Those factors almost overwhelmed anything else that could have
happened.

I do believe that in The Snowball, you will see how hard he worked, and
so I [tend] to think that he is downplaying his own efforts [a little].
I do believe that people succeed based on a balance of their own efforts
and their circumstances, but I think he is right to emphasize the
circumstances here, because he was very fortunate.

Hill: Let's get back to the snowball that Warren Buffett is pushing.
Where do you think he is pushing it next? Where do you think he is going
over the next couple of years?

Schroeder: Well, one time I went out to dinner with him at Gorat's, and
Marge Lauren, who is the widow of one of his earliest partners, came by
and said hello. After she left the table, he said to me, "That woman is
the reason I run Berkshire Hathaway the way I do, because her entire
finances depend on me. Every dime she has is in Berkshire Hathaway
stock." He said, "I am trying to run Berkshire so that for a generation
after I am gone, it will still be healthy and fundamentally a sound
company." He said, "Beyond that, there's really not much I can do, but I
can try to set it up so that the businesses that Berkshire buys and the
way its capital is structured and the fundamental pieces of Berkshire
have enough longevity to carry on. And there are no guarantees, but that
is what I am trying to do."

I believe that he is always looking at the risk profile of Berkshire
Hathaway and trying to take out risk, build in conservatism, make sure
that the assets are accounted for in a way that they are not going to
end up later being worth less than they appear to be on the books, and
in effect create that thing that isn't a perpetual motion machine, but
that will keep going. He likes to say that a cardboard cutout should be
able to run the company. That's an unattainable ideal, but he really
wants people to look at it after he is gone and say, this man created
something sustainable.

http://www.fool.com/investing/general/2009/11/09/interview-with-alice-schroeder-buffetts-biggest-we.aspx
November 9, 2009

So what about Buffett the person? What's his biggest weakness? Does
anyone in his circle openly disagree with him? How does he measure his
success? In part two of our three-part series, my colleague Chris Hill
talks about Warren's world with Buffett biographer Alice Schroeder,
author of The Snowball: Warren Buffett and the Business of Life.

Chris Hill: I think most people who know about Warren Buffett know about
him through the context of his investments, but you got a chance to
spend a lot of time with him. What is a typical day like for him?

Alice Schroeder: He has a really consistent routine. He comes in in the
morning at around 8:30. He reads five newspapers. He reads The Financial
Times, The Washington Post, The New York Times, The Wall Street Journal,
and The Omaha World Herald. Then he has a stack of reports on his desk
from the companies Berkshire owns, and some trade press like American
Banker or oil and gas journals, and through the rest of the day, he
alternates between flipping through this stuff and then talking on the
phone to people either who call him or who he calls. He never calls his
managers; they can call him. He is really accessible, but he leaves them
alone.

Then he has CNBC on all day long with the crawl, with the sound muted
and if he sees his name cross along the bottom and they are talking
about him, he will turn the sound on to find out what they are saying.
That is his day. He doesn't do meetings -- there are no meetings.

Hill: Is he online at all? Does he use email?

Schroeder: No, no computer, nothing electronic in his office, but his
secretary, Debbie Bosanek, does have email, and if you want to reach
him, you can reach him through her, and he will dictate a response back.
He has a computer at home. He uses IM with his friends. He is online
playing bridge all the time, but he is very protective of the efficiency
of his time, and that is really what the no-email thing is about.

Hill: Could Warren Buffett have come of age in the information age?
Because a lot of what he was doing back in the day was digging through
10-Ks when they were hard for people to get access to, and information
was much tougher to come by, but now when information is really easy to
come by, do you think he would have been as successful?

Schroeder: I don't think he would have been as successful because the
two things that he did don't work today. One is, there was a lot of
shoeleather involved. He would do the work that nobody else bothered to
do. He would go down to some state insurance department basement and dig
through records that no one else was looking for. Now everybody has
access to everything, and so the diligent are no longer really rewarded
the way they used to be.

The second thing is that Warren was uncommonly good at going around and
talking to management and getting them to tell him what their business
plans were. That used to be perfectly legal. In fact, the insider
trading worlds have evolved, and I wrote a long footnote about it in the
book, but he used to basically be able to get and trade on inside
information, as did everyone in those days. He was great at finding out
if there was a tender offer coming or something like that. You can't do
that anymore.

Hill: You have said that everyone in Warren's world is his protector,
and if you just look at the annual shareholder's meeting, it is really,
it is almost like a coronation on an annual basis. Are there people
around Warren Buffett who will openly disagree with him?

