Being Warren Buffett

There’s only one WB [This is a transcript of a podcast originally recorded in October. If you prefer to listen to it, it’s here :-)] On Tuesday night, my son Danny and I watched Evan Davis interview Warren Buffett. I suspect many of you have seen the programme, 'The World's Greatest Money Maker', too. It's been one of the ten most popular programmes on iPlayer most of this week and the BBC re-broadcast it on Wednesday night. The headquarters of Buffett's investment company, Berkshire Hathaway, one of the fifteen largest American corporations, is on the fourteenth floor of an anonymous building in Omaha. Davis arrives clutching a print-out of an email agreeing to the interview but regretting it will have to be short. From an actuarial standpoint, …The seventy-nine year-old Buffett writes: I only have about four thousand days left on this earth and I'm trying to keep various activities in proper proportion. Buffett invites Davis into his office, which may not have been decorated since the 1970's, hands him a coke, and introduces his 20 or so head office staff. He doesn't have a computer, and confesses he's never owned a calculator. It’s underwhelming, unlike the company's annual meeting, staged in a football-stadium sized arena heaving with fans feeding off Buffett's wisdom. Judging by the Dairy Queen sundaes they're gobbling, they're as keen to emulate his junk food diet as his success. Dairy Queen is a Berkshire Hathaway company, and the annual meeting an opportunity to market Berkshire’s merchandise, beds, machinery, sweets, shoes, and insurance, to the faithful. Danny, who likes his sport, and his pop music, recognises the stadium vibe, and that despite appearances, Buffett is the centre of it. As the camera sweeps across books about Buffett on sale at the meeting he asks me if I've got any of them. I shake my head. I'm going to buy Coca-Cola …He says as we discover Buffett’s shareholding is worth ten times what he paid for it. I shake my head again. When we meet Dick Holland, who backed Buffett at the beginning and is now so rich he's given tens of millions of dollars away, Dan asks me why I don't just copy Buffett too. I shake my head again. Emulating Buffett's investment prowess is much, much, more difficult than emulating his diet, and it wouldn't necessarily be better for me. Much of the success of Berkshire Hathaway seems to rest on the extraordinary fact that successful businessmen and women are willing to sell him their businesses, often cheaply, just to be associated with him. Then they happily hand over some of the profit they might otherwise plough-back into their own businesses, because Buffett can get a better return from it elsewhere. Most of us simply cannot afford to buy sizable businesses so it’s the smaller, publicly listed part of Berkshire Hathaway’s portfolio that we might emulate. But earlier this year, hedge fund manager and Buffett watcher Jeff Matthews calculated that Berkshire's shareholdings were worth little more than what he paid for them. It’s the cruellest of tricks, valuing the portfolio at a single point in time, close to what, in hindsight, looks like the bottom of a stockmarket crash. Nevertheless, since Berkshire has owned massive shareholdings in some companies like Coca-Cola, The Washington Post, and American Express for decades, it looks like a poor return. That wouldn’t surprise Buffett, who knows that as Berkshire gets bigger, so the pool of companies that are big enough for it to invest in gets smaller. Smaller companies, often the best stockmarket performers, are just too small to bother with, and medium-sized companies, he gobbles whole. In 1999, he told Business Week: The highest rates of return I've ever achieved were in the 1950's. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that. So here's the answer to my son's question: Why would I copy Buffett, when he wouldn’t do what he does now, if he was in my situation? - The World’s Greatest Money Maker: Evan Davis meets Warren Buffett [BBC iPlayer – the programme is no longer available but there is a clip.]