Friday, October 17, 2008
Warren Buffett Says Now Is the Right Time to Buy Equities
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Buy American. I Am.
Omaha
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Tuesday, October 14, 2008
Wednesday, August 20, 2008
Thursday, July 31, 2008
Friedman: Texas to Tel Aviv
July 27, 2008
What would happen if you cross-bred J.R. Ewing of "Dallas" and Carl Pope, the head of the Sierra Club? You'd get T. Boone Pickens.
What would happen if you cross-bred Henry Ford and Yitzhak Rabin? You'd get Shai Agassi. And what would happen if you put together T. Boone Pickens, the green billionaire Texas oilman now obsessed with wind power, and Shai Agassi, the Jewish Henry Ford now obsessed with making Israel the world's leader in electric cars?
You'd have the start of an energy revolution.
The only good thing to come from soaring oil prices is that they have spurred innovator/investors, successful in other fields, to move into clean energy with a mad-as-hell, can-do ambition to replace oil with renewable power. Two of the most interesting of these new clean electron wildcatters are Boone and Shai.
Agassi, age 40, is an Israeli software whiz kid who rose to the senior ranks of the German software giant SAP. He gave it all up in 2007 to help make Israel a model of how an entire country can get off gasoline and onto electric cars. He figured no country has a bigger interest in diminishing the value of Middle Eastern oil than Israel.
On a visit to Israel in May, I took a spin in a parking lot on the Tel Aviv beachfront in Agassi's prototype electric car, while his sister watched out for the cops because it is not yet licensed for Israeli roads.
Agassi's plan, backed by Israel's government, is to create a complete electric car "system" that will work much like a mobile-phone service "system," only customers sign up for so many monthly miles, instead of minutes. Every subscriber will get a car, a battery and access to a national network of recharging outlets all across Israel - as well as garages that will swap your dead battery for a fresh one whenever needed.
His company, Better Place, and its impressive team would run the smart grid that charges the cars and is also contracting for enough new solar energy from Israeli companies - 2 gigawatts over 10 years - to power the whole fleet. "Israel will have the world's first virtual oilfield in the Negev Desert," said Agassi. His first 500 electric cars, built by Renault, will hit Israel's roads next year.
Agassi is a passionate salesman for his vision. He could sell camels to Saudi Arabia. "Today in Europe, you pay $600 a month for gasoline," he explained to me. "We have an electric car that will cost you $600 a month" - with all the electric fuel you need and when you don't want the car any longer, just give it back. No extra charges and no CO2 emissions.
His goal, said Agassi, is to make his electric car "so cheap, so trivial, that you won't even think of buying a gasoline car." Once that happens, he added, your oil addiction will be over forever.
You'll be "off heroin," he says, and "addicted to milk."
T. Boone Pickens is 80. He's already made billions in oil. He was involved in some ugly mischief in funding the "Swift-boating" of John Kerry. But now he's opting for a different legacy: breaking America's oil habit by pushing for a massive buildup of wind power in the United States and converting our abundant natural gas supplies - now being used to make electricity - into transportation fuel to replace foreign oil in our cars, buses and trucks.
Pickens is motivated by American nationalism. Because of all the money we are shipping abroad to pay for our oil addiction, he says, "we are on the verge of losing our superpower status." His vision is summed up on his Web site: "We import 70 percent of our oil at a cost of $700 billion a year ... I have been an oil man all my life, but this is one emergency we can't drill our way out of. If we create a renewable energy network, we can break our addiction to foreign oil."
Pickens made clear to me over breakfast last week that he was tired of waiting for Washington to produce a serious energy plan. So his company, Mesa Power, is now building the world's largest wind farm in the Texas Panhandle, where he's spent $2 billion buying land and 700 wind turbines from General Electric - the largest single turbine order ever. The United States could secure 20 percent of its electricity needs from wind alone.
But Pickens knows he's unique. Unless, he says, "Congress adopts clear, predictable policies" - with long-term tax incentives and infrastructure - so thousands of investors can jump into clean power, we'll never get the scale we need to break our addiction. For a year, Senate Republicans have been blocking such incentives for wind and solar energy.
If only we had a Congress and president who, instead of chasing crazy schemes like offshore drilling and releasing oil from our strategic reserve, just sat down with Boone and Shai and asked one question: "What laws do we need to enact to foster 1,000 more like you?" Then just do it, and get out of the way.
Notes:
Thursday, July 24, 2008
Holy man, secular plan: clean up the River Ganges
Veer Bhadra Mishra, a Hindu priest and former professor of hydraulics, has gained government approval for a pilot program.
By Mian Ridge Correspondent of The Christian Science Monitor
from the July 22, 2008 edition
VARANASI, INDIA - Most mornings, as the sun steals over the Ganges, Veer Bhadra Mishra takes a dip in India's holiest river. As high priest of a Hindu temple, it is his solemn duty. But as a scientist, the ritual is profoundly discomforting.
The Ganges, revered as a symbol of spiritual purity for more than 2,000 years, is today a filthy soup. This is especially true in the ancient pilgrimage site of Varanasi, where 32 old pipes on the riverbank disgorge raw sewage into the flow.
"I have a rationally trained mind," says the retired professor of hydraulics, who says he has contracted potentially fatal diseases from Ganges water. "But I also have a passionately committed heart."
Mr. Mishra has used both in a 20-year river cleanup campaign now coming to fruition. With his spiritual clout in a country that's more than 80 percent Hindu and his scientific expertise, Mishra has won government approval for a pilot sewage-treatment program.
Religious imagery is never far from the lyrical speech of Mishra, who couches his environmental language in terms of saving the "Ganga Ma," or the Mother Ganges. Even more than the compassion he shows for the well-being of Hindus, he seems most concerned about the health of Hinduism – how a dirty river might damage the faith.
Mishra inherited the role of high priest of the 400-year-old Sankat Mochan temple when he was 14 years old, following a centuries-old tradition of passing the job from father to eldest son.
But he has also been driven by scientific curiosity, becoming the first family high priest to wear Western-style trousers and to attend university. Later, he became a professor at Varanasi's renowned Benares Hindu University.
In 1982, he set up the Sankat Mochan Foundation – named after his temple – which has led the city's clean-river campaign with an unusual mixture of science and spirituality.
A meeting with the prime minister
More than a decade ago, with scientists from the University of California in Berkeley, Mishra developed what many environmental experts attest is a cheap, sustainable system for diverting the city's sewage away from the river, and cleaning it.
The scheme was unanimously accepted by the city council nearly a decade ago, but the state and central governments rejected it. Gentle-mannered Mishra continued his tenacious lobbying, and last year secured a meeting with prime minister Manmohan Singh.
Last month, he heard what he describes as "the best news in 20 years."
On June 30, the central government wrote to him, telling him it would support a pilot run of his scheme in Varanasi and suggesting it would hold back support for a much costlier, ineffective state government-led scheme.
"If the result is convincing, it will be difficult for the government to refuse to roll it out," he says, with a broad smile. He says he is confident the system will not disappoint, but only hopes that the government will reverse years of "disastrous" policy on the Ganges.
The Ganges flows over 1,500 miles, from the Himalayas across the densely populated plains of India, into Bangladesh, before gushing into the Bay of Bengal.
It would be difficult to exaggerate how sacred the river is to Hindus, who see it as an incarnation of the god Ganga.
"Man becomes pure by the touch of the water, or by consuming it, or by expressing its name," says Lord Vishnu in the Ramayana, a poem written in the fourth century BC.
But while India's Hindus have maintained their reverence for the river, modernization – in the form of speedy population growth, urbanization, and industrialization – has sullied it. There are more than 100 cities, numerous towns, and countless villages scattered along its banks. Some 500 million people are dependent upon the Ganges for water. As it has been siphoned off for irrigation, its water levels have fallen.
Climate change is also taking a disastrous toll. The Himalayan Gangotri glacier, the source of most of the Ganges' water during India's long, hot summers, is shrinking by 40 yards a year, say scientists. By 2030, they warn, it could disappear altogether – making the Ganges dependent upon erratic monsoon rains.
While environmentalists urge India, a top greenhouse-gas producer, to take action, Mishra says that an opportunity is being lost to tackle the much simpler problem of domestic sewage pollution.
Few of the fast-growing cities and towns along the Ganges' banks – indeed, few in India, period – have sewage treatment plants. But the problem is especially crucial in Varanasi, where millions of Hindus make annual pilgrimages to pray and ritually bathe on the broad stone steps that lead down to the river from the riverbank temples.
The World Health Organisation, which labels dirty water as the leading cause of child deaths in India, says the coliform bacteria count is some 3,000 times higher than it considers safe.
That hasn't stopped the pilgrims at its banks, however, who may be unaware of such concerns.
Small boys water bomb into the river beside pious elderly men dressed in loin cloths who pour water over their heads. Sari-clad women murmur prayers as they scatter fragrant rose and jasmine petals, seemingly oblivious to the small islands of reeking rubbish that float by.
India's government, however, has been aware of the problem for some time. Twenty years ago, it launched the Ganga Action Plan (GAP), a multimillion-dollar scheme intended to clean up the river by means of wastewater treatment plants.
Replacement for government plan?
A near-consensus among experts exists that GAP has been an expensive disaster. The plants handle only a small amount of the sewage generated along the river. Because they rely on electrical pumps during power cuts – frequent in India – even the small amount of sewage they're meant to handle often flows into the river. And, experts say, when the floodwaters rise, sewage enters the slump well of the pumps, stopping operations for months of the year.
Most seriously, the GAP system is designed to remove solid waste but not microorganisms. Mishra's scheme is different. His adaptation of an "advanced integrated wastewater pond system" (AIWPS) developed by Prof. William Oswald at Berkeley and in operation in parts of California, is, experts say, suitable for a tropical climate like India's.
Instead of depending on scarce supplies of electricity, the system would use gravity to carry sewage to four big pools, built on wasteland several miles outside the city, where it would be broken down by bacteria, algae, and sunlight.
An independent assessment found the plan was cheaper and more effective than the existing scheme. He hopes that his pilot project may one day become a model for other Indian towns and cities. But his inspiration remains the Ganges.
"All our rivers have stories," he says, as a wooden boat of pilgrims floats by his window, trailing flickering floating candles in the gathering dusk. "All our rivers are important. But there is nothing anywhere like the Ganga."
Find this article at: http://www.csmonitor.com/2008/0723/p01s01-wosc.html
Why Buffett Is Buying
The Omaha investor is taking advantage of the market turmoil to fire up Berkshire Hathaway's acquisition machine. Yet a string of recent takeovers has done little to buttress the conglomerate's flagging growth.
By Richard Teitelbaum Bloomberg Markets, August 2008
Warren Buffett is in Toronto, fielding questions from a crowd of 300 executives. One asks what makes people want to sell their companies to him.
The Berkshire Hathaway Inc. chief executive officer replies that he tells a prospective seller to think of the company as a work of art.
``You can sell it to Berkshire, and we'll put it in the Metropolitan Museum; it'll have a wing all by itself; it'll be there forever,'' he says at the February meeting. ``Or you can sell it to some porn shop operator, and he'll take the painting and he'll make the boobs a little bigger and he'll stick it up in the window, and some other guy will come along in a raincoat, and he'll buy it.''
Buffett, 77, can afford to throw a little mud on his competitors in the private equity industry. Wall Street's acquisition machine has seized up, while Buffett, in the valedictory chapter of a career stretching back more than 60 years, is on a buying spree.
He has $35.6 billion in cash to spend, and he's looking for companies that he can buy at a reasonable price, that have experienced managers he trusts, products with strong market positions or other competitive advantages.
Buffett's biggest catch so far in 2008 was Marmon Holdings Inc., a conglomerate owned by Chicago's Pritzker family. On March 18, Berkshire announced it had bought 60 percent of Marmon from the Pritzkers for $4.5 billion. Buffett is buying the rest in increments during the next five to six years.
Needle-Moving Events
In April, he agreed to pay $2.1 billion for an undisclosed stake in Chicago's Wm. Wrigley Jr. Co. as part of McLean, Virginia-based Mars Inc.'s $23 billion purchase of the gum maker. Buffett, who already owns See's Candies, is helping to fund the deal with $4.4 billion in subordinated debt.
``This is the kind of market where you would expect the pace of Berkshire acquisitions to pick up,'' says Keith Trauner, senior analyst of Fairholme Capital Management LLC in Short Hills, New Jersey. ``In a weaker business environment, sellers moderate their expectations.''
