I want to tell you a story about Warren Buffett that I personally cherish, and that sheds light on his admirable character.
My son, Jed Lenzner, was just a tot when the notes from Omaha started coming to inquire when I was bringing him to the Berkshire Hathaway annual meeting. I always wondered how a billionaire worth $43 billion recalled the name of a kid he had inscribed on a foul ball that fell near us in the Omaha minor league stadium in 1993, when I was writing the cover story of America's then richest man for the Forbes 400 issue. But, that characteristic is what is uniquely special about this now 81-year-old Midwesterner, whose wealth rose more than five times since that 1993 cover.
When Jed hit 13, I sent Warren a note saying that a six-hour meeting might be too much for him -- but that Jed had received a small amount of cash for his bar mitzvah and had on his own opened an account at Schwab and begun investing.
The next day, a fax from Omaha arrived on my desk at Forbes, dated March 7, 2003. "Dear Bob: I'm going to have a bar mitzvah too. Tell Jed I want to hire him as a consultant. Best wishes. Sincerely, Warren E. Buffett."
So out to Omaha we went, and at the brunch on Sunday after the meeting, Warren took Jed out of the greeting line, ushered him into a corner -- and began asking him for his stock picks. Jed was forthcoming, and told him Centex, a Dallas-based homebuilder, that Dan Cook, a native Nebraskan (married to Gail, the daughter of Buffett's former doctor) and retired Goldman Sachs partner, had recommended the summer before.
Jed must have picked up some "skinny" in Omaha, as he told me he had bought 10 shares of BRK B, on Monday morning, before he went off to school.
It's true that I have known Buffett since 1963 (though we never met until much later when I became a journalist) when I was myself in the Goldman Sachs arbitrage department and spoke to him almost every day about the takeovers being perpetrated by the conglomerates of the 1960s, especially ITT in its attempt to take over American Broadcasting, which was thwarted by the Justice Department.
Then, Berkshire became the largest outside shareholder of Affiliated Publications, the company that owned my newspaper, The Boston Globe -- whose owners were always anxious about Buffett helping Katherine Graham, Washington Post , where he held an even larger position, to take us over. They were even more terrified by Rupert Murdoch who owned the Boston Herald, our competitor, for a time.
So, I've had pretty good box seat the past 50 years as Buffett became probably the most renowned iconic figure in the investment world, rolling up annualized gains averaging 20%. What's crucial to understand about Buffett's role is that many ordinary middle-class Americans have learned to count on Buffett to build a nest egg for them apart from Social Security and their 401(k). He is their judicious trustee or caretaker. They know he will do nothing foolish, and that over time he is bound to increase the value of this piece of their household wealth.
They arrive in Omaha from around America and now the globe, looking to obtain some insight from Buffett and Charlie Munger in their explanations and irreverent quips during the shareholder meeting, and then spend a bit of their gains in bringing home Berkshire paraphernalia. It is a very American outing that the Master of Ceremonies relishes every second, playing bridge outside Borsheims or in the old days making the first pitch at the Omaha baseball stadium. Very down-to-earth cornball American culture. Now, the warmup session is the comedic film shown early Saturday morning -- that one year showed Warren -- the aspirant point guard, going one on one with Lebron James (Warren's jersey number was 1/2). Lebron batted Warren's shot deep into the the stands. Uproarious!
A Steady Hand
His investment record -- a compound rate of return of 20% for over 40 years is the result of a unique skill that few investors can claim-- the ability to make very few investment decisions (he calls them "swings at the ball") and then hold on through thick and thin without letting emotions get in the way and cause the jumping in and out of markets. Buffett is a student of investment expenses and knows you can eat away your gains with commissions and management fees. I don't really know any other individuals -- other than the founders of their own company -- who hold on forever, or almost forever. Buffett's most famous accumulations -- of Coca Cola, American Express, Geico, Wells Fargo and then the 100% buyouts of a transcontinental railroad system and 80% of an Israeli tool metals company are bets on the long term, not the next 18 months.
Sure, Berkshire has had its dips. It fell from $140,000 in early 2008 to $70,000 in the height of the financial crisis in early 2009. What a splendid moment that would have been to buy more. Buffett and Berkshire are long-term holds. Smart money understands that principle. There could be no greater vote of confidence in Buffett, but that when Nobel prize-winning MIT economist Paul Samuelson died two years ago, his children found that he only owned one single common stock -- Berkshire Hathaway. How many of us never bought any, or nervously sold out of it, or simply never could commit to a major position. In "The Berkshire Bunch," a 1998 Forbes cover story in the rich list issue, I featured several very ordinary citizens who gave $10,000 to Buffett in 1960 -- and ended up with wealth of several hundred million. Woulda, coulda, shoulda!
