Buffett and Money
from an article about Warren Buffett
The late Sir James Goldsmith, a plutocrat with a somewhat different attitude to wealth and its uses, once said: "I don't understand people like Warren Buffett, who pride themselves on living in their first house and driving a used Chevy to work, despite being billionaires."
When I put this to Buffett he laughed. "It's true I've never sold a house in my life. You should have a look at it. It's about 2.4km from here, on the same road." (Later I take him up on the invitation. The pleasant-looking family home is nicely perched about 180m from a multi-lane highway, with a yellow, flashing traffic-calming signal outside.)
"I knew Jimmy. He was not so much colourful as Technicolor. But I think the whole point of working in business is it's something you love, not to get a whole lot of money so you can have your own golf course or whatever. To me that's silly.
"But that's his business. I would not trade what I do in life with anybody in the world and if I lived in a three-bedroom apartment and I got to do what I do every day and I had no bank account whatsoever, I wouldn't even think about changing."
But surely, I asked, there must be times when he's visited the homes and seen some of the toys of his super-rich friends and thought, "I'd like one of those"?
Buffett shook his head.
"I'm living better than they are. I don't want to make them unhappy, but it's dumb to let possessions rule you. Besides, the idea that I would want some house with 50 rooms, what would I do with them? It would be a diversion from what I enjoy. I like playing bridge. I don't like being a greens-keeper. If you want to be a greens-keeper or a housekeeper or the captain of a boat, you have to think about these things if you own them. And besides, all my friends have boats, so I can just go right up there if I want.
"I'm not missing anything. I know people who are very rich and have their names on buildings. But nobody loves them, not even their family, and not the people who live in their buildings."
This declaration - expressed with obvious sincerity - prompted me to ask Buffett why, in that case, he had been so determined from a very young age to be rich?
"I wanted to have enough money so that I could do what I wanted to do and, by the time I was 30, I did. But I always wanted to be free to do what I liked to do. When I was a kid I enjoyed delivering papers. I still enjoy delivering papers. I go out with my grandson to deliver papers. I like to throw papers. But one of the things I liked about delivering papers was that I could think about things I wanted to think about while I delivered papers."
Buffett's attachment to his first job is not mere sentimentality. Omaha legend has it that the investment seedcorn that ultimately created his business behemoth came from his delivery rounds as a teenager.
"Yup, that's right. I saved about $ 10 000 by the time I was 21 and most of that was from delivering newspapers - about 6 000. If you'd told me that I'd have to deliver papers all my life it would have been OK with me. I like doing what I do now better, even, but just being able to paint on your own canvas, that's the ultimate luxury, that and having people around you that make you feel good instead of causing your stomach to churn. I don't want anyone around me that causes my stomach to churn and I hope I'm not causing theirs to churn. That's luxury in life.
"Every now and then I have to fire somebody and I hate that. I'd pay a lot of money never to have to fire another person in my life. It's the only part of my job I don't like."
On paper such sentiments may appear trite, but Buffett almost resonates with passion as he utters them and it is certainly true that he runs Berkshire Hathaway with the lightest of touches - the company's head office has only 16 employees, including Buffett - leaving his managers free to do as they wish, without any interference from what he laughingly calls "world headquarters".
All he asks is that the businesses send all their surplus cash to him - a figure which is now running at an astounding $ 100-million a week. (When I asked Buffett if he found it a burden deciding how to invest so much money, he exclaimed: "No! I enjoy it and I'll like it more when it's $ 200-million a week.")
Susan Jaques, who runs Borsheim's, America's largest jewellery store after Tiffany's, described to me what it's like running one of the Berkshire Hathaway businesses for Buffett: "He sends us a letter at the beginning of the year setting out our goals for the next 12 months. That's it. It's one page, very short. He is very hands-off, but always available on the phone. And anything that comes up he seems to know about. He just reads voraciously."
It's quite likely that this strangely serene, almost monastic approach to money-making would have been much more difficult to achieve if Buffett, like almost all other significant American financiers, had based his headquarters in New York, rather than Omaha, Nebraska. Or so I suggested to Buffett.
"I think I've done better by staying here. It's hard to tell. I don't have an identical twin in New York. But I would say this: I'm at no disadvantage being here and there are some advantages. I can get more done here, for one thing. I live five minutes from the office. I waste far less time on the frictional costs of life. Everything is simple for me here. I don't get caught up in things that are diversionary.
"New York is stimulating and all that. But we have telephones here in Omaha. I can talk to those people. And anyway, I spend most of my time just thinking."
And is there too much buzz to think in New York? "Yeah. There's a lot of static."