At the same time, Berkshire is now so big that Buffett is having a hard time turning acquisitions into growth. Most of Berkshire's more than two dozen purchases since 2000 are too small to have much impact. ``The larger the company becomes, the harder it is to find needle-moving events,'' Citigroup Inc. analyst Joshua Shanker says.
Past Performance
Buffett agrees. ``Anyone who thinks we will come close to repeating our past performance should sell their stock,'' Buffett told investors at Berkshire Hathaway's annual meeting in May. He declined to comment for this story.
Buffett's focus has turned to philanthropy in recent years. In June, 2006 he pledged 10 million Class B shares of Berkshire stock, worth about $31 billion at the time, to the Bill & Melinda Gates Foundation. The first installment of 500,000 shares was made in 2006, the second of 475,000 in July, 2007.
Each year, Buffett also auctions off a lunch on EBay Inc. to benefit one of his late wife Susan's favorite charities -- San Francisco's Glide Foundation, which provides meals, healthcare and other services to San Francisco's needy. ``It takes people who have hit bottom and brings them back.'' Buffett told Bloomberg TV. ``It's an enormously efficient organization.''
Today Buffett is treating money managers Mohnish Pabrai and Guy Spier to a meal at New York's Smith & Wollensky's after their record joint bid of $650,100. This year's Ebay auction began on June 22 and runs to 10 p.m. Eastern time on June 27.
Affinity for Insurance
The Sage of Omaha, by his own count, now owns 76 companies outright, a number that rises to about 200 if Marmon's 125 subsidiaries, which make everything from water treatment gear to brake drums, are taken into account. Among the Buffett companies are names familiar to most Americans: Geico car insurance, best known for the Cockney-accented gecko in its television commercials; Dairy Queen restaurants; Benjamin Moore paints; and Fruit of the Loom underwear.
Berkshire also owns 8.6 percent of Coca-Cola Co., 13.1 percent of American Express Co. and 8.8 percent of Wells Fargo & Co. Those three investments alone amounted nearly $25 billion on June 24.
Insurance firms dominate the list of Berkshire-owned companies. Buffett controls a dozen of them -- Berkshire Hathaway Reinsurance, General Re Corp. and Geico Corp. are the biggest -- accounting for 31 percent of Berkshire's 2007 revenue.
``I would say we have a special affinity for insurance,'' Buffett said at the 2007 annual meeting's news conference.
Competitive Advantage
One reason is that Buffett loves float -- the premiums collected from policy holders that can be invested at a profit until claims need to be paid. As of the end of December, Berkshire had $58.7 billion of float.
In May, an acquisition-minded Buffett took a tour of Europe -- stopping in Germany, Italy, Spain and Switzerland -- where the media and business establishment treated him like a rock star. ``I'm not looking for Pet Rock or Hula Hoop businesses,'' he said at a Frankfurt news conference. ``I'm hoping to make big deals, whether it's in the United States or Germany or Italy or Denmark.''
In Europe, Buffett repeatedly praised the company headed by the man who sat beside him during his European tour, Eitan Wertheimer, chairman of Tefen, Israel-based Iscar Metalworking Cos. Buffett bought an 80 percent stake in Iscar, a maker of metal-cutting tools, in 2006 for $4 billion, his first big overseas acquisition.
Loyal Customers
A close look at Iscar's main factory complex in northern Israel shows why Buffett took an immediate interest when Wertheimer faxed him a letter declaring that Berkshire would be an ideal home for Iscar. The company has the ``durable competitive advantage'' Buffett told the Europeans he always looks for. It's a market leader in the design and production of a variety of metal-cutting tools.
And Iscar has loyal customers. A disposable tungsten carbide insert used to slice steel can wear out in 20 minutes or less, meaning that Iscar must deliver a steady supply of new blades to every customer that uses them.
Buffett's purchase of Iscar made the Wertheimers celebrated billionaires, so it's no surprise that he receives hundreds of letters from other entrepreneurs offering to be bought out.
Among those that have made the grade in the past 10 years are: MidAmerican Energy Holdings Co., which can generate a set return on equity of 10-11 percent from its regulated utilities; electronic parts distributor TTI Inc., which has never posted an annual loss nor laid off an employee; and Business Wire, one of two companies that dominate the niche of sending news and financial releases around the world.
Quick Dividends
Becoming a Berkshire company can pay quick dividends. On June 30, 2005, Berkshire purchased Medical Protective Corp., a Fort Wayne, Indiana-based malpractice insurer, from General Electric Co. for $825 million. The next day, Standard & Poor's raised the firm's A financial rating to AAA. ``It's hard to imagine how MedPro could have done any better than being owned by Berkshire,'' CEO Tim Kenesey, 41, says.
Sometimes the benefit is more subtle. ``There's definitely a halo effect,'' says Steve McKenzie, CEO of Norcross, Georgia- based Larson-Juhl Inc., a custom picture frame maker Buffett acquired in 2002 for $223 million. ``It's realized in the higher- quality recruits we hire and in potential acquisitions' readiness to talk to us,'' says McKenzie, 46.
Buying on Faith
Buffett often decides to buy a company after what looks like a cursory examination of its operations. He agreed to purchase Larson-Juhl after a 90-minute talk with its founder, Craig Ponzio. During his European tour, Buffett told questioners that he had bought Iscar without any due diligence and after just a few days of talks with its top executives, who traveled to the U.S. three times to meet with Buffett and his investing partner, Charles Munger.
No one from Berkshire ever stepped inside an Iscar factory before the deal was done, Buffett says.
``He's buying on faith, and especially with larger acquisitions, that's certainly perilous,'' says analyst Chuck Hamilton, who follows insurance at FTN Midwest Securities Corp. ``If he were to spend $20 billion-$30 billion on a major company, without due diligence, that would really be cause for heartburn.''
With a staff of only 19 at Berkshire headquarters in Omaha, Nebraska's Kiewit Plaza, Buffett says he won't buy a company without management in place that he's sure of.
Modest Backgrounds
``We have to see it in their eyes,'' he said at the May 3 annual meeting, where 31,000 investors converged on Omaha's Qwest convention center to hear Buffett and Munger, 84, answer shareholder questions between mouthfuls of See's candies.
In the case of Victor Mancinelli, CEO of CTB Inc., a maker of poultry feeding systems and other agricultural equipment in Milford, Indiana, Buffett could see it on the balance sheet. Mancinelli had paid off nearly $80 million in leveraged buyout and other debt in just three years. Berkshire bought CTB in 2002 for about $180 million.
One quality Buffett firms usually have in common: CEOs from modest backgrounds, often without Ivy League degrees on their resumes. Mancinelli's father was a truck driver, and his mother was an autoworker.
MidAmerican Chairman David Sokol worked his way through the University of Nebraska at Omaha as a night manager at a grocery chain. TTI's Paul Andrews is a former oil rig roughneck who once sold Bibles door-to-door. Business Wire's Cathy Baron Tamraz is a former taxi driver.
Wagering Billions
Buffett is famous for his lack of pretension. He has honed the fine art of ukulele playing. He still lives in the Dutch colonial home he bought for $31,500 with his late first wife, Susan, in 1958, according to ``Of Permanent Value: The Warren Buffett Story'' by Andrew Kilpatrick (self-published, 2008).
When he eats out, it's often at Gorat's Steak House on Center Street in Omaha, where a luncheon steak will set you back $8.25 -- including soup and a side of mostaccioli pasta. Buffett personally drives visitors to and from the airport. He prefers Cherry Coke to fine wine and saves money buying it by the case.
Buffett's just-plain-folks posture is a bit of a feint. His father, Howard, was an investment banker and a Republican U.S. congressman. Warren attended the Wharton School of the University of Pennsylvania and got a master's degree in economics from Columbia University.
In terms of the businesses he buys, Buffett never tires of telling questioners that he invests only in simple, straightforward industries whose operations he can grasp. Yet he wagers billions on everything from hedge funds to junk bonds. Through December, Buffett had made $2.3 billion in pretax earnings during the past five years on foreign-exchange bets.
Put Options
And as of March, he had tens of billions of dollars riding on two kinds of derivatives -- instruments he dubbed ``financial weapons of mass destruction'' in his 2002 letter to shareholders. The first is a variety of credit-default swap guaranteeing payment on certain high-yield bonds. Credit-default swaps, which are contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements.
Buffett also has sold put options -- contracts that provide the right, but not the obligation, to sell a security, currency or commodity at a set price within a set period -- on four stock indexes. In his 2007 shareholder letter, Buffett wrote that because Berkshire holds the cash connected to the derivatives, there is no risk the parties on the other side of the transaction won't pay.
Slow to Sell
Buffett's investment choices have yielded a conglomerate that's profitable in all kinds of weather. Through May, Berkshire's Class A stock, which traded on June 24 for $122,700 a share, has returned an average of 19.3 percent annualized in the past 20 years, nearly double the 11.2 percent return of the S&P 500 Index. From June 30, 2007, through June 24, Berkshire stock rose 12.1 percent, while the S&P 500 Index returned a negative 10.8 percent.
As of Feb. 29, Buffett himself owned 28.1 percent of the combined value of Berkshire's Class A and B shares, worth $53.44 billion on June 24. Class B shares have 1/30th of the value of Class A shares' value and 1/200th of their voting rights.
Buffett could be even richer if he had bent some of his own rules. For instance, he prides himself on buying and holding companies forever -- and is slow to sell his stocks. That has cost him and his shareholders' money. Berkshire's 8.6 percent stake in Coca-Cola was worth $17.6 billion when it hit its high in July 1998. Nearly a decade later, it's valued at just $10.67 billion -- and Buffett hasn't sold a share.
Underwriting Losses
Buffett has stumbled, most notably in 1998, when he spent $22 billion in Berkshire stock to buy Stamford, Connecticut-based General Re, one of the world's biggest reinsurance companies.
``General Re's name has stood for quality, integrity and professionalism in reinsurance,'' Buffett wrote in that year's shareholder letter. He lauded CEO Ronald Ferguson for his leadership.
Yet, as Buffett has pointed out in several annual reports since, the company was selling insurance way too cheaply. From 1999 through 2005, Gen Re ran up a total of $7.69 billion in underwriting losses. FTN Midwest's Hamilton estimates that those losses have been largely offset by investment income.
In 2001, Ferguson stepped down, replaced by executive vice president Joe Brandon. In that year's letter, Buffett compared Brandon to former General Electric CEO Jack Welch. ``He is smart, energetic, hands-on,'' Buffett wrote.
`A Sinkhole'
In 2006, prosecutors accused Ferguson, former CFO Elizabeth Monrad and two other former General Re executives of helping American International Group Inc. inflate reserves by writing sham, no-risk reinsurance contracts beginning in late 2000.
Jurors convicted all four of fraud in February, along with one former AIG executive. They are still awaiting sentencing. Two other former Gen Re executives pleaded guilty to their role in the fraud in 2005.
Buffett was interviewed by prosecutors in connection with the case. He wasn't charged with any crime. Brandon, named by prosecutors as an unindicted co-conspirator, resigned on April 14, and was replaced by Gen Re President Tad Montross.
``It's been a sinkhole,'' Hamilton says. ``Buffett's lost more than a shred of reputation.''
General Re isn't Berkshire's only regulatory entanglement. Connecticut Attorney General Richard Blumenthal said in May that he's investigating whether Moody's Investors Service, which was 19.6 percent owned by Buffett as of March 31, was guilty of a conflict of interest when it gave a AAA rating to Berkshire's new municipal bond insurance firm.
`Purse Strings'
``It is one symptom of a system rife with possible conflicts of interest and problematic relationships,'' Blumenthal said in a May 1 interview with Bloomberg News.
Buffett says his company deserves its rating. ``If Berkshire isn't AAA, I'm not sure what company would be,'' he told Bloomberg Television.
As pressure has grown for Berkshire to spend its cash, Buffett has been willing to travel farther afield in search of companies to buy, says David Carr, chief investment officer of Oak Value Capital Management Inc.
``I think in the past five years, he's loosened his purse strings,'' Carr says. ``There's nothing off limits as long as he understands the model.''
Analyst Hamilton says Buffett is finding it hard to replicate his previous returns. ``The returns on equity and capital are not what they were in years past,'' he says.