In fact, Buffett advised investors in a newspaper column when the market indexes were a great deal lower in 2011 that "I am a huge believer in this country. We will not have a double-dip recession at all. I see our businesses coming back across the board." You shoulda, coulda loaded up on that call, and you'd be sitting with 10-25% gains on many common stocks.
A Man of Character
Buffett is a man of character, unequaled in the investment business. He folded his private partnership in 1969 because he didn't want his investors to be rocked by the bear market he saw coming. Unlike hedge fund biggies and the cowboy traders on Wall Street like Long Term Capital, Buffett would not use leverage of 50 to 1 in hot shot shoot-for-the-sky killings. He has had the self-discipline -- call it wisdom -- to stay well within the circumference of his abilities, a piece of prudent self knowledge that might have caused him to miss some fine investments, but made him uneasy. "I believe every business school graduate should sign an unbreakable contract promising not to make more than 20 major decisions in a lifetime. In a 40-year career you would make a decision every two years," he said in 1993.
The greatness of Buffett the investor is his ability to hold back when markets become too rich, and then to pounce when fear is has replaced greed. Buffett, the opportunistic White Knight, took a major position in Salomon Bros., the investment bank being raided by Ronald Perelman -- and then, when scandal struck Salomon in 1991, by the sheer force of his impeccable reputation and force of personality, was able to save Salomon from going under and violently upsetting global financial markets. In 1993 he told Forbes: "Keynes essentially said don't try and figure out what the market is doing. Figure out businesses you understand, and concentrate. Diversification is protection against ignorance, but if you don't feel ignorant, the need for it goes down drastically."
Once again, the White Knight was called upon to be the private sector lender of last resort to Goldman Sachs, General Electric and Bank of America -- all facing dire capital shortages despite government largesse. In these crisis moments, of course, Buffett could dictate his terms, a high coupon on a preferred stock that would be convertible into common shares at a relatively depressed level. Don't get me wrong; this was not charity. It was Buffett with capital to spare, making extremely valuable use of it. Not for him, illiquidity, dangerous leverage, and hubris
To my way of thinking I find most compelling Buffett's witty, entirely revealing letters that he writes to shareholders. These are mandatory reading by the Berkshire groupies and sophisticated investors, and most other investment managers -- as well as business students. This year, for example, he jokes that Munger would probably turn him in if he could find another Ajit Jain, the insurance executive Buffett claims makes more money for Berkshire than he does. He also hints that Berkshire's "intrinsic value," what it would be worth if liquidated( it will never happen) was substantially greater than the $110 market price in late February, 2012 when he wrote the letter.
At 81, going on 82, I can see why the new holder of the National Medal of Freedom would be unable to turn down the chance to be seen as the patriotic wise man of Wall Street in the nation. His thirst for publicity, for recognition, can be explained perhaps by the notion of his age, his innate desire to educate the nation, and the rewarding celebration of his greatness. Counseling the nation that stocks will rebound, as he did at the height of the meltdown, was statesmanlike, and garnered him gratitude from the White House. Still, a few weeks ago I received a handwritten note informing me that his right hand man Ajit Jain was against publicity for himself. "Ajit is a lot smarter than his boss, Warren wrote.
I admire Buffett for taking such a strong stand on taxing millionaires and billionaires to redress in part the disparity between the very rich and the rest of us -- which is a seethingly confrontational issue in the 2012 presidential election. "When a country needs more income, they should get it from the people that have it," Buffett has said recently.
Still, I think he is feeling the heat of sharp attack from right wing Republicans who are denouncing him, and the so-called Buffett Rule, which President Obama has made into a cornerstone of his campaign. Myself, I think it is essential to balance the hordes of selfish billionaires with one who wants to make a difference. How honest and revealing it was of him in 2006 to hand over the charitable giving of his fortune to Bill and Melinda Gates -- who he admitted would be far better at putting it to work effectively. He knows about himself that he is good at racking up the billions; let more able people than he give it away. That's a unique decision by a very rich man as well.
We can all learn from the positive infectiously happy enthusiasm that Buffett expressed this weekend in Omaha, Nebraska, before a standing room only crowd of over 40,000. Would that the rest of us could be more like Warren; about whom his older sidekick Charlie Munger told me years ago; "One of the reasons Warren is so cheerful is that he doesn't have to remember his lines." Meaning that the public Buffett you will see this weekend and the private Buffett are one and the same. Let us hope the treatment he is about to endure this summer will put his illness into full retreat -- and that we will have him around.