10/6/19

Don't Be Like Warren Buffett


I've been enthralled in The Snowball, Alice Schroeder's excellently written biography of Warren Buffett. It's the second Buffett book I've ever tried, the first being University ofBerkshire Hathaway by Daniel Pecaut and Corey Wrenn,* which should have been called "Love Letters to Warren" or something similar.

In both books, despite the effusive praise by Pecaut, Buffett comes off as a self-righteous, didactic miser, which is completely different from how he is usually portrayed in the media. Schroeder's more measured descriptions were "cop," "preacher," and "tightfisted." Charlie Munger, who obviously has a prominent part in both books, comes off much the same, except he's also rude. At one point a depiction of Buffett and Munger on the stage at a Berkshire Hathaway shareholder meeting reminded me of the two Ferengi, Kol and Arridor, in the Star Trek Voyager episode "False Profits" (check it out if you have a chance).

Now that I've offended all of the Buffett fans….

We humans tend to have a groupie mentality. By that I mean, when someone is great at something we start acting like they're great at everything. We start to idolize them, and they can do no wrong.

Warren Buffett's investing record is one of the best, if not the best, in history. Unsurprisingly, people ask him for advice about all manner of things outside the investing realm.

But we should remember, as Nietzsche once observed, "If one has become a master in one thing, one has generally remained, precisely thereby, a complete dunce in most other things." This is quite true of Warren Buffett.

Rather than asking for advice, it might be useful to look at other aspects of Buffett's life and see what lessons there are waiting to be learned.

Warren Buffett the Miser

Much has been written about how humble Buffett is. The fact that he has lived in the same house (which he bought for $31,500) since 1958 is probably Buffett admirers' favorite example. (There's also how he doesn't upgrade his car very often, or that he spends under $4 for breakfast at McDonald's.)

Buffett may be humble, but his living in a house that is a tiny fraction of his net worth is not evidence for his humbleness. Rather, it's a prime example of his tightfistedness. If it were up to Buffett, he would be a renter all his life. It was his wife that ultimately prevailed upon him to buy the house. In Buffett's mind, that $31,500 could've been worth much more if invested properly. In buying the house, not only was he paying with present day dollars, he was also paying with all the future dollars that sum would generate. In buying the house, that $31,500 was doomed to lie fallow. Soon after he bought the house, he complained to a golfing partner that it cost him $300,000.

The collection of money is Buffett's ultimate goal. It is an end in itself. Buffett says money is just a way of keeping score, but it seems to be a lot more than that. No matter how much money he had, he either didn't have enough, or there weren't any good businesses to buy, or he didn't have enough again. It is like filling a bottomless hole.

Tony Robbins talks about the difference between monetary and true wealth. Money is a vehicle, not the solution. Money can help with happiness and having a full life, but it doesn't guarantee it. Despite Buffett having a huge net worth, he doesn't strike me as being very happy outside his work. He's always trying to fill a hole.

Buffett really enjoyed his work (collecting money), but his obsession seems to have caused a deprivation in other, perhaps more important, aspects of his life. He was an absentee father to three children. Even when being with them, his mind was elsewhere--thinking of ways to make money. His marriage fell apart (though it didn't end in divorce), with his wife moving to San Francisco to be with her tennis coach. Even the dog moved out and went to live with friends.

It was only after his marriage fell apart that Buffett started to lessen his miserliness.

Some things that stood out for me:

  • Buffett wants to be liked by others. He might like it even more than money, which is why he paid for a Dale Carnegie course. His public persona, therefore, is not necessarily what he's really like.
  • Buffett's daughter once asked him for a loan. He told her to go to the bank.
  • Buffett's sister asked for help to avoid bankruptcy and losing her house. Buffett cut off all communications. He eventually ended up giving her an advance on her inheritance from their late father.
  • As a teenager Buffett stole golf balls from Sears. Lots of golf balls.
  • Buffett likes to "Tom Sawyer" people into doing things for him.
  • Buffett liked to "Buffett" people--the practice of bidding for a stock, and when the bid is accepted, lowering his bid. And when the lower bid is accepted, lower his bid some more. Then one time, the CEO of Berkshire Hathaway tried to "Buffett" Buffett by lowering his tender offer for the Berkshire shares that Buffett owned. Buffett got so upset at getting a taste of his own medicine that he bought more shares and eventually took control of the company. In more recent times he's said that buying Berkshire was a mistake.
  • Buffett lusted after an insurance company, but the owner didn't want to sell. Buffett learned that once or twice a year the guy would get frustrated and want to get rid of his company. Buffett recruited a spy to let him know when this happened. When it did, Buffett put in a bid and the guy agreed to sell. When the guy came to his senses, Buffett didn't let him back out of the deal. In a twist, the guy used his sales proceeds to buy Berkshire stock.
  • Buffett was obsessed with his family's weight and provided financial incentives for them weighing under what he thought was too much. To keep his own weight under control, he gave his children an unsigned check for $10,000, which he would sign if he went over his goal weight. They tempted him with ice cream and other junk food, but his love of money was greater than the temptation.
  • Buffett is allergic to penicillin. He had taken some and his finger was starting to swell. He gradually got worse and worse, but refused to go to the hospital (because that cost money, per my understanding). He almost died.
  • Charlie Munger described Buffett's business strategy as buying a business, taking out all the cash, and raising prices. If that doesn't work, Buffett doesn't know what to do.
  • Buffett burns out his employees. He hires the bare minimum and then uses what he learned from Dale Carnegie (assigning work with complements like "you're so smart, it'll be easy for you to have this for me by tomorrow morning") to make them work as hard as possible. His protégé felt under so much pressure that he quit his job and cut off all ties with the Buffetts.
  • After his divorce, Charlie Munger tried to find a new wife by searching through court records for recently widowed women.


*The book is essentially a republication of Pecaut's newsletters to his clients, which summarize Berkshire's annual shareholder meetings. It provides an interesting perspective because all the meetings are described one after the other without you having to wait a year in between each. The most inspirational thing that I learned was that you can get most of your predictions wrong and still be a billionaire.

** One may question, "and who are you to write any of this?" That's a great point. But if someone can't anonymously throw rocks in glass houses, what is the internet for?

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