Intrinsic Value
Berkshire's growth is slowing. The annual median increase in per share book value, or net worth, averaged 10.3 percent in the eight years ended on Dec. 31, 2007, compared with 26.1 percent in the 1990s and 28.8 percent in the '80s, according to Citigroup's Shanker. He says Buffett is turning Berkshire into a conservative capital preservation vehicle.
``If you're interested in capital appreciation, you have to ask yourself whether Berkshire Hathaway is the right investment,'' Shanker says.
Buffett says there's only a limited number of good, big companies for sale at reasonable prices. As he put it in a May 2007 interview with TV host Charlie Rose, ``The real goal at Berkshire is just to keep building more and more earning power from operating companies.''
What makes Buffett want to buy? He himself says there's no secret formula, because each company's dynamic is unique. Berkshire is most active when markets go awry and companies' market capitalizations dip below their true worth -- their ``intrinsic value'' in Buffett-speak.
`Deal Velocity'
MidAmerican Energy's Sokol turned to Buffett during the stock market bubble of 1999. Investors, infatuated with Internet and technology stocks, were undervaluing the shares of relatively staid utilities such as Des Moines, Iowa-based MidAmerican, which looked especially pallid next to booming energy trader Enron Corp.
``You do two to three deals a year,'' Sokol recalls one analyst telling him. ``Your competitors are doing two to three a month; they have deal velocity.''
Shares of MidAmerican slumped to less than $27 in late 1999 from $42 in '97. ``The irrational behavior was driving me crazy,'' Sokol says.
What Buffett saw in MidAmerican was a company positioned to take advantage of utility deregulation and grow through a string of acquisitions. It now operates regulated utilities in 10 states, plus the U.K. It also owns plants in Australia and the Philippines. State regulatory commissions typically allow returns on equity of 10-11 percent.
`A Fool's Game'
``Warren thinks of our business as a good place to invest money on a long-term basis,'' Sokol says.
Sokol didn't need to join a long line of company owners trying to get Buffett's attention. One investor in MidAmerican was Walter Scott Jr., a Berkshire director and Buffett friend. He is chairman emeritus of Omaha-based construction contractor Peter Kiewit Sons' Inc.
Scott suggested the meetings that resulted in the sale. Berkshire paid $1.7 billion for 85 percent of MidAmerican. Sokol, Scott, now 77, and MidAmerican President Gregory Abel paid some $310 million for the rest.
Midamerican dips into Berkshire's till for acquisitions, while keeping true to Buffett's reputation for thrift by scooping up companies on the cheap.
``With regulated assets, overpaying is a fool's game,'' Sokol says.
Deep Pockets
In 2002, the company paid $450 million for Salt Lake City- based Kern River Gas Transmission Co. Also in 2002, it bought Northern Natural Gas Co. from Dynegy Inc. for $928 million. Dynegy had purchased the pipeline company, now based in Omaha, less than nine months earlier from a collapsing Enron for $1.5 billion.
``It was a brilliant acquisition,'' says Gordon Howald of Calyon Securities (USA) Inc. ``Using standard industry multiples, we could see these assets worth more than $2 billion in today's market.''
Sokol has kept up his buying. He paid $5.1 billion for PacifiCorp, a Portland, Oregon-based utility, in March 2006. That month, Berkshire also agreed to give him up to $3.5 billion in cash for new purchases or other purposes, in exchange for MidAmerican stock.
NetJets Inc.'s Richard Santulli also had Buffett's deep pockets in mind when he made a call to Omaha. The year was 1998, and his partner, Goldman Sachs Group Inc., which owned 20 percent of the company, was pushing for a public offering. In 1986, Santulli had invented the notion of ``fractional'' jet ownership, in which individuals and companies buy shares of a private plane's flying time in lieu of buying the entire jet.
`25-Year-Old Kids'
By 1998, several other companies, including Montreal-based Bombardier Inc. and Waltham, Massachusetts-based Raytheon Co., had crowded into the field. To keep his dominant market share, Santulli expanded both the number and variety of aircraft in his fleet.
Santulli balked at the idea of an IPO for Woodbridge, New Jersey-based NetJets because going public would subject his company to the scrutiny of Wall Street analysts. ``I wasn't going to answer to 25-year-old kids telling me how to run my business,'' he says in his thick Brooklyn accent.
Like Sokol, Santulli had ready access to Buffett, who was a customer and had told him in the past to give Berkshire a call if he ever wanted to sell. Less than a week after he made the call, Buffett picked Santulli up at Omaha's Eppley Airfield in his Town Car and took him to his office. ``The deal was done in 5 minutes, maybe 10 minutes,'' he says. Berkshire paid about $725 million in cash and stock.
Expanding to Europe
Berkshire not only bankrolled NetJets' fleet of Boeings, Citations and Gulfstreams, it also underwrote the company's expansion to Europe. From 2000 to '05, NetJets lost $212 million building up a European fractional jet ownership program. ``If I were public, I would have had to close the European business down,'' Santulli says, adding that today the unit is profitable.
``If I were to sell that business -- which of course we're not -- I would start at more than a billion and go from there,'' he says. According to Jetnet LLC, a Utica, New York-based research firm, NetJets now has more than 50 percent of the U.S. fractional jet market and virtually no competition in Europe.
Business Wire's Tamraz, 54, had no special entree to Buffett's office when she faxed him a letter, along with financial data, in November 2005. Eight days later, her receptionist buzzed her.
``Warren Buffett's on line 2,'' she said.
``Hello, Mr. Buffett,'' Tamraz said, as she scrambled to find her copy of the letter.
``Call me Warren,'' he responded.
Job Security
Tamraz says Buffett asked for more financial information on New York- and San Francisco-based Business Wire and for an idea of the price she was asking for the enterprise.
What appealed to Buffett about Business Wire was its business model, Tamraz says. The firm, founded in 1961, delivers 250,000 news releases a year for 25,000 corporate clients around the world. In 2007, it had more than $125 million in sales, which have been growing about 8 percent a year for the past three years, according to Tamraz.
One reason: Regulation Fair Disclosure, a U.S. Securities and Exchange Commission rule implemented in October 2000 that requires companies to disclose market-moving information to all investors simultaneously.
Tamraz is thrifty. She has no secretary and decorates her office with posters. She's been known to pitch in to format press releases when earnings season picks up. Another feature Buffett liked is that Business Wire has only one significant rival, London-based United Business Media Plc's PR Newswire, which had an operating margin of 35 percent in 2007.
`Cheap Parts'
Tamraz had spent four years trying to sell her business. No private equity or media firm would agree to her roster of demands, including job security for her 500 employees and a free hand to run the company. Two weeks after she talked to him, Buffett agreed to all of her conditions. The price he paid was ``more than several hundred million dollars,'' Tamraz says.
Fort Worth, Texas-based TTI, which Buffett bought in 2007, is also in the distribution business. It buys components that are used in an array of electronic devices and sells them to manufacturers around the world. ``We sell cheap parts better than anyone,'' CEO Andrews declares in his Texas drawl, before correcting himself: ``We sell inexpensive parts better than anyone.''
No Losses
TTI has carved out a niche in so-called passive components - - connectors, capacitors and resistors. They sell for an average of less than 4 cents each. With 2007 revenue of $1.4 billion, TTI operates in an industry with thin margins. Everything about TTI is low cost: Its Spartan headquarters is tucked inside a 276,000- square-foot (25,600-square-meter) warehouse.
Andrews, 65, started TTI in his living room in 1971 after being laid off from a purchasing job at General Dynamics Corp. Over the years, he plowed profits back into inventory and rode out the cycles of the electronics industry that forced many rivals to sell or fold. Andrews says TTI has never posted an annual loss and has never laid off an employee.
Today, TTI's inventory is enormous. An Apple iPod may have about 500 components, and TTI says it stocks 450 of them. All told, the company sells more than a million different kinds of parts. TTI buys them from manufacturers such as Malvern, Pennsylvania-based Vishay Intertechnology Inc. and Greenville, South Carolina-based Kemet Corp. ``When you come down to it, they are an extension of our sales force,'' Kemet CEO Per-Olof Loof says.
Hamburgers and Cokes
Receiving, ``picking'' and packaging orders at TTI is largely automated. For high-volume items, automatic lifts pluck the appropriate bar-coded part -- say, a reel of capacitors -- from a revolving carousel and send it off on a conveyor to be combined with the balance of the order. Given the company's low- priced goods, any error in the process will eat up TTI's profits.
Andrews got his foot in Berkshire's door through John Roach, a friend of Andrews's who had sold Justin Industries Inc., a Fort Worth building supply maker, to Berkshire in 2000 for $600 million. Roach overnighted TTI's 3-inch (7.6-centimeter) thick book of financial information to Buffett and set up a meeting.
Andrews arrived with Roach at Buffett's offices at 10 a.m. on Nov. 15, 2006, for a scheduled two-hour meeting. It lasted twice as long, with Buffett peppering Andrews with questions about his business and family. Buffett treated his visitors to hamburgers and Cokes at a country club, and then they returned to his office.
``Warren made an offer, and Paul made a quick response,'' says Roach.
``OK, let's do it,'' Buffett said and called in CFO Marc Hamburg to work out the details. The price wasn't disclosed.
Katyusha Rockets
Andrews agreed to stay at TTI for at least three years. ``There's nothing in writing, except a handshake and a gentleman's agreement that I'm going to be here to do what I said I was going to do,'' he says.
One reason Andrews says he sold to Buffett was he had no desire to see his company loaded with debt by a private equity firm or gutted by a cost-cutting rival. Iscar's Wertheimer, 56, had the same notion. ``We are very proud of what we've built,'' he says. ``We want it to continue.''
In buying an Israeli company, Buffett took on the kind of geopolitical risk he's accustomed to as an insurer. Within days after the deal closed in July 2006, fighting broke out between Israel and the Shiite Hezbollah group that dominates southern Lebanon.
Wertheimer called Buffett to tell him that Katyusha rockets were slamming into the sun-baked hills around his plants and there was a chance his machinery would be damaged and that his employees would lose workdays.
20-Year Perspective
``I'm not interested in what happens next quarter,'' Wertheimer says Buffett told him. ``I'm interested in the next 20 years.'' Some of Wertheimer's staff did move south while the rockets were falling. Iscar didn't miss a shipment.
Wertheimer says that in the eight months and three face-to- face visits leading up to the Iscar deal, he and the Omaha investor had wide-ranging discussions about everything from philanthropy to ``how to look on life,'' in Wertheimer's words. At one point, Buffett sent him a biography of the Jewish-American educator Abraham Flexner, who helped found the Institute for Advanced Study in Princeton, New Jersey. Both Buffett and Wertheimer have a longstanding interest in education.
``I love talking to him,'' Wertheimer says. ``For me, he's a teacher.''
Wertheimer took over as CEO of Iscar in 1984, when his father, Stef, now 81, who founded the company after fleeing Nazi Germany, was injured in a car accident.
Jews, Arabs and Druse
He transformed it from a local exporter of metal-cutting tools into an international enterprise with 7,500 employees, plants from Barcelona to Bangkok and more than $1 billion in 2007 sales. In 1995, he turned over the CEO position to his colleague, Jacob Harpaz, 57.
``I was just getting in Jacob's way, so I fired myself,'' says Wertheimer, who remains chairman.
On a rainy day in March, Wertheimer leads a tour through some of the 20 buildings that comprise the company's hillside campus. The company's Israeli workers are a combination of Jews, Arabs and Druse, many of whom Wertheimer greets by name.
Iscar's tools are used by makers of cars, appliances and other durable goods to cut metal to exacting specifications. The inserts, as they're called, sell for anywhere from a few dollars to more than $100 each. Teams of Iscar designers are at work every day looking for ways to make them cut faster and more efficiently.
Sharper Tools
One customer is Bolton, Ontario-based Husky Injection Molding Systems Ltd. In April, manufacturing engineer Noel Pinto was looking for a way to improve the milling of the steel plates Husky makes at its Milton, Vermont plant. They are used in plastic bottle manufacturing, among other processes. Iscar's Thomas Raun devised a new tooling process, improving the speed of the operation by 40 percent.
``They find ways to implement new technology,'' says Pinto.
Wertheimer says he's very comfortable linking up with Buffett. ``Warren has a message to the world,'' he says. ``It's balance.'' He points with his index finger to his head, to his heart and finally to his wallet. ``And he does it in a fair, clean and nice way,'' he says.