Schroeder: Very few. One of the roles that Charlie Munger plays that is
really important is he is one of the very few who will tell Warren "no"
or "you're wrong." Interestingly, Warren has enlisted all of these women
to be recruited as his protectors, but there are one or two -- Carol
Loomis is one, his friend who works for Fortune, and Sharon Osberg, his
bridge partner -- ... who will really stand up to him. It is tough to be
in the position he is in where you are incredibly rich, incredibly
famous, and known for your wisdom because people are in awe of you. He
said to me one time, "When I was 21 years old, I could have been saying
the most brilliant things on earth and nobody would have listened to me.
Now, I could say that the moon was made of pink tissue paper and
everyone would go, 'Wow, look! It really is.' And they would believe me,
because I am Warren Buffett." He said it is the strangest thing.

Hill: What would he say that his biggest weakness is?

Schroeder: His biggest weakness is the flipside of his strength. He is
pretty rigid and he doesn't really listen. He has incredibly firm
convictions and is often right, to say the least. But when he is headed
down a track that doesn't make sense, he tends to not pay attention to
contrary information.

Hill: And do you get the sense that he recognizes that about himself?

Schroeder: Oh yeah. Oh, he knows that about himself. Could I just step
back there?

Hill: Yeah.

Schroeder: I didn't mention greed as his biggest weakness. (Laughing.) I
should have mentioned that he loves money so much that it kind of
interfered with his relationships with his family for a long time. He
would also be the first to say that.

Hill: So in terms of his relationships with his children, with the
people closest in his life, how did greed really impact all of those
relationships?

Schroeder: Well, when he was younger, making money was so overwhelmingly
important to him that he really did not pay a lot of attention to his
family. People told me that Susie, his first wife, was sort of a single
mother and they would make jokes about his kids, "Who is that, Warren?
That's your son." The family suffered from neglect.

Now he came to realize through some losses. Susie moved to San
Francisco. It was touching to listen to him talk about the pain that was
caused by his realization of the fact that you can't repair and you
can't go backwards in time and fix this. It has been heartening to see
him strengthening his relationships with his kids in recent years. That
has been really a wonderful thing. He realizes that that neglect has
paid a price.

Hill: Buffett told you the big question about how people behave is
whether they have an inner scorecard or an outer scorecard, and that it
helps if you can be satisfied with an inner scorecard. How much does
Buffett care about his outer scorecard? You mentioned he has CNBC on in
the background and if his name pops up, suddenly he is turning up the
volume to hear what they are saying. How much does he care about what
other people think?

Schroeder: In The Snowball, I point out that his father had a 100% inner
scorecard about everything. His mother had a 100% outer scorecard about
everything. She cared desperately what people thought of the family, of
their image. The kids were raised with both of these streams of
perception coming in on them. Warren is the product of that. When it
comes to investing, business, his principles, his ethics, 100% inner
scorecard; he knows what's right. He lives by it. When it comes to how
he feels about himself, he is very tender and easily wounded, and other
people can make him feel differently. He doesn't have that inner
scorecard. And there is a complete separation between the two.

http://msn.fool.com/investing/general/2009/11/10/interview-with-alice-schroeder-buffetts-cold-shoul.aspx
November 10, 2009

In our third of three installments, my colleague Chris Hill talks with
Alice Schroeder about Buffett's smartest and dumbest investments, his
impersonal approach to giving, and his not-so-hot reaction to The
Snowball.

Buffett's smartest and dumbest investments
Chris Hill: What do you think have been his smartest and dumbest
investments?

Alice Schroeder: His smartest investment was actually the creation of
Berkshire Hathaway itself. In the book, I detail how he got control of
Blue Chip Stamps, Diversified Retailing at Berkshire, and put them
together into a vehicle through which he could put capital to work with
insurance float. It is a detailed story, but it is a very interesting
story because he had this vision of what could be and how he could use
insurance float to make investments. He created this great big engine to
drive the boat, and that was the smartest thing that I think he ever
did.

In terms of mistakes, every insurance company that Berkshire has ever
bought has gone into the tank and lost money right after he bought it --
that has been a pattern since the 1960s and I don't know why, but all of
them have turned out to become powerful profit centers later, so there
is something funny about that. ConocoPhillips (NYSE: COP) was a huge
mistake, and it is a little bit inexplicable. USAir [now US Airways
Group (NYSE: LCC)], the preferred stock, and then NetJets has been a
terrible mistake, and you could see that coming several years ago. He
got entranced with the romance of the aviation and the glamour of it,
and I think it will probably never earn more than a token return on
capital.

Hill: I was born and brought up in Maine, and [I had a] friend growing
up [whose] dad had a business called Dexter Shoe, which ended up being
acquired by Berkshire Hathaway.

Schroeder: Warren calls that his greatest mistake, and the thing about
it is, it was small. I don't think if you make a small investment, and
it has a minor financial impact, that it is fair to count it as your
greatest mistake, but the reason he says that is twofold.