Static, in fact, is what Buffett himself gives off, great waves of the stuff. The only man I'd ever met before who transmits that sort of voltage through the ether is former world chess champion Garry Kasparov. But whereas Kasparov's personal force-field is intimidating, Buffett's is invigorating.
It is obvious that Buffett's mixture of high intelligence and prodigious energy was always going to carry him far.
But he insisted to me that the main reason for his success was that, at the age of 19, when he was at the University of Nebraska, he bought a book by Ben Graham called The Intelligent Investor.
Graham's theory was that investors should insist on a big gap between what they paid for a stock and what they thought the business was intrinsically worth - Graham called this the "margin of safety".
But the corollary was that no matter how much the stock price subsequently fell you should hold on to the shares - indeed the more the price fell, the more you should buy. Graham's view was that the stock market, in the short term, was merely "a voting machine", which told the investor nothing about what he called "intrinsic value".
"That book was my Ten Commandments," Buffett told me, 53 years on. "It gave me the framework for thinking about business and investments and I haven't changed it. Having the right framework is the important thing.
"There are all kinds of people with high IQs in the investment business and most of them flame out. They don't do that well over time because they don't have a base from which to operate. Everything we do around here is rational. We make mistakes, but we operate rationally and that will take you a long way."
Buffett's comparison of the Ten Commandments with a book about making money may seem bizarre, but he has always seen capitalism as a fundamentally virtuous activity and reacts with the fury of an old-time preacher when he sees its values being perverted - as he does now with the stock-option fuelled salaries of America's chief executives: the take-home pay of the average US CEO is now around 7-million a year.
Buffett's attack on this phenomenon, at Berkshire's AGM last week, made headlines not just in America but also in the UK, although Buffett says he regards British business as less culpable. As Buffett sees it, the problem is that the directors who comprise the compensation committees of public companies are "woeful and lamentable" in protecting the interests of the shareholders they are meant to represent.
"Chief executives talk about 'diversity' but they don't care whether they've got men or women on the board, any of that kinda stuff. They just care about their comp [compensation]. It's a very uneven balance. Usually in any negotiation people on both sides are dealing with something very real to them. On executive compensation, the CEO, the compensation is very real to him, but to the comp committee, to the directors, it's play money. There's never been such a transfer of wealth in our history. And it's obscene."
At which point I couldn't resist asking Warren Buffett what he planned to do with his own extraordinary wealth - 35-billion and counting.
"One hundred percent of my stock will go to my wife, if I die first, but on the death of the last of the two of us - and maybe sooner - it will all go to a foundation. That will be it." This might sound like bad news for Buffett's three children Howard (a photographer), Peter (a musician) and Susie (a housewife). But at the shareholders' meeting the day after I met him, Buffett was typically forthright in his reasoning: "There's no reason why future generations of little Buffetts should command society just because they came from the right womb. Where's the justice in that?" As 15 000 Berkshire Hathaway shareholders applauded, Buffett guffawed: "My children are here! Are they applauding too?"
It is an extraordinary thing that will be created, however: the biggest charitable foundation in history, dwarfing even the Ford and Rockefeller foundations. To put it in perspective, the interest on the money, if invested in fixed-interest securities, would dispense about £1- billion a year. But, I asked Buffett, why don't you give vast sums to good causes during your lifetime, as your friend Bill Gates is doing?
"Bill is giving away about $ 1-billion a year and I admire what he's doing enormously. But I have felt that the money would compound at a very good rate and there will always be plenty of problems in society and this is a chance to do something huge. If I had given all my money away 20 years ago I would have given away $ 20-million or so and it would have been all over."
Remarkably, however, Buffett seems to be leaving no specific instructions as to who or what exactly should benefit from his foundation after he is gone.
"I have written the trustees - there are a very few of them, mostly women - a 10-page letter and it says that their judgment above ground will be better than my judgment underground, so I'm counting on them to do intelligent things, but what I want them to do is very big things that don't have a natural funding constituency.
"Causes which the government pays for, or if the people do it for emotional reasons - those things, forget about it. I tell the trustees that if they give a million dollars here and a million dollars there I'm gonna come back and haunt 'em because I want them to try very difficult, very big things. I tell them that in philanthropy - unlike in business, where I'm looking for easy things to do - in philanthropy, by definition the important problems are those which have already resisted both intellect and money. The trustees have a totally blank canvas with these general instructions about what I hope they will paint. It's up to them to paint it."
When I pressed Buffett for some sort of example, at least, of what he meant he said: "I would regard it as a failure if they gave to some major universities, because they have an alumni base and government funding. But 75 years ago Rockefeller gave significant sums of money to black colleges and they did not have people who were rich to give them money. He stepped up with something that was important. That's the sort of thing which makes sense to me."