One of the companies Buffett owns is expected to yield a new Berkshire top executive if the Omaha investor passes from the scene anytime soon. Buffett updates shareholders regularly on the subject of succession and did again at the annual meeting in May. Berkshire's board, he said, has identified three candidates with the qualifications to succeed him as CEO, and one has been selected.
`Nobody Replaces Warren'
Analysts, including Citigroup's Shanker, say based on their ages and accomplishments, the most likely candidates are NetJets' Santulli, 63; MidAmerican's Sokol, 51; Berkshire Re head Ajit Jain, 56; and Geico CEO Tony Nicely, 65.
Four money managers have also been selected as candidates to replace Buffett in his role as chief investor. The board and new CEO will decide which of those candidates he will work with.
These plans could change if Buffett remains in place for an extended period, and men like Santulli and Nicely are seen as too old to don his mantle. The new CEO could end up being the head of a Berkshire company that has yet to be acquired.
Sokol doesn't let the issue trouble him. ``There is more than adequate talent to keep the Berkshire Hathaway way of doing things going forward,'' he says. ``But nobody replaces Warren Buffett.''
Buffett treats the issue of his mortality with characteristic wisecracking humor. One Saturday morning several months ago, CTB's Mancinelli says he called Buffett, as he occasionally does. Buffett asked to call him back, saying he had an appointment with his barber.
``The way I figure it, I have just so many haircuts left in my life,'' Buffett said. ``I don't want to miss any of them.''
Richard Teitelbaum is a senior writer at Bloomberg News in New York. rteitelbaum1@bloomberg.net. With reporting by Josh Hamilton in New York.
The Warren Buffett You Don't Know
The Warren Buffett You Don't Know
Ace stockpicker, of course--and now, an empire-builder
Warren Buffett is returning to the U.S. from Europe in a private jet. As his plane nears its destination, the flight attendant gives out landing cards and a warning to all eight passengers aboard. ''The customs inspector here is utterly humorless,'' she says, ''so no wisecracks or he will tear the plane apart from fore to aft.'' Buffett, who quips as reflexively as he breathes, takes his card without comment.
In the terminal, a surly looking man with a crewcut and a pistol on his hip sits behind a small table. Buffett hands over his passport and landing card to the inspector, who does not seem to realize that the professorial-looking 68-year-old standing before him is America's second-richest man. Or perhaps he just gets a kick out of trying to take the high and mighty down a peg. ''You left some things blank,'' the inspector says peevishly. ''Do you have $10,000?''
The question could have launched a dozen snappy retorts, but Buffett restrains himself. ''I have what I left with,'' he says carefully. The inspector furrows his brow--was that some kind of joke?--but does not press the issue. He asks Buffett if he has any anything to declare. ''I was given two books,'' Buffett says. ''Well, you have to put it down, then,'' snaps the agent, who fills in the blank himself.
Buffett shows not a flicker of annoyance at being treated like a misbehaving child. He stands mute and impassive before the inspector, who, after a few more curt remarks, can think of nothing else to do but let ''the Oracle of Omaha'' be on his way.
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Has there ever been a less pompous billionaire than Warren Edward Buffett? Hollywood might cast him in the role of an amiable teacher at a Midwestern college or a sweet-tempered, wisecracking inventor who eventually wins a Nobel prize and gets the girl besides. To hear Buffett sing his beautifully artless rendition of Ain't She Sweet to his own ukulele accompaniment is to wonder not only how such a man came to measure his net worth in billions but also whether he might not be a time-traveler from a more innocent age.
If Buffett had a business card, it would identify him as chairman and chief executive of Berkshire Hathaway Inc. (BRK.A) But he is far better known--indeed, world-famous--as the greatest stock market investor of modern times. The figures, though often cited, still astound: Had you put $10,000 into Berkshire when Buffett bought control of it in 1965, you'd have $51 million now, vs. just $497,431 if the money were invested in the Standard & Poor's 500-stock index.
The numbers don't lie, but the story they tell is out of date. Buffett has not added a major position to Berkshire's bulging stock portfolio since amassing 4.3% of McDonald's Corp. (MCD) in 1995. In the meantime, he has transformed what long has been a sideline at Berkshire--the acquisition of entire companies--into the main event. Over the past three years, Berkshire has spent $27.3 billion to buy seven companies in industries as disparate as aviation, fast food, and home furnishings. The $22 billion purchase of reinsurer General Re Corp., which closed late last year, was Buffett's largest ever.
The effect has been dramatic: In short order, Berkshire has been transformed from a closed-end fund in corporate drag to a bona fide operating company. At the start of 1996, the company's famous stock portfolio accounted for fully 76% of Berkshire's $29.9 billion in assets. But by the end of 1999's first quarter, the figure had plummeted to 32% as assets quadrupled, to $124 billion. Today, Buffett's company employs 47,566 workers, double the number in 1995.
And he isn't done yet. ''I'd love to make a $10 billion to $15 billion acquisition, and we could go bigger than that if I really like the company,'' says Buffett, who holds $15 billion in cash and is sitting on top of an additional $30 billion in unrealized gains in Berkshire's stock portfolios.
It's all there in black and white in Berkshire Hathaway's famously literate annual reports, but somehow the company's transformation has gone not just unheralded but unnoticed. Berkshire is ''possibly the most talked about and the least understood company in the world,'' contends Alice Schroeder, a PaineWebber Inc. insurance analyst who in January published one of the few comprehensive studies of the company ever undertaken by a brokerage house.
MISUNDERSTOOD. The common view is that Berkshire shares fetch a premium because of Buffett's reputation as a latter-day Midas. The ''Buffett premium'' undoubtedly is real in the sense that if the man died today, the stock would plunge tomorrow. In Schroeder's view, though, Berkshire's stock is already trading at a sizable discount to its true value, which she estimates at $91,000 to $97,000 per A share. The A shares lately have been trading at about $70,000. The basic problem, Schroeder says, is that the world continues to misperceive Berkshire as little more than the sum of the stocks it holds in its $37 billion portfolio. In other words, the market tends to overreact to news about the seven stocks that form the core of Berkshire's holdings (table). Over the past 12 months, Berkshire has fallen by about 17%, from a high of $84,000 in June, 1998. In Schroeder's view, the main cause of this decline is the plunging value of Buffett's colossal stakes in Coca-Cola Co. (KO) and Gillette Co (G).
The radical recent shift in Berkshire's corporate profile does not reflect a radical change in Buffett's thinking. In most ways, he remains true to the conservative precepts of value investing. In essence, Buffett continues to prefer today's sure thing to the next big thing, no matter how spectacular its potential. Forget Internet stocks: Buffett still will not invest in even such well-seasoned high-tech companies as Microsoft Corp. (MSFT) or Hewlett-Packard Co. (HWP) because he doesn't believe that anyone can predict how much they will earn over the next decade or two. ''I can't do it myself,'' he says. ''And if I don't know, I don't invest.''
Even in his stock-picking heyday, Buffett preferred owning businesses to passive minority investment. Until recently, though, Berkshire's acquisitions have been few and far between because Buffett insisted on buying top-quality businesses at discount prices. What has changed is that he is now willing to pay a premium for one-of-a-kind businesses.
Why this is so is not completely clear. The Buffett psyche is notoriously labyrinthine. ''I could easily spend a lot of time trying to analyze Warren if I didn't consciously try not to,'' says Olza M. Nicely, CEO of auto insurer GEICO Corp., one of Berkshire's largest subsidiaries. ''There are certain mysteries you just have to accept.''
In Buffett's view, he is putting the finishing touches on his masterpiece. ''Berkshire is my painting, so it should look the way I want it to when it's done,'' he says.
In an era in which most CEOs at least mouth the platitudes of good corporate governance and shareholder rights, Buffett, in his good-natured way, is a throwback to a time when a mogul was a mogul and did as he damn well pleased. ''Berkshire is the company I wanted to create. It's not the company Alfred P. Sloan wanted to create. It fits me,'' he says. ''I run it with our investors and managers in mind, but it is designed to fit me.'' To be blunt, Buffett stands revealed as a driven, even monomaniacal corporate empire-builder.
For all his offhand charm, Buffett is pretty much all business all the time. Aside from an addiction to luxury air travel, he is a man of simple tastes and frugal habits. He neither spends his money nor gives much of it away. Philanthropy, the renascent vogue of America's superrich, interests him peripherally at most. Buffett intends to take his fortune to the grave--and to keep adding to it until the day he dies. ''The problem I've got with doing anything else except what I'm doing is that there is nothing remotely as fun as running Berkshire,'' he says. ''I'm selfish that way.''
So far, Berkshire's legendarily devoted shareholders would not have it any other way. In May, some 15,000 of them flocked to Omaha to sit at the feet of the master during Berkshire's three-day festival of an annual meeting, which Buffett calls ''Woodstock for Capitalists.'' Of course, Buffett and his wife, Susan T. Buffett, are the largest Berkshire shareholders by far: Their 38.4% stake is worth about $40 billion.
The highest circle of management power at Berkshire has always been tight, but it has shrunk in recent years--to Buffett alone. Charles T. Munger, Buffett's longtime vice-chairman and business alter ego, continues to enliven the annual meeting by playing the part of drolly laconic sidekick to Buffett's ebullient master of ceremonies. Behind the scenes, though, his influence has waned. ''Charlie and I don't talk a lot anymore,'' acknowledges Buffett, who says he did not even bother to consult his vice-chairman before making the epochal Gen Re acquisition.
By all accounts, including their own, Munger and Buffett have not fallen out. But while Buffett is wholly devoted to building Berkshire, Munger, 75, now spends his time chairing a not-for-profit hospital and serving as a trustee of a private high school. ''Charlie is broader in his interests than I am,'' Buffett says. ''He doesn't have the same intensity for Berkshire that I have. It's not his baby.'' Munger concurs: ''Warren's whole ego is poured into Berkshire.''
***************
In mid-April, Buffett led a small entourage on a whirlwind European tour to promote one of Berkshire's latest acquisitions, Executive Jet Aviation. I went along for the ride (on one of EJA's Gulfstream IV-SP jets) and got an unusual chance to observe the notoriously press-shy Buffett at close range against a kaleidoscopic backdrop of private airports, luxury hotels, and banquet halls stretching from London to Frankfurt to Paris.
Buffett survived a demanding regimen of midmorning coffees, two-hour luncheons, 90-minute press conferences, and four-course banquets. ''I never get tired,'' he told reporters in London, ''except for my voice.'' Actually, Buffett was ashen with fatigue midway through the third day but soldiered gamely on, answering even the lamest questions with the same expansiveness and wit the fifth time he heard them as he did the first.
Only once did Buffett show annoyance. During a press conference at the Frankfurt airport, Richard Santulli, EJA's normally understated chief executive, let his admiration of Buffett overflow. ''People say that he's the most astute investor of the 20th century,'' he said. ''I say ever.''
Buffett, who was sitting at Santulli's side, gave a little snort. ''Why not?'' he said sourly. ''I'm sitting right here.''
Like any mogul, Buffett has his special needs. On this trip, he indulged two of them, listed here in reverse order of importance: red meat (at lunch and dinner) and Coca-Cola (all the time).
Whenever I lost track of Buffett, Coke often appeared to guide me--a carbonated version of the proverbial trail of crumbs. In London, our party went from airport to hotel in separate cars. When I arrived at the Berkeley Hotel, I did not have to wonder for long whether Buffett had preceded me. A bellhop approached with a shopping bag. ''Is this yours?'' he asked. Inside were two six-packs of Cherry Coke. Two days later, I was in the crowded lobby of the Schlosshotel Kronberg near Frankfurt, following a white-gloved waiter bearing aloft a single bottle of Coca-Cola on a silver tray.
Buffett bought Executive Jet in mid-1998 for $725 million. Although this is a pittance compared with what Berkshire paid for General Re, the EJA deal was no less a milestone in its way. EJA, which pioneered the fractional ownership of business jets, is the first true emerging-growth company that Buffett has ever owned. What's more, the very idea of investing in business aviation would have been considered downright sacrilegious throughout most of Berkshire's history.