One, it was basically a total loss, and it is his only real total loss.
The other is that he hates having to lay off people. It is very painful
for him to have to shut down plants, and with Dexter, they had to move
the plants overseas, and … basically the whole town of Dexter, Maine …
lost their jobs. That is something that for Warren is really tough.

Hill: Are you a shareholder of Berkshire Hathaway?

Schroeder: When I wrote the book, I never owned the stock. I thought it
would be a conflict of interest. After the book was published, Berkshire
tanked, and I finally bought it. So I am an owner right now.

Buffett's chilly response
Hill: Now, Buffett gave you unprecedented access for this book. He said
you could interview anyone without his interference. He promised not to
ask for revisions when the book was done. And the thing I found most
astonishing is that he said that if his recollection differed from the
recollection of one of your sources, that you should go with the
less-flattering view.

But after the book was published, it kind of got awkward between you and
Warren Buffett -- and to my knowledge, he hasn't told you why. The book
was critically acclaimed, and I think part of the reason for that is
because it really does capture the human side of Warren Buffett and his
imperfections. Do you think he was expecting a different book?

Schroeder: I think that nobody expects what they are going to see on
paper when they hand over to an author the unfettered task or
responsibility to write about their life. Everybody has an internal
narrative in their head of what their story is, and if they say, "Go
write this," and five years later the result comes back, it is going to
be shocking to anybody. Authors and their subjects get into this sort of
intense dynamic of working together where it is a mutual cooperation
toward a common goal. He knew that a truthful book would be the one that
served both the reader and his long-term legacy, and that is what he
wanted, but Warren is intensely subject to criticism.

He is someone who feels very strongly the flaying of anybody who says
anything that feels unkind. He went into this knowing that the book
might feel like flagellation, and we had some ... sensitive
conversations early on where it was clear that that was going to be the
case. I realized fairly early on that there was a chance that after this
book was over, that he might never speak to me again because of some
things that happened with other journalists, and so I just had to make a
choice of what I would do.

I knew that that would happen even though he might even intellectually
realize that the book was good, that it might just be so painful for him
that he couldn't approach me as the vehicle of that pain, and that is
what has happened.

Hill: And you haven't spoken to him since then, have you?

Schroeder: We had one very brief conversation at the shareholder
meeting.

Nothing personal
Hill: Now you did mention the billions of dollars he announced he was
giving to The Gates Foundation, the foundation set up by friend and
Microsoft (Nasdaq: MSFT) chairman Bill Gates. Up until that point, and
that was 2006, but up until that point, his giving was pretty spotty. In
terms of generosity, you said that Buffett really can't do one-on-one.
Can you explain that?

Schroeder: Yeah, I have called him a "telescope philanthropist," which
is someone who can give money to all of mankind, sort of from a
distance, but it is painful to actually hand over money to someone who
is standing right there in front of you.

Hill: So if I needed $10, he wouldn't loan it to me?

Schroeder: He might these days. There was a story someplace -- I think
it may have been The New York Times -- about people who are savers and
don't like to spend money. The parts of their brain that feel pain, like
emotional pain, light up if you are doing a brain scan if they have to
spend or give away money. It is painful for them to give away money.
That is how Warren is. It is like giving a part of himself. He feels
diminished by it. If he has to give it to another person directly, even
a member of his family, it is sort of like actually carrying off a piece
of his flesh. Whereas giving it to mankind, he feels is giving back to
society. He feels that he was lucky, and that it belongs to all mankind.
He is more comfortable with abstractions.

Hill: What part of his story has had the most impact on you personally?

Schroeder: On me personally what has been the most important was to
understand the value of time -- and this is something that has come from
observing him, learning his story and that time compounds. What you do
when you are young (and as you use time over your life) can have an
exponential effect so that if you are thoughtful about it, you can
really have powerful results later, if you want to.

Also, that is a reason to be hopeful, because compounding is something
that happens pretty quickly. If you are 50 or 60, it is not too late. He
said to me one time, if there is something you really want to do, don't
put it off until you are 70 years old. ... Do it now. Don't worry about
how much it costs or things like that, because you are going to enjoy it
now. You don't even know what your health will be like then.

On the other hand, if you are investing in your education and you are
learning, you should do that as early as you possibly can, because then
it will have time to compound over the longest period. And that the
things you do learn and invest in should be knowledge that is
cumulative, so that the knowledge builds on itself. So instead of
learning something that might become obsolete tomorrow, like some
particular type of software [that no one even uses two years later],
choose things that will make you smarter in 10 or 20 years. That lesson
is something I use all the time now.

Hill: The book is The Snowball: Warren Buffett and the Business of Life.
Alice Schroeder, thank you so much for joining us.

**********
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