Learning from the Oracle: Owen visits with Warren Buffett

Business school is bursting with unique forums in which students have access to some of the greatest and brightest minds in modern industry. These standout moments can be pivotal points in shaping the next generation of business creativity and innovation. Prior to Spring Break, 20 Owen students were treated to just such an opportunity—the rare chance to sit down for a Q&A with one of the world’s greatest investors, philanthropists, and public figures, Mr. Warren Buffett.  The lucky group traveled to Buffett’s Berkshire Hathaway headquarters in Omaha, Nebraska, arriving in tact despite a major snowstorm that threatened the event (and precluded other chosen schools from making the journey).

The trip was a brainchild of Owen finance professor Philip Woodlief, who had reached out to Buffett through a personal connection to convey Vanderbilt’s interest in visiting the investor. With the meeting arranged, preparations began months in advance, with students doing their research by reading up on Buffett’s philosophies on investing, politics, and life. The group convened on multiple occasions to formulate a list of poignant questions to pose to the “Oracle of Omaha”, trying to focus on themes that had not been addressed in the litany of Buffett materials already available.

During the stay in Omaha, the group learned about some of Buffett’s unique operating principles during tours of Nebraska Furniture Mart and Borsheim’s Jewelers, two of Berkshire Hathaway’s wholly-owned companies.

Evident throughout the trip was Buffett’s penchant for simplicity and familiarity, a theme embodied by his residence—the same modest, two-story dwelling in midtown Omaha that he and his wife had called home since 1958.

The main event of the weekend, though, was undoubtedly the two and a half hours spent bouncing questions off the man himself. Buffett’s characteristic humor, humility, and charm shone throughout the session, as he touched on topics ranging from U.S. energy policy to time management.

Some of the highlights from the Q&A:

Q: There is a growing trend of companies dedicating resources to Corporate Social Responsibility. Will this continue, and do you encourage this for Berkshire’s companies?

A: We’ve always maintained autonomous management teams among the companies we own. We want them to continue their original philosophies. In regard to supporting social causes, Berkshire doesn’t donate privately, because we feel that is best left to our individual shareholders to use Berkshire profits to support those causes nearest to them.  It’s not our business to designate where those profits should go.

 

Q: You’ve talked about the importance of building strong teams. How do you organize teams that meet this standard?

A: When we look at a management team, we ask ourselves, “Do they love the business, or do they just love the money?”. When we bought Nebraska Furniture Mart, we met with its founder, Mrs. B, at her home here in town. She had tags on all her home furnishings, because she said it made her feel like she was still at the store—a place she loved. That’s the type of person we know is passionate about a business, and will run it well.

 

Q: What is the biggest challenge you’ve faced?

A: In 1991, I was on the board at Salomon. The guy running the firm got in some hot water with the Fed, and I was asked to take over the company. We had no knowledge that anything was wrong, and suddenly we were facing potential court battles with the SEC, the Treasury Dept., you name it. Any one of these would put us out of business, and we didn’t have any control. For 9 months and 4 days, Salomon’s future was in jeopardy because of the mistakes and cover ups that took place.

I can handle bad news, but I can’t handle hidden bad news. When things go wrong, get it right, get it fast, get it out, and get it over.

 

Q: You’ve talked about a “circle of competence” as an investment driver for you. Our generation seems to be more interested in startups: tech-driven companies where you get in and out rather quickly. Could you contrast these styles?

A: You have to know your perimeter when it comes to investing. There are things that we know very well, and we invest in those things, but there are a number of other areas in which we’re not nearly as competent. You have to know which is which. How do you beat Bobby Fischer? Play anything but chess.

Take Coca-Cola for example. 1.8 billion servings of Coke will be consumed, just today. That means, if we get one more penny for a serving of Coke, we just increased our revenue by $18 Million, every day. That’s why we own 9% of the Coca-Cola Company. Sure, there will be startups that can generate a faster return, but we know Coke, and we know what it will do. All this talk is making me thirsty, actually *opens a can of Cherry Coke*

 

Q: As students, most of us are preparing to enter the workforce. How do we choose companies with top management to work for?

A: Work for people you admire. Pick who will be the most effective. It’s kind of like getting married; you always want to marry someone better than you, because they’ll end up making you better.

 

Q: With developments in oil and natural gas, the U.S. is poised to become a net energy exporter in the coming years. What are your thoughts?

A: This is an area where I vary from a lot of the experts. Capitalists, of course, will tell you to exploit this opportunity to maximize profits. Despite all the new discoveries, though, we know that fossil fuels are a finite resource. Not only are they finite, but they are the most precious asset a country can have. I feel like as long as there are other countries willing to sell us theirs, we should utilize that before we start exporting to them. That’s the long-term viewpoint, though, which is a little different from the capitalist take.

 

Q: What is your approach when deciding how and when to sell an investment?

A: If you have a good investment, you only make the shift when a better opportunity appears. And that’s only if your funds are limited, and you can’t invest in both. When I owned Geico stock in the 1950’s, it was a good investment, and provided solid returns. I found another stock, though, in Western Insurance, which was selling for $13 a share, while it’s earning per share had averaged around double that the previous 3 years. This was a phenomenal bargain, and I knew it was worth selling some Geico to purchase Western Insurance.

 

Q: Berkshire’s recent purchase of Heinz was made using 3G Capital as a financial partner. What can 3G add to Heinz?

A: We couldn’t have made the Heinz deal without 3G. They’re a bunch of incredibly talented individuals who know how to run a business. They the operations side of this deal; we’re simply the financing.

 

Q: What is your advice for young professionals who want to make an impact on the world, but have limited funds to do so?

A: Your advantage at a young age is the gift of time and talent. Those two things make all the difference. Even though he got beat up over it, Obama was right when he said ‘you didn’t do it yourself’. I was incredibly lucky to be born when I was, as a white male in America. If I had been born in any other place and time, my skillset would have been useless. I’d be trying to manage investments and getting eaten by lions. So it’s important to recognize the blessings you have, and to give back whenever possible. You sit in the shade of trees planted by others. Plant a few of you own.

 

Some additional quips were peppered throughout the session:

To Bill Gates in 1991: “Is [computer technology] going to change the way people chew gum? You invest in computers, I’ll invest in gum”

“Tell me who your heroes are, and I’ll tell you how you’ll turn out”

“Working with less is an advantage, but I don’t want to go back to it”

“Stay in the circle of confidence”

OwenBloggers will be following up with more from this historic exchange!

 

[Editor’s note: the Q&A session was not recorded, per the host’s request, and is thus transcribed from handwritten notes. The content is paraphrased, but true to the nature of the conversation.]