For years, Buffett mocked corporate ownership of jets as a wasteful executive perk. But in 1986, he bought a small used plane for Berkshire, then traded up to a more expensive model a few years later. He named the jet ''The Indefensible'' and made sport of its purchase in his 1989 report to shareholders: ''Whether Berkshire will get its money's worth from the plane is an open question, but I will work at achieving some business triumph that I can (no matter how dubiously) attribute to it.''
The truth is, Buffett had fallen in love with his plane but could not yet admit it. In 1995, he was introduced to Santulli by the head of one of Berkshire's operating companies and bought a one-quarter share of a Hawker for personal use. His wife, who has become a frequent flier, called the new plane ''The Richly Deserved.'' (Not to be outdone, Buffett renamed Berkshire's jet ''The Indispensable.'') Santulli offered to sell his company to Buffett when Goldman, Sachs & Co. (GS), a founding minority investor, began pressuring him to float a public stock offering.
Executive Jet in no way resembles the sort of business on which Buffett cut his teeth as an apprentice to the late Benjamin Graham, co-author of the value-investing bible, The Intelligent Investor. Graham's method emphasized creating a ''margin of safety'' by investing only in stocks trading at two-thirds of net working capital. He called them ''cigar butts''--companies the stock market had discarded but that still held a puff or two of value to extract.
Buffett was Graham's most accomplished disciple. But as the pupil established himself, he began to feel constrained by the mentor's method. For Graham, a business was an abstraction wholly defined by a set of numbers on a page; he had no interest in its products, its management, its personality. But Buffett's boundless curiosity and enthusiasm were not satisfied by the ghoulish exercise of profiting from the last dying gasps of derelict companies. Buffett's yearnings and dissatisfactions did not begin to coalesce into an investment philosophy of his own until he met the blunt-spoken Munger in 1959. The two, closely matched in intellect and outlook, quickly became the closest of partners. Munger urged his friend to leave the cigar butts in the gutter and think of value in more expansive terms. Says Buffett: ''Charlie kept pushing me back to the idea that what we really needed to own was the wonderful business.''
Even so, it took Buffett a long time to tailor Graham's straitjacket conservatism to the more generous dimensions of his own personality. His $11 million purchase of Berkshire Hathaway in 1965 was a costly case in point. Initially, Buffett saw the floundering old-line company as a classic Graham play. But then the textile manufacturer rallied unexpectedly, and Buffett sank more money into it on the belief that this cigar butt had a future after all. It did indeed, but not in textiles.
Buffett did not come fully into his own until he and Munger collaborated on the $25 million acquisition of See's Candies in 1972. The San Francisco maker of boxed chocolates was the first business of any sort for which Buffett paid more than book value--three times book, in fact.
What, in Buffett's view, makes a business wonderful? It starts with ''a sustainable competitive advantage.'' Underline sustainable. Buffett will not invest in a business unless he feels reasonably certain how much it will earn over the next 20 to 25 years. But for all of Buffett's cerebration, he does not feel truly comfortable unless a business ties into his own everyday experience. His favorite companies tend to traffic in elementally appealing brand-name products that Buffett not only uses himself but also invests with almost totemic meaning: a bottle of Coca-Cola, a Gillette razor blade, a box of See's candy, and, yes, even a Gulfstream jet.
Buffett has always been especially partial to companies that can sustain a competitive edge without tying up much capital. Consider Scott Fetzer, which makes a variety of industrial and consumer products, including Kirby vacuum cleaners and Quikut knives. Since 1986, when Berkshire paid $315 million for Scott Fetzer, its earnings have risen by only 5.5% a year on average. Yet Buffett repeatedly has praised it as a model of capital efficiency. In 1998, Scott Fetzer netted $96.5 million after taxes on its $112 million in equity, a return on equity of 86%. This is all the more breathtaking considering that Buffett has been milking it for 13 years, extracting more than $1 billion all told.
Ever since Berkshire's 1967 acquisition of National Indemnity Co., insurance has held double appeal for Buffett. Not only does he like the economics of the business--or parts of it, anyway--but a well-run underwriter also generates a steady flow of low-cost investment dollars, or ''float,'' as a matter of course. The 1996 acquisition of GEICO, now the sixth-largest U.S. auto insurer, doubled Berkshire's float at one stroke, and the Gen Re buy nearly tripled it, to $21 billion.
In Buffett's view, the quality of a company's management is integral to its value as a business. And when acquiring companies, Buffett is as concerned with the motives of the selling CEOs as he is with their abilities. ''What I must understand is why someone will continue to get out of bed in the morning once they have all the money they could want,'' Buffett says. ''Do they love the business, or do they love the money?''
No less an authority than John F. Welch, CEO of General Electric Co., considers Buffett a superb judge of managerial talent. Buffett and Welch have gotten to know each other over the years as golf partners and as rivals in auto insurance and other businesses. ''Take 20 people you know quite well but Warren has just met casually,'' Welch says. ''If you ask Warren his opinion about them, he'll have each one nailed. He's a masterful evaluator of people, and that's the biggest job there is in running a company.''
In 34 years, Berkshire has never lost an operating chief except to death. In fact, the great majority of its subsidiaries are still run by the same executive who brought them to Berkshire in the first place. The operating head of longest tenure is Charles N. Huggins, who has been president of See's Candies since Buffett acquired it. Huggins is 74 years old now, but he's not Berkshire's oldest manager. That would be 85-year-old Harold Alfond, who founded Dexter Shoe Co. in 1956 and sold to Buffett in 1993 for Berkshire shares now worth $1.5 billion.
Berkshire's operating ranks contain a second octogenarian billionaire: 82-year-old Albert L. Ueltschi, chairman and CEO of FlightSafety International Inc., a pilot-training concern Berkshire bought for $1.5 billion in 1996. An ex-pilot, Ueltschi founded the company in a LaGuardia Airport hangar in 1951. ''I'm like Warren,'' says Ueltschi, who has no plans to retire. ''I like what I do so much that I don't consider it work.''
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Somewhere between Frankfurt and Paris, Buffett gets up and walks back to the airplane's pantry to fetch a box of Swiss Sprungli chocolates an admirer had given him in Germany. Buffett makes his way slowly up the aisle of the plane in his shirtsleeves, offering the candy to each passenger aboard.
A half-empty box of See's chocolates rests on the table where I'm sitting. Buffett pops a piece in his mouth. I ask him whether he thinks he could identify See's in a blind taste test against other brands. ''Of course,'' he says. ''I can also tell Coke from Pepsi. The thing is, most Americans prefer Pepsi to Coke because it is 4% sweeter, but Coke still outsells Pepsi by a huge margin.''
As Buffett continues in this vein, he starts staring at the box of Sprungli he carries. He shifts it to one hand as if he were about to choose a piece, then seems to change his mind. ''It's a showy sort of candy, isn't it?'' he says and then falls silent. He gazes raptly at the Sprungli for a full 45 seconds as the conversation continues around him. Then he abruptly sets the box down and returns to his seat without a word.
Later, I recount this to Chuck Huggins, See's president, who chuckles knowingly. ''Yeah, that's Warren. Brand-loyal.''
The office next to Buffett's is occupied by Michael Goldberg. A former McKinsey & Co. consultant, Goldberg was hired in 1981 to bring order to Berkshire's far-flung insurance interests and essentially functioned as chief operating officer for the next 11 years. The single-minded intensity Goldberg brought to the job created friction in the ranks--and gave him a bad case of burnout. In 1993, Buffett reassigned Goldberg to ''special projects'' and eliminated his old position.
The line managers who once reported to Goldberg, now 53, have reported directly to Buffett ever since--as do the chiefs of all 22 of Berkshire's operating companies. Buffett essentially lets the chiefs of the companies that Berkshire acquires run their businesses as before, except that he requires them to transfer their excess cash to Omaha and clear capital-spending plans with him. Buffett, who thinks of his role as Berkshire's ''capital allocator,'' collects the enormous cash flow that the subs produce--$13.4 billion last year--and uses the money to buy more businesses, either in whole or in part, through the stock market.
Buffett tends not to initiate contact with his operating executives: He waits for the phone to ring. ''Let me know about any bad news as soon as possible,'' he tells his subordinates, ''but otherwise, you are free to call me as often or as seldom as you like.'' Buffett's managerial passivity should not be mistaken for indifference. Some operating chiefs say he nearly memorizes the monthly reports they send to Omaha.
During holiday seasons, Buffett requests daily sales reports from See's and Borsheim's, Berkshire's huge upscale jeweler in Omaha, because the ebb and flow of retailing hold an enduring fascination for him. Year-round, he speaks to two execs almost every day: Richard Santulli and Ajit Jain, who runs Berkshire's reinsurance business in Stamford, Conn.
Berkshire's homegrown insurance group offers a variety of property-and-casualty coverage in certain U.S. markets. But its chief business is a high-risk, high-reward specialty that Jain developed over the past decade in reinsuring ''super-catastrophes''--earthquakes, hurricanes, floods, and such. Buffett found the economics of ''super-cat'' seductive: Berkshire has made at least $865 million pretax in underwriting profits since 1991. But it was the complexities of analyzing super-cat risk that hooked him. Says Jain, 47: ''Warren and I might have had a 30-second conversation or a 30-minute one, but he has been involved in every piece of business I have done.''
As for Santulli's business, Buffett is intrigued not just by the novel challenges posed by EJA's rapid growth but also the logistical complexities of the fractional-shares business. ''He likes the mental challenge of it,'' says Santulli, a former mathematics professor. ''He calls it 3-D chess.'' Even so, Buffett is careful not to impinge on Santulli's operating authority. EJA's chief once asked Buffett for advice in making a decision and was rebuffed. ''Don't bother with that,'' Buffett told him. ''Just decide.''
Buffett's laissez-faire management style has been tested most severely in recent years by Berkshire's misadventures in shoes. From 1991 to 1993, Buffett laid out $650 million to buy three old-line makers of midprice shoes: H.H. Brown, Lowell, and Dexter. In essence, he was betting that his companies would benefit as the appeal of imports waned and U.S. consumers returned to home brands. Buffett hasn't made many fundamental strategic errors, but this was a doozy: Imports now account for 95% of domestic shoe purchases, vs. 70% in the early 1990s. Since 1994, operating profits of Berkshire's shoe group have plummeted 57% on an 18% decline in revenues.
Dexter has fared much worse than Brown, which absorbed Lowell and has buoyed itself by shifting much of its production offshore. Although Dexter now does some manufacturing in Puerto Rico, it has placed overriding emphasis on maintaining full employment at its four factories in its home state of Maine. By all accounts, Buffett has played no part in this divergence in basic strategy--and performance--between H.H. Brown and Dexter except to countenance it by his silence. ''It's amazing how little he bothers you,'' says Francis Rooney, chairman and CEO of H.H. Brown. ''He never even comments.''
The deference Buffett shows Berkshire's subsidiaries is all the more remarkable because it does not come naturally to him. ''With almost every one of the companies Berkshire owns, I think I would do something different if I was running them--in some cases, substantially different,'' Buffett says. The reason he doesn't impose his views, he adds, ''is simply that I am not inclined to make myself unhappy. I sort of accept things as they come.''
It's not that simple. Buffett knows the sort of self-motivated, hands-on exec he covets wouldn't tolerate being pushed around by Omaha. And Buffett's respectful treatment of his managers has instilled in them an ambition to ''make Warren proud,'' as one puts it. ''Somehow, Warren has been able to keep a diverse cast of characters working harder for him than they did for themselves,'' Goldberg says. ''I see it every day--and I still don't know how he does it. But I do know that all of us feel this incredible responsibility to him.''
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We arrive late to Paris, touching down in a freakish, near-gale-force windstorm that both thrills and alarms our pilot. In four cars, we race as fast as rush-hour Paris traffic allows from Le Bourget to Dassault Aviation Group's magnificent 19th century chateau--familiarly known as Le Rond Point--on the Champs Elysees. EJA is the largest commercial customer of Dassault Aviation, Europe's leading manufacturer of business jets. Serge Dassault, the company's chairman, is hosting tonight's gala reception and dinner in Buffett's honor. By the time we arrive, the reception is in full swing. But Buffett takes a few steps into the foyer and hustles up a flight of stairs. It will be a good 35 minutes until he descends and joins the party.
Downstairs, the guest of honor's whereabouts is Topic A among Dassault's distinguished guests. It might puzzle them to learn that Buffett is on a transatlantic call to one of his employees. The matter he is discussing with Ajit Jain this evening is not urgent. But it is Buffett's custom to speak with Jain every evening. If that means keeping 200 of France's richest people waiting, then c'est la vie.
