Lowenstein’s Warren Buffett

Supported by Greenhaven Road Capital, finding value off the beaten path.

Roger Lowenstein’s Buffett: The Making of an America Capitalist was a good tour of WB’s investing career through the late 1990’s. The many Buffett Books, (20 pages on Amazon!), CNBC Archive, and Berkshire Letters are enough material for someone to become a Buffet expert. This post is my novice preferences.

All unattributed quotes are from Lowenstein.

Ready?

 

The volume of materials demonstrates Buffett’s emphasis on communicating with your stakeholders.

“But one purpose of his letters was to attract and knit together a shareholder group who would behave like his partners—in other words, who would stick with him.”

“He took pains to explain his approach in advance, and in concrete terms—precisely because he knew that a misunderstanding could sunder the union.”

Investors require patient capital but restless capital can walk away. Chris Douvos noted about long-term investing, that “The Venn Diagram of the people who can do it and have the courage to do it is actually pretty small.”  Writing letters was Buffett’s way of bucking up his stakeholders.

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Flip-flopping is pejorative while updating beliefs is praised. Buffett is and was an updater.

“In Buffett’s view, (Disney’s) most valuable feature was its library of old cartoons and films, such as Snow White and Bambi. A Ben Graham would not have been interested in such an imprecise asset. However, Buffett estimated that, on a proportional basis, the library alone was worth the price of a share.”

“He was bolder than Graham: more willing to load up on a stock or to ride a winner. And, of course, his results had been better.”

“The ‘main qualification is a bargain price,’ he wrote; but he also would pay ‘considerable attention’ to qualitative factors.”

Munger may have planted the seeds for the switch from quantities to quality but Warren prepared the soil.

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Maker Schedule, Manager Schedule. Paul Graham blasted manager schedules because, “A single meeting can blow a whole afternoon, by breaking it into two pieces each too small to do anything hard in.” Buffett’s calendar was a makers calendar.

“His day was a veritable stream of unstructured hours and cherry colas. He would sit at the redwood horseshoe desk and read for hours, joined to the world by a telephone (which he answered himself) and three private lines: to Salomon Brothers, Smith Barney, and Goldman Sachs.”

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Berkshire Hathaway is the buyer of choice – in part – because of their Decentralized Command. Lowenstein explained that Buffett, “picked the chorus line but didn’t attempt to dance.”

DC works because the people on the ground know the details better than the people up in the offices. Andy Grove valued the wind of the real world. But front lines expertise is also an ignorance. Buffett’s managers send their profits to Omaha because Warren is a better capital allocator. Much like Charles Koch, Buffett got a detailed report from the front lines but made his decisions from a command post.

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Coca-Cola.  In 1988 Roberto Goizueta noticed someone was buying Coca-Cola stock. Don Keough wondered if it was his fellow Omaha native, after a phone call he found out it was.

Part of the reason Buffett bought was that while Americans were drinking 74X as much Coke as Indians, even though India had 3X as many people.

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Investing heroically. Buffett’s success – in part – is due to investing in good companies during bad times. One example was GEICO, and Lowenstein recounts Buffett’s diligence:

“Then he went to see insurance experts—the B, C, and D of the day. Every one told him that GEICO’s stock was overpriced. Buffett’s reading of the facts was just the opposite, but he found them daunting. They were experts; he was in B-school. Every stockpicker worth his salt eventually comes to such a crossroads. It is extremely difficult to commit one’s capital in the face of ridicule—and this is why Graham was invaluable. He liked to say, ‘You are neither right nor wrong because the crowd disagrees with you.'”

With Graham’s support and Buffett’s diligence, we have an example of  Howard Marks‘s matrix. Chris Douvos said that David Salem encouraged him to ‘invest heroically.’ Lowenstein wrote:

“Buffett’s portfolio was decidedly unconventional. With his big bets on American Express, Berkshire Hathaway, and two or three others, the lion’s share of the pool was in just five stocks.”

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The real competitive advantage Warren Buffett enjoyed was being Warren Buffett. In the book, his research is almost trancelike. As Mohnish Pabrai asks students who ask him about becoming investors, “Are you wired for it?” Pabrai notes:

“The first question investor need to ask themselves is ‘Does the glove fit?’… after you read an annual report you have to ask yourself, ‘you know, I spent two hours reading that, would I have preferred doing that or watching a Star Wars movie?’…you have to ask what type of activities give you the greatest satisfaction.”

Warren’s satisfaction comes from reading the reports.

 

Thanks for reading.