V Pattabhi Ram
Wafers fell in love with a man old enough to be her grandfather. The immediate provocation: he, the world’s third richest man, had willed that 70% of his estate would go to the Gates Foundation and not to his blood relatives. There was just no parallel that she could think of. Warren Buffet was her man for all seasons.
She decided to research Buffet. And what she found made her rush to China. “Hey did you know?” she asked. In her excitement she didn’t realize that he wouldn’t know that she was asking about Warren Buffet. “Know what?” asked an incredulous China. “Well, that Warren Buffet is only 76 and that he has a net-worth of 52 billion USD”. “So….” Asked a rather unimpressed China. He was bored that someone should say ‘only 76’. That wasn’t to dampen Wafers’ spirits.
“Did you know that the investment guru lives in the same house in Omaha that he bought way back in 1958? And that in 2006 he took home an annual salary of 100,000 USD?” China yawned, still unimpressed. Wafers elaborated. “That’s the kind of money for which you won’t get even a Harvard fresher on board leave alone poach a corporate honcho.” China couldn’t disagree but he wasn’t ready to swoon over Buffet.
Wafers was in full blast. She had done her homework and was going to show case it to the brim. “You know Buffet began working in his dad’s stock broking firm when he was just 11? That at 13 he filed his first income tax return, deducting his bicycle as a work expense for $35? That he made his first investment at 14 after he read Benjamin Graham’s The Intelligent Investor?
China had to stop Wafers. “Yup. Your hero did his post graduation under Graham and was the only one to be ever given an A+ by the maestro”. Wafers was all excitement. “Wow” she exclaimed. And then added, “Did you know that Berkshire Hathaway wasn’t actually founded by Buffet? And it wasn’t an investment company, but a textile company”. Even the encyclopedic China was taken by surprise, “Really?” And Wafers thrilled at carrying coal to New Castle said, “Yeah. Buffet bought shares in the textile company in 1962 and by 1969 he decided to wind up his other businesses to focus running Berkshire Hathaway”.
China asked, “Do you know how Buffet chooses his investments?” Wafers broadly knew; but wished to hear from China for the latter could always bring a strong insight. China said, “Buffet is a Graham acolyte. He buys stocks which are quoting at a significant discount relative to its fair price. He calls it the margin of safety. Once he identifies such a stock he is in no great hurry to buy. He waits for market corrections as he believes that downturns present buying opportunities”.
Wafers decided to match China word for word. “I understand that when Buffet buys a controlling interest in the business he doesn’t interfere with the running of the company. He lists down the KRA and compensation package of the key executive and then gives him a free hand to run the business. And significantly he levies a hurdle rate for moneys allocated to business making CEOs realize that money isn’t available for jam.” China nodded. Wafers added, “Actually Buffet manages his business so well that circa 2005, Berkshire Hathaway was only one of nine companies to receive Moody’s AAA rating”.
As China sipped his favorite cappuccino, Wafers asked, “How does he crack it? Does he have any special investment strategies?” China replied, “Well, Buffet is known to be conservative in a speculative market and aggressive in a bearish market”. Wafers chipped in, “Oh, the contrarian’s approach.” China explained, “Yeah. It’s zing while everyone else is zagging and zag when everyone else is zinging.” Wafers remembered what she had once read. “He kept off the Internet stocks at the height of the Internet boom saying he doesn’t believe in investing in businesses that he doesn’t understand”.
“It looks like you have fallen for the sage of Omaha” said China waiting for the next helping of potato chips. “Who wouldn’t?” asked an unabashed Wafers. “How many people will gift 30.7 billion USD to charity?” As China whistled softly, Wafers added, that’s the current market price of the 10 million Berkshire shares that he is gifting over time to the Gates Foundation.
China remarked, “I understand his children will not inherit much of his wealth.” Wafers explained. “He wants to give his children just enough so that they feel that they could do anything, but not so much that they would feel like doing nothing. The man doesn’t feel guilty of making money but thinks that the market economy is responsible for what he has earned and he should therefore give back a lot to society”.
China was quick to offer Wafers a new insight. “You remember sometime back silver prices shot up because of media reports that Warren Buffet had bought 25% of the world’s known quantity of silver?” Of-course she remembered it. How could she forget the song and dance her mom had made? China remarked, “Yet in 1998 Buffet had scorned at gold, the up-market cousin of silver.” Even as Wafers was about to ask “How” China quoted Buffet’s words. “Gold gets dug out of the ground in Africa. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
Wafers didn’t like her demi-god being pulled down. “He should have his reasons. Else you wont have 20,000 visitors queue up at his company’s AGM merely ot hear his gyan. China couldn’t disagree. After all, you cannot argue with a man who holds a 7% stake in Coke and who has made a killing in the forward market by selling dollars forward.
But it was the captain at the table who had the last smile. Bringing in the check he said, “Warren Buffet often plays bridge with Bill Gates. As of Dec 2006, the investment guru does not use a cell phone, does not have a desktop and drives his own car.” And then added, “even today he does not use the email”.
Wafers almost swooned. Her love for Buffet turned total
- Name: Warren Buffet
- Occupation: Investment guru
- Age: 76
- Net worth: 52 billion USD
- Annual Salary: 100,000 USD
- Scholastic distinction: A+ from Ben Graham
- Investment Philosophy: Value investing.
- Investment style: Contrarian approach.
- Berkshire Hathaway: AAA rated
- Gift: 30.7 billion USD to charity
- Personal style: No cell phones. No desktop. No email