In mid-May, Buffett moderated a panel on Internet commerce at Microsoft's annual CEO summit in Seattle. As Buffett tells it, the assignment reflected William H. Gates III's sense of humor. But the Microsoft chairman and CEO, a friend of Buffett's since 1991, says it was no joke: ''Every principle that Warren holds about business and business value will still apply in this new world we're going into.'' Gates, who owns Berkshire stock in his personal account, adds that he has learned more about business from Buffett than from anyone else. ''People really underestimate what he has created in Berkshire,'' he says.
Unlike most megacorporations, Berkshire was not erected on the foundation of a single great business. Buffett began with a dying textile maker and parlayed its dwindling cash flow into ownership of a massive portfolio of enduringly profitable operating businesses. By the end of 1998, Berkshire had amassed shareholder equity worth $57 billion. This is a staggering sum, putting Berkshire well ahead of General Electric, Microsoft, and every other U.S. corporation and ranking it second in the world to Royal Dutch/Shell Group. Buffett could retire tomorrow and be confident of his place in business history not only as stock investor extraordinaire but as a corporate builder of the first rank.
LIMITS OF SCALE. Instead, of course, he is still in there pitching, to borrow one of the baseball metaphors that so delight him. From 1965 through 1998, Berkshire's book value per share rose 24.7% a year on average--trouncing the 12.9% average annual gain in the S&P 500. For some time now, Buffett has warned that the company's sheer bulk will prevent it from matching its breathtaking historical average in the future. His avowed goal is to increase its worth at an average of 15% a year. It's a modest aspiration only by comparison, for it implies adding $58 billion of shareholder equity over the next five years.
Except for the shoe group, Berkshire appears to be in fine fettle. Executive Jet is by no means its only hope for growth. GEICO, Berkshire's largest subsidiary in terms of revenue, has been wresting market share from rivals at an impressive rate and yet still has only 3.5% of the vast U.S. auto-insurance market. Like EJA, Gen Re is planning to expand in Europe and around the world. At the same time, Borsheim's, Scott Fetzer, See's Candies, and other Berkshire companies are experimenting with E-commerce. ''The No. 1 topic Warren and I talk about now is whether retail selling is going to move over to the Internet,'' says Ralph E. Schey, Scott Fetzer's chairman and chief executive.
The pursuit of accelerated growth carries added risk. In 1998, Berkshire had a banner year, posting a 48% increase in net earnings, to $2.8 billion, on revenues of $13.8 billion. But net income dropped 25%, to $541 million in the first quarter, largely because of earnings declines at GEICO and Gen Re. While both insurers were hurt by intensifying price competition, a German subsidiary of Gen Re's also took an embarrassing $275 million pretax loss on a workers' compensation pool. The down quarter did not seem to faze Buffett, who is famous for taking the long view.
If Berkshire were in fact a painting, it would look like a Jackson Pollock: an idiosyncratic product of inspired improvisation. In building his company virtually from scratch over the past quarter-century, Buffett conjured no overarching strategic vision, followed no master plan other than to buy good businesses at the right price. Even when he erred--a rare occurrence--he enfolded his purchases in an embrace intended to be permanent. ''We buy everything, even a stock, with the idea that we will hold it forever,'' he says.
It is hugely important to Buffett that his corporate handiwork outlast him. In fact, it is his hope that Berkshire--his masterpiece in progress--survive him in exactly the form it exists upon his death, like a painting framed and hung on a museum wall. But might there not come a time when his successor might be smart to sell some of Berkshire's weaker units? ''I don't think so,'' Buffett says. ''I hope whoever follows me would behave pretty much as I would if I were to live forever. I feel I owe it. I owe it to the people who sold me their businesses. They didn't have to sell to me. If I die tonight, I want them to get what they were expecting.''
MYSTERY HEIRS. Buffett says he already has picked a successor--two of them, actually: one to manage the stock portfolio, the other to oversee the operating companies. Their identities have not been disclosed to shareholders or, for that matter, to the heirs apparent themselves, because Buffett reserves the right to change his mind. He says he might eventually settle on a single successor.
Munger, who has most of his own billion-dollar net worth in Berkshire stock, professes optimism about the company's post-Buffett prospects. ''The corporate culture of Berkshire is more durable than that of the average corporation. That will go on,'' Munger says. ''The one place a death will hurt us is we're not likely to get as good an allocator of capital as Warren in the next CEO, whoever that is. But it will still be one hell of a business.''
In a company as decentralized as Berkshire Hathaway, the operating businesses need not suffer an immediate loss of momentum from Buffett's passing. On the other hand, it is not clear that a holding company with a grand total of 12 employees can be said to have a corporate culture. Without question, Berkshire's operating chiefs are united in their admiration of Buffett and his principles. But most of them barely know one another, and none is remotely Buffett's equal in terms of breadth of knowledge or personal authority. With its challengingly eccentric mix of businesses and its loose, informal structure, Berkshire Hathaway fits Buffett to a T but might well prove unwieldy for lesser mortals--especially ones constrained by loyalty to Buffett's preservationist credo.
The outlook for Buffett's personal fortune is no less problematic. His wife is his sole heir, but she is 67 years old and might not outlive him. The Buffetts have three children--Susan, 46; Howard, 44; and Peter, 41. Howard and Susan are directors of Berkshire, but none of the Buffett progeny is involved in the management of the company.
FAMILY PLAN. Buffett has said that it is his wish that 99% of the money he has made eventually go to the Buffett Foundation, to be distributed to worthy causes under the direction of Allen Greenberg, 42, the ex-husband of his daughter Susan A. Buffett. Greenberg works out of a one-person office in the same building that houses Berkshire. The foundation was set up in the mid-1960s but operates with a scanty endowment. Currently, it disburses $11 million to $12 million a year, with the bulk of the funds going to groups that provide family-planning services, including abortions. When the foundation comes into its full endowment, it is likely to rank as the world's largest philanthropy.
Buffett is often criticized--privately, to be sure--as a tightwad. But he insists that he is holding tight to his Berkshire stock not out of greed but out of a desire to ensure that control of the company passes to his heirs. ''I think I could control it with as little as 1% of the stock,'' Buffett says. ''With 35%, my wife could carry on, but not with 1%. I'd view it as a tragedy if someone whose achievement was issuing the most junk bonds or having the silliest stock price took over the company and all that we've built evaporated.''
It would indeed be a tragedy in the classical sense if the specialness of Buffett's great gifts contains the seeds of his empire's eventual undoing. For just as no one other than Buffett could have created Berkshire Hathaway, it may well come to pass that no one other than Buffett can make it work.
BY ANTHONY BIANCO
To read a letter to the editor about this story, click here.
Ace stockpicker, of course--and now, an empire-builder
Warren Buffett is returning to the U.S. from Europe in a private jet. As his plane nears its destination, the flight attendant gives out landing cards and a warning to all eight passengers aboard. ''The customs inspector here is utterly humorless,'' she says, ''so no wisecracks or he will tear the plane apart from fore to aft.'' Buffett, who quips as reflexively as he breathes, takes his card without comment.
In the terminal, a surly looking man with a crewcut and a pistol on his hip sits behind a small table. Buffett hands over his passport and landing card to the inspector, who does not seem to realize that the professorial-looking 68-year-old standing before him is America's second-richest man. Or perhaps he just gets a kick out of trying to take the high and mighty down a peg. ''You left some things blank,'' the inspector says peevishly. ''Do you have $10,000?''
The question could have launched a dozen snappy retorts, but Buffett restrains himself. ''I have what I left with,'' he says carefully. The inspector furrows his brow--was that some kind of joke?--but does not press the issue. He asks Buffett if he has any anything to declare. ''I was given two books,'' Buffett says. ''Well, you have to put it down, then,'' snaps the agent, who fills in the blank himself.
Buffett shows not a flicker of annoyance at being treated like a misbehaving child. He stands mute and impassive before the inspector, who, after a few more curt remarks, can think of nothing else to do but let ''the Oracle of Omaha'' be on his way.
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Has there ever been a less pompous billionaire than Warren Edward Buffett? Hollywood might cast him in the role of an amiable teacher at a Midwestern college or a sweet-tempered, wisecracking inventor who eventually wins a Nobel prize and gets the girl besides. To hear Buffett sing his beautifully artless rendition of Ain't She Sweet to his own ukulele accompaniment is to wonder not only how such a man came to measure his net worth in billions but also whether he might not be a time-traveler from a more innocent age.
If Buffett had a business card, it would identify him as chairman and chief executive of Berkshire Hathaway Inc. (BRK.A) But he is far better known--indeed, world-famous--as the greatest stock market investor of modern times. The figures, though often cited, still astound: Had you put $10,000 into Berkshire when Buffett bought control of it in 1965, you'd have $51 million now, vs. just $497,431 if the money were invested in the Standard & Poor's 500-stock index.
The numbers don't lie, but the story they tell is out of date. Buffett has not added a major position to Berkshire's bulging stock portfolio since amassing 4.3% of McDonald's Corp. (MCD) in 1995. In the meantime, he has transformed what long has been a sideline at Berkshire--the acquisition of entire companies--into the main event. Over the past three years, Berkshire has spent $27.3 billion to buy seven companies in industries as disparate as aviation, fast food, and home furnishings. The $22 billion purchase of reinsurer General Re Corp., which closed late last year, was Buffett's largest ever.
The effect has been dramatic: In short order, Berkshire has been transformed from a closed-end fund in corporate drag to a bona fide operating company. At the start of 1996, the company's famous stock portfolio accounted for fully 76% of Berkshire's $29.9 billion in assets. But by the end of 1999's first quarter, the figure had plummeted to 32% as assets quadrupled, to $124 billion. Today, Buffett's company employs 47,566 workers, double the number in 1995.
And he isn't done yet. ''I'd love to make a $10 billion to $15 billion acquisition, and we could go bigger than that if I really like the company,'' says Buffett, who holds $15 billion in cash and is sitting on top of an additional $30 billion in unrealized gains in Berkshire's stock portfolios.
It's all there in black and white in Berkshire Hathaway's famously literate annual reports, but somehow the company's transformation has gone not just unheralded but unnoticed. Berkshire is ''possibly the most talked about and the least understood company in the world,'' contends Alice Schroeder, a PaineWebber Inc. insurance analyst who in January published one of the few comprehensive studies of the company ever undertaken by a brokerage house.
MISUNDERSTOOD. The common view is that Berkshire shares fetch a premium because of Buffett's reputation as a latter-day Midas. The ''Buffett premium'' undoubtedly is real in the sense that if the man died today, the stock would plunge tomorrow. In Schroeder's view, though, Berkshire's stock is already trading at a sizable discount to its true value, which she estimates at $91,000 to $97,000 per A share. The A shares lately have been trading at about $70,000. The basic problem, Schroeder says, is that the world continues to misperceive Berkshire as little more than the sum of the stocks it holds in its $37 billion portfolio. In other words, the market tends to overreact to news about the seven stocks that form the core of Berkshire's holdings (table). Over the past 12 months, Berkshire has fallen by about 17%, from a high of $84,000 in June, 1998. In Schroeder's view, the main cause of this decline is the plunging value of Buffett's colossal stakes in Coca-Cola Co. (KO) and Gillette Co (G).
The radical recent shift in Berkshire's corporate profile does not reflect a radical change in Buffett's thinking. In most ways, he remains true to the conservative precepts of value investing. In essence, Buffett continues to prefer today's sure thing to the next big thing, no matter how spectacular its potential. Forget Internet stocks: Buffett still will not invest in even such well-seasoned high-tech companies as Microsoft Corp. (MSFT) or Hewlett-Packard Co. (HWP) because he doesn't believe that anyone can predict how much they will earn over the next decade or two. ''I can't do it myself,'' he says. ''And if I don't know, I don't invest.''
Even in his stock-picking heyday, Buffett preferred owning businesses to passive minority investment. Until recently, though, Berkshire's acquisitions have been few and far between because Buffett insisted on buying top-quality businesses at discount prices. What has changed is that he is now willing to pay a premium for one-of-a-kind businesses.
Why this is so is not completely clear. The Buffett psyche is notoriously labyrinthine. ''I could easily spend a lot of time trying to analyze Warren if I didn't consciously try not to,'' says Olza M. Nicely, CEO of auto insurer GEICO Corp., one of Berkshire's largest subsidiaries. ''There are certain mysteries you just have to accept.''
In Buffett's view, he is putting the finishing touches on his masterpiece. ''Berkshire is my painting, so it should look the way I want it to when it's done,'' he says.
In an era in which most CEOs at least mouth the platitudes of good corporate governance and shareholder rights, Buffett, in his good-natured way, is a throwback to a time when a mogul was a mogul and did as he damn well pleased. ''Berkshire is the company I wanted to create. It's not the company Alfred P. Sloan wanted to create. It fits me,'' he says. ''I run it with our investors and managers in mind, but it is designed to fit me.'' To be blunt, Buffett stands revealed as a driven, even monomaniacal corporate empire-builder.
For all his offhand charm, Buffett is pretty much all business all the time. Aside from an addiction to luxury air travel, he is a man of simple tastes and frugal habits. He neither spends his money nor gives much of it away. Philanthropy, the renascent vogue of America's superrich, interests him peripherally at most. Buffett intends to take his fortune to the grave--and to keep adding to it until the day he dies. ''The problem I've got with doing anything else except what I'm doing is that there is nothing remotely as fun as running Berkshire,'' he says. ''I'm selfish that way.''
So far, Berkshire's legendarily devoted shareholders would not have it any other way. In May, some 15,000 of them flocked to Omaha to sit at the feet of the master during Berkshire's three-day festival of an annual meeting, which Buffett calls ''Woodstock for Capitalists.'' Of course, Buffett and his wife, Susan T. Buffett, are the largest Berkshire shareholders by far: Their 38.4% stake is worth about $40 billion.
The highest circle of management power at Berkshire has always been tight, but it has shrunk in recent years--to Buffett alone. Charles T. Munger, Buffett's longtime vice-chairman and business alter ego, continues to enliven the annual meeting by playing the part of drolly laconic sidekick to Buffett's ebullient master of ceremonies. Behind the scenes, though, his influence has waned. ''Charlie and I don't talk a lot anymore,'' acknowledges Buffett, who says he did not even bother to consult his vice-chairman before making the epochal Gen Re acquisition.
By all accounts, including their own, Munger and Buffett have not fallen out. But while Buffett is wholly devoted to building Berkshire, Munger, 75, now spends his time chairing a not-for-profit hospital and serving as a trustee of a private high school. ''Charlie is broader in his interests than I am,'' Buffett says. ''He doesn't have the same intensity for Berkshire that I have. It's not his baby.'' Munger concurs: ''Warren's whole ego is poured into Berkshire.''
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In mid-April, Buffett led a small entourage on a whirlwind European tour to promote one of Berkshire's latest acquisitions, Executive Jet Aviation. I went along for the ride (on one of EJA's Gulfstream IV-SP jets) and got an unusual chance to observe the notoriously press-shy Buffett at close range against a kaleidoscopic backdrop of private airports, luxury hotels, and banquet halls stretching from London to Frankfurt to Paris.
Buffett survived a demanding regimen of midmorning coffees, two-hour luncheons, 90-minute press conferences, and four-course banquets. ''I never get tired,'' he told reporters in London, ''except for my voice.'' Actually, Buffett was ashen with fatigue midway through the third day but soldiered gamely on, answering even the lamest questions with the same expansiveness and wit the fifth time he heard them as he did the first.
Only once did Buffett show annoyance. During a press conference at the Frankfurt airport, Richard Santulli, EJA's normally understated chief executive, let his admiration of Buffett overflow. ''People say that he's the most astute investor of the 20th century,'' he said. ''I say ever.''
Buffett, who was sitting at Santulli's side, gave a little snort. ''Why not?'' he said sourly. ''I'm sitting right here.''
Like any mogul, Buffett has his special needs. On this trip, he indulged two of them, listed here in reverse order of importance: red meat (at lunch and dinner) and Coca-Cola (all the time).
Whenever I lost track of Buffett, Coke often appeared to guide me--a carbonated version of the proverbial trail of crumbs. In London, our party went from airport to hotel in separate cars. When I arrived at the Berkeley Hotel, I did not have to wonder for long whether Buffett had preceded me. A bellhop approached with a shopping bag. ''Is this yours?'' he asked. Inside were two six-packs of Cherry Coke. Two days later, I was in the crowded lobby of the Schlosshotel Kronberg near Frankfurt, following a white-gloved waiter bearing aloft a single bottle of Coca-Cola on a silver tray.
Buffett bought Executive Jet in mid-1998 for $725 million. Although this is a pittance compared with what Berkshire paid for General Re, the EJA deal was no less a milestone in its way. EJA, which pioneered the fractional ownership of business jets, is the first true emerging-growth company that Buffett has ever owned. What's more, the very idea of investing in business aviation would have been considered downright sacrilegious throughout most of Berkshire's history.
For years, Buffett mocked corporate ownership of jets as a wasteful executive perk. But in 1986, he bought a small used plane for Berkshire, then traded up to a more expensive model a few years later. He named the jet ''The Indefensible'' and made sport of its purchase in his 1989 report to shareholders: ''Whether Berkshire will get its money's worth from the plane is an open question, but I will work at achieving some business triumph that I can (no matter how dubiously) attribute to it.''
The truth is, Buffett had fallen in love with his plane but could not yet admit it. In 1995, he was introduced to Santulli by the head of one of Berkshire's operating companies and bought a one-quarter share of a Hawker for personal use. His wife, who has become a frequent flier, called the new plane ''The Richly Deserved.'' (Not to be outdone, Buffett renamed Berkshire's jet ''The Indispensable.'') Santulli offered to sell his company to Buffett when Goldman, Sachs & Co. (GS), a founding minority investor, began pressuring him to float a public stock offering.
Executive Jet in no way resembles the sort of business on which Buffett cut his teeth as an apprentice to the late Benjamin Graham, co-author of the value-investing bible, The Intelligent Investor. Graham's method emphasized creating a ''margin of safety'' by investing only in stocks trading at two-thirds of net working capital. He called them ''cigar butts''--companies the stock market had discarded but that still held a puff or two of value to extract.
Buffett was Graham's most accomplished disciple. But as the pupil established himself, he began to feel constrained by the mentor's method. For Graham, a business was an abstraction wholly defined by a set of numbers on a page; he had no interest in its products, its management, its personality. But Buffett's boundless curiosity and enthusiasm were not satisfied by the ghoulish exercise of profiting from the last dying gasps of derelict companies. Buffett's yearnings and dissatisfactions did not begin to coalesce into an investment philosophy of his own until he met the blunt-spoken Munger in 1959. The two, closely matched in intellect and outlook, quickly became the closest of partners. Munger urged his friend to leave the cigar butts in the gutter and think of value in more expansive terms. Says Buffett: ''Charlie kept pushing me back to the idea that what we really needed to own was the wonderful business.''
Even so, it took Buffett a long time to tailor Graham's straitjacket conservatism to the more generous dimensions of his own personality. His $11 million purchase of Berkshire Hathaway in 1965 was a costly case in point. Initially, Buffett saw the floundering old-line company as a classic Graham play. But then the textile manufacturer rallied unexpectedly, and Buffett sank more money into it on the belief that this cigar butt had a future after all. It did indeed, but not in textiles.
Buffett did not come fully into his own until he and Munger collaborated on the $25 million acquisition of See's Candies in 1972. The San Francisco maker of boxed chocolates was the first business of any sort for which Buffett paid more than book value--three times book, in fact.
What, in Buffett's view, makes a business wonderful? It starts with ''a sustainable competitive advantage.'' Underline sustainable. Buffett will not invest in a business unless he feels reasonably certain how much it will earn over the next 20 to 25 years. But for all of Buffett's cerebration, he does not feel truly comfortable unless a business ties into his own everyday experience. His favorite companies tend to traffic in elementally appealing brand-name products that Buffett not only uses himself but also invests with almost totemic meaning: a bottle of Coca-Cola, a Gillette razor blade, a box of See's candy, and, yes, even a Gulfstream jet.
Buffett has always been especially partial to companies that can sustain a competitive edge without tying up much capital. Consider Scott Fetzer, which makes a variety of industrial and consumer products, including Kirby vacuum cleaners and Quikut knives. Since 1986, when Berkshire paid $315 million for Scott Fetzer, its earnings have risen by only 5.5% a year on average. Yet Buffett repeatedly has praised it as a model of capital efficiency. In 1998, Scott Fetzer netted $96.5 million after taxes on its $112 million in equity, a return on equity of 86%. This is all the more breathtaking considering that Buffett has been milking it for 13 years, extracting more than $1 billion all told.
Ever since Berkshire's 1967 acquisition of National Indemnity Co., insurance has held double appeal for Buffett. Not only does he like the economics of the business--or parts of it, anyway--but a well-run underwriter also generates a steady flow of low-cost investment dollars, or ''float,'' as a matter of course. The 1996 acquisition of GEICO, now the sixth-largest U.S. auto insurer, doubled Berkshire's float at one stroke, and the Gen Re buy nearly tripled it, to $21 billion.
In Buffett's view, the quality of a company's management is integral to its value as a business. And when acquiring companies, Buffett is as concerned with the motives of the selling CEOs as he is with their abilities. ''What I must understand is why someone will continue to get out of bed in the morning once they have all the money they could want,'' Buffett says. ''Do they love the business, or do they love the money?''
No less an authority than John F. Welch, CEO of General Electric Co., considers Buffett a superb judge of managerial talent. Buffett and Welch have gotten to know each other over the years as golf partners and as rivals in auto insurance and other businesses. ''Take 20 people you know quite well but Warren has just met casually,'' Welch says. ''If you ask Warren his opinion about them, he'll have each one nailed. He's a masterful evaluator of people, and that's the biggest job there is in running a company.''
In 34 years, Berkshire has never lost an operating chief except to death. In fact, the great majority of its subsidiaries are still run by the same executive who brought them to Berkshire in the first place. The operating head of longest tenure is Charles N. Huggins, who has been president of See's Candies since Buffett acquired it. Huggins is 74 years old now, but he's not Berkshire's oldest manager. That would be 85-year-old Harold Alfond, who founded Dexter Shoe Co. in 1956 and sold to Buffett in 1993 for Berkshire shares now worth $1.5 billion.
Berkshire's operating ranks contain a second octogenarian billionaire: 82-year-old Albert L. Ueltschi, chairman and CEO of FlightSafety International Inc., a pilot-training concern Berkshire bought for $1.5 billion in 1996. An ex-pilot, Ueltschi founded the company in a LaGuardia Airport hangar in 1951. ''I'm like Warren,'' says Ueltschi, who has no plans to retire. ''I like what I do so much that I don't consider it work.''
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Somewhere between Frankfurt and Paris, Buffett gets up and walks back to the airplane's pantry to fetch a box of Swiss Sprungli chocolates an admirer had given him in Germany. Buffett makes his way slowly up the aisle of the plane in his shirtsleeves, offering the candy to each passenger aboard.
A half-empty box of See's chocolates rests on the table where I'm sitting. Buffett pops a piece in his mouth. I ask him whether he thinks he could identify See's in a blind taste test against other brands. ''Of course,'' he says. ''I can also tell Coke from Pepsi. The thing is, most Americans prefer Pepsi to Coke because it is 4% sweeter, but Coke still outsells Pepsi by a huge margin.''
As Buffett continues in this vein, he starts staring at the box of Sprungli he carries. He shifts it to one hand as if he were about to choose a piece, then seems to change his mind. ''It's a showy sort of candy, isn't it?'' he says and then falls silent. He gazes raptly at the Sprungli for a full 45 seconds as the conversation continues around him. Then he abruptly sets the box down and returns to his seat without a word.
Later, I recount this to Chuck Huggins, See's president, who chuckles knowingly. ''Yeah, that's Warren. Brand-loyal.''
The office next to Buffett's is occupied by Michael Goldberg. A former McKinsey & Co. consultant, Goldberg was hired in 1981 to bring order to Berkshire's far-flung insurance interests and essentially functioned as chief operating officer for the next 11 years. The single-minded intensity Goldberg brought to the job created friction in the ranks--and gave him a bad case of burnout. In 1993, Buffett reassigned Goldberg to ''special projects'' and eliminated his old position.
The line managers who once reported to Goldberg, now 53, have reported directly to Buffett ever since--as do the chiefs of all 22 of Berkshire's operating companies. Buffett essentially lets the chiefs of the companies that Berkshire acquires run their businesses as before, except that he requires them to transfer their excess cash to Omaha and clear capital-spending plans with him. Buffett, who thinks of his role as Berkshire's ''capital allocator,'' collects the enormous cash flow that the subs produce--$13.4 billion last year--and uses the money to buy more businesses, either in whole or in part, through the stock market.
Buffett tends not to initiate contact with his operating executives: He waits for the phone to ring. ''Let me know about any bad news as soon as possible,'' he tells his subordinates, ''but otherwise, you are free to call me as often or as seldom as you like.'' Buffett's managerial passivity should not be mistaken for indifference. Some operating chiefs say he nearly memorizes the monthly reports they send to Omaha.
During holiday seasons, Buffett requests daily sales reports from See's and Borsheim's, Berkshire's huge upscale jeweler in Omaha, because the ebb and flow of retailing hold an enduring fascination for him. Year-round, he speaks to two execs almost every day: Richard Santulli and Ajit Jain, who runs Berkshire's reinsurance business in Stamford, Conn.
Berkshire's homegrown insurance group offers a variety of property-and-casualty coverage in certain U.S. markets. But its chief business is a high-risk, high-reward specialty that Jain developed over the past decade in reinsuring ''super-catastrophes''--earthquakes, hurricanes, floods, and such. Buffett found the economics of ''super-cat'' seductive: Berkshire has made at least $865 million pretax in underwriting profits since 1991. But it was the complexities of analyzing super-cat risk that hooked him. Says Jain, 47: ''Warren and I might have had a 30-second conversation or a 30-minute one, but he has been involved in every piece of business I have done.''
As for Santulli's business, Buffett is intrigued not just by the novel challenges posed by EJA's rapid growth but also the logistical complexities of the fractional-shares business. ''He likes the mental challenge of it,'' says Santulli, a former mathematics professor. ''He calls it 3-D chess.'' Even so, Buffett is careful not to impinge on Santulli's operating authority. EJA's chief once asked Buffett for advice in making a decision and was rebuffed. ''Don't bother with that,'' Buffett told him. ''Just decide.''
Buffett's laissez-faire management style has been tested most severely in recent years by Berkshire's misadventures in shoes. From 1991 to 1993, Buffett laid out $650 million to buy three old-line makers of midprice shoes: H.H. Brown, Lowell, and Dexter. In essence, he was betting that his companies would benefit as the appeal of imports waned and U.S. consumers returned to home brands. Buffett hasn't made many fundamental strategic errors, but this was a doozy: Imports now account for 95% of domestic shoe purchases, vs. 70% in the early 1990s. Since 1994, operating profits of Berkshire's shoe group have plummeted 57% on an 18% decline in revenues.
Dexter has fared much worse than Brown, which absorbed Lowell and has buoyed itself by shifting much of its production offshore. Although Dexter now does some manufacturing in Puerto Rico, it has placed overriding emphasis on maintaining full employment at its four factories in its home state of Maine. By all accounts, Buffett has played no part in this divergence in basic strategy--and performance--between H.H. Brown and Dexter except to countenance it by his silence. ''It's amazing how little he bothers you,'' says Francis Rooney, chairman and CEO of H.H. Brown. ''He never even comments.''
The deference Buffett shows Berkshire's subsidiaries is all the more remarkable because it does not come naturally to him. ''With almost every one of the companies Berkshire owns, I think I would do something different if I was running them--in some cases, substantially different,'' Buffett says. The reason he doesn't impose his views, he adds, ''is simply that I am not inclined to make myself unhappy. I sort of accept things as they come.''
It's not that simple. Buffett knows the sort of self-motivated, hands-on exec he covets wouldn't tolerate being pushed around by Omaha. And Buffett's respectful treatment of his managers has instilled in them an ambition to ''make Warren proud,'' as one puts it. ''Somehow, Warren has been able to keep a diverse cast of characters working harder for him than they did for themselves,'' Goldberg says. ''I see it every day--and I still don't know how he does it. But I do know that all of us feel this incredible responsibility to him.''
***************
We arrive late to Paris, touching down in a freakish, near-gale-force windstorm that both thrills and alarms our pilot. In four cars, we race as fast as rush-hour Paris traffic allows from Le Bourget to Dassault Aviation Group's magnificent 19th century chateau--familiarly known as Le Rond Point--on the Champs Elysees. EJA is the largest commercial customer of Dassault Aviation, Europe's leading manufacturer of business jets. Serge Dassault, the company's chairman, is hosting tonight's gala reception and dinner in Buffett's honor. By the time we arrive, the reception is in full swing. But Buffett takes a few steps into the foyer and hustles up a flight of stairs. It will be a good 35 minutes until he descends and joins the party.
Downstairs, the guest of honor's whereabouts is Topic A among Dassault's distinguished guests. It might puzzle them to learn that Buffett is on a transatlantic call to one of his employees. The matter he is discussing with Ajit Jain this evening is not urgent. But it is Buffett's custom to speak with Jain every evening. If that means keeping 200 of France's richest people waiting, then c'est la vie.
In mid-May, Buffett moderated a panel on Internet commerce at Microsoft's annual CEO summit in Seattle. As Buffett tells it, the assignment reflected William H. Gates III's sense of humor. But the Microsoft chairman and CEO, a friend of Buffett's since 1991, says it was no joke: ''Every principle that Warren holds about business and business value will still apply in this new world we're going into.'' Gates, who owns Berkshire stock in his personal account, adds that he has learned more about business from Buffett than from anyone else. ''People really underestimate what he has created in Berkshire,'' he says.
Unlike most megacorporations, Berkshire was not erected on the foundation of a single great business. Buffett began with a dying textile maker and parlayed its dwindling cash flow into ownership of a massive portfolio of enduringly profitable operating businesses. By the end of 1998, Berkshire had amassed shareholder equity worth $57 billion. This is a staggering sum, putting Berkshire well ahead of General Electric, Microsoft, and every other U.S. corporation and ranking it second in the world to Royal Dutch/Shell Group. Buffett could retire tomorrow and be confident of his place in business history not only as stock investor extraordinaire but as a corporate builder of the first rank.
LIMITS OF SCALE. Instead, of course, he is still in there pitching, to borrow one of the baseball metaphors that so delight him. From 1965 through 1998, Berkshire's book value per share rose 24.7% a year on average--trouncing the 12.9% average annual gain in the S&P 500. For some time now, Buffett has warned that the company's sheer bulk will prevent it from matching its breathtaking historical average in the future. His avowed goal is to increase its worth at an average of 15% a year. It's a modest aspiration only by comparison, for it implies adding $58 billion of shareholder equity over the next five years.
Except for the shoe group, Berkshire appears to be in fine fettle. Executive Jet is by no means its only hope for growth. GEICO, Berkshire's largest subsidiary in terms of revenue, has been wresting market share from rivals at an impressive rate and yet still has only 3.5% of the vast U.S. auto-insurance market. Like EJA, Gen Re is planning to expand in Europe and around the world. At the same time, Borsheim's, Scott Fetzer, See's Candies, and other Berkshire companies are experimenting with E-commerce. ''The No. 1 topic Warren and I talk about now is whether retail selling is going to move over to the Internet,'' says Ralph E. Schey, Scott Fetzer's chairman and chief executive.
The pursuit of accelerated growth carries added risk. In 1998, Berkshire had a banner year, posting a 48% increase in net earnings, to $2.8 billion, on revenues of $13.8 billion. But net income dropped 25%, to $541 million in the first quarter, largely because of earnings declines at GEICO and Gen Re. While both insurers were hurt by intensifying price competition, a German subsidiary of Gen Re's also took an embarrassing $275 million pretax loss on a workers' compensation pool. The down quarter did not seem to faze Buffett, who is famous for taking the long view.
If Berkshire were in fact a painting, it would look like a Jackson Pollock: an idiosyncratic product of inspired improvisation. In building his company virtually from scratch over the past quarter-century, Buffett conjured no overarching strategic vision, followed no master plan other than to buy good businesses at the right price. Even when he erred--a rare occurrence--he enfolded his purchases in an embrace intended to be permanent. ''We buy everything, even a stock, with the idea that we will hold it forever,'' he says.
It is hugely important to Buffett that his corporate handiwork outlast him. In fact, it is his hope that Berkshire--his masterpiece in progress--survive him in exactly the form it exists upon his death, like a painting framed and hung on a museum wall. But might there not come a time when his successor might be smart to sell some of Berkshire's weaker units? ''I don't think so,'' Buffett says. ''I hope whoever follows me would behave pretty much as I would if I were to live forever. I feel I owe it. I owe it to the people who sold me their businesses. They didn't have to sell to me. If I die tonight, I want them to get what they were expecting.''
MYSTERY HEIRS. Buffett says he already has picked a successor--two of them, actually: one to manage the stock portfolio, the other to oversee the operating companies. Their identities have not been disclosed to shareholders or, for that matter, to the heirs apparent themselves, because Buffett reserves the right to change his mind. He says he might eventually settle on a single successor.
Munger, who has most of his own billion-dollar net worth in Berkshire stock, professes optimism about the company's post-Buffett prospects. ''The corporate culture of Berkshire is more durable than that of the average corporation. That will go on,'' Munger says. ''The one place a death will hurt us is we're not likely to get as good an allocator of capital as Warren in the next CEO, whoever that is. But it will still be one hell of a business.''
In a company as decentralized as Berkshire Hathaway, the operating businesses need not suffer an immediate loss of momentum from Buffett's passing. On the other hand, it is not clear that a holding company with a grand total of 12 employees can be said to have a corporate culture. Without question, Berkshire's operating chiefs are united in their admiration of Buffett and his principles. But most of them barely know one another, and none is remotely Buffett's equal in terms of breadth of knowledge or personal authority. With its challengingly eccentric mix of businesses and its loose, informal structure, Berkshire Hathaway fits Buffett to a T but might well prove unwieldy for lesser mortals--especially ones constrained by loyalty to Buffett's preservationist credo.
The outlook for Buffett's personal fortune is no less problematic. His wife is his sole heir, but she is 67 years old and might not outlive him. The Buffetts have three children--Susan, 46; Howard, 44; and Peter, 41. Howard and Susan are directors of Berkshire, but none of the Buffett progeny is involved in the management of the company.
FAMILY PLAN. Buffett has said that it is his wish that 99% of the money he has made eventually go to the Buffett Foundation, to be distributed to worthy causes under the direction of Allen Greenberg, 42, the ex-husband of his daughter Susan A. Buffett. Greenberg works out of a one-person office in the same building that houses Berkshire. The foundation was set up in the mid-1960s but operates with a scanty endowment. Currently, it disburses $11 million to $12 million a year, with the bulk of the funds going to groups that provide family-planning services, including abortions. When the foundation comes into its full endowment, it is likely to rank as the world's largest philanthropy.
Buffett is often criticized--privately, to be sure--as a tightwad. But he insists that he is holding tight to his Berkshire stock not out of greed but out of a desire to ensure that control of the company passes to his heirs. ''I think I could control it with as little as 1% of the stock,'' Buffett says. ''With 35%, my wife could carry on, but not with 1%. I'd view it as a tragedy if someone whose achievement was issuing the most junk bonds or having the silliest stock price took over the company and all that we've built evaporated.''
It would indeed be a tragedy in the classical sense if the specialness of Buffett's great gifts contains the seeds of his empire's eventual undoing. For just as no one other than Buffett could have created Berkshire Hathaway, it may well come to pass that no one other than Buffett can make it work.
BY ANTHONY BIANCO
To read a letter to the editor about this story, click here.
Monday, July 21, 2008
Tuesday, July 8, 2008
Maybe - A Zen Story
There is a Taoist story of an old farmer who had worked his crops for many years. One day his horse ran away. Upon hearing the news, his neighbors came to visit. "Such bad luck," they said sympathetically. "May be," the farmer replied.The next morning the horse returned, bringing with it three other wild horses. "How wonderful," the neighbors exclaimed. "May be," replied the old man.The following day, his son tried to ride one of the untamed horses, was thrown, and broke his leg. The neighbors again came to offer their sympathy on his misfortune. "May be," answered the farmer. The day after, military officials came to the village to draft young men into the army. Seeing that the son's leg was broken, they passed him by. The neighbors congratulated the farmer on how well things had turned out. "May be," said the farmer.
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