Commentary
The forthcoming retirement of Warren Buffett as CEO of Berkshire Hathaway at the age of 94 and after 55 years in that position is, because of his immense success and influence, a watershed occasion for international commerce. As his successor he has selected vice chairman Greg Abel, a Canadian from Edmonton who was not well known but presumably will instantly become quite famous.
Buffett is conspicuously famous not just because of his extraordinary success, but for his unpretentious and amiable public personality and his gift for aphorisms and financial-philosophical musing. Through much of his prolonged career as the “Sage of Omaha,” he padded about in corduroy trousers and a viyella shirt, and has lived many decades in a modest home in Omaha. He drives an old car, buys American, is a teetotaler, but made a great deal of money in the tobacco business because cigarettes “cost a penny to make. Sell it for a dollar. It’s addictive. And there’s a fantastic brand loyalty.” His annual meetings are held in an indoor stadium in Omaha, and for decades have been packed by more than 20,000 people whom he treats to recitations of his corporate and general philosophy.
Buffett has promised to give 99 percent of his wealth to authentic charities and is well along in that process, though he retains a net worth of $169 billion. He admits mistakes frankly, though given the trajectory of his company, they have not been of such size and frequency to aggrieve those who have invested their money with him. He has frequently stated that capitalism is a splendid system for the accretion of wealth, but that society must try harder and be more original about ensuring that no one is left out. The average moderate socialist could subscribe to such a sentiment. Buffett has always been a gifted aphorist: “derivatives are weapons of mass destruction,” and the financial crisis of 2008–09 was “a tsunami that revealed who had been swimming without their bathing suits.”
Warren Buffett’s father was a well-to-do congressman and businessman, and Warren himself was a graduate of the Wharton School of the University of Pennsylvania, the University of Nebraska, and the Columbia Business School which he attended after being denied admission to Harvard. At Columbia he developed his concept of value investing, which was pioneered by Benjamin Graham. He created a number of investment partnerships, including Buffett Partnership Ltd. in 1956 when he was 25, and eventually acquired textile manufacturing firm Berkshire Hathaway, and this became his lifelong vehicle.
Even as a child he sold chewing gum, Coca-Cola, and weekly magazines door-to-door in Omaha. When he was in high school he bought a 40-acre farm, worked by a tenant farmer, and by the time he finished university, his savings would be valued today at $130,000. Early in his career, he wrote: “The basic ideas of investing are to look at stocks as business, use the markets’ fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing.”
Graham was Buffett’s mentor. After Graham declined to hire him to work for free as Buffett offered, Buffett returned to Omaha and worked as a stockbroker while taking a Dale Carnegie public speaking course. This conferred upon him sufficient confidence to teach investment principles in a night course at the University of Nebraska where the average age of the students was more than twice his own (then 22). Graham then offered him a partnership, where he again prospered until Graham closed the business and retired in 1976.
One of his early successes was the Sanborn Map Company which was trading at $45 per share, although the investments in the company’s portfolio were worth over $65 per share, which meant the map business had a negative value of $20 per share. Eventually, after vigorous agitation, the company made an issuer bid to buy in and cancel its own shares, and Buffett achieved a 50 percent return on his investment in two years. In 1962, he merged all of his partnerships into Buffett Partnership Ltd., and this was the vehicle that took over Berkshire Hathaway.
Buffett began purchasing shares at $7.50 each as the company transitioned to an investment portfolio. The last of the mills that had been the core business of Berkshire Hathaway were sold in 1985. In 1973, he had begun to acquire stock in the Washington Post Company, happy to support the control of Catherine Graham, which was exercised through a class of multiple voting shares. In 1979, Berkshire began acquiring stock in the American Broadcasting Company, and in 1985, led a successful takeover of ABC by Capital Cities, even though ABC was four times as large as its acquirer. Buffett eventually acquired 7 percent of the Coca-Cola Company and it would turn out to be one of his most lucrative investments. He became one of the leading figures in the reinsurance business in the 1990s and early 2000s.
Buffett was hard hit by the subprime mortgage crisis of 2007 and 2008, and Berkshire Hathaway suffered a 77 percent drop in earnings. However, he acquired 10 percent of Goldman Sachs through perpetual preferred stock, and in 2008 he was declared the richest person in the world by Forbes, with a net worth estimated at $62 billion, surpassing Bill Gates.
Buffett allegedly lost $25 billion in net worth between 2008 and 2009. In 2009, he acquired the Burlington Northern Santa Fe rail company for $34 billion in cash and stock, and Berkshire Hathaway became the 18th largest corporation in the world. Berkshire liquidated its investment in ConocoPhillips in 2009 at a significant loss, having soured on the oil business. In 2011, Buffett invested $11 billion in IBM stock. He said he overcame his usual hesitation to invest in companies outside his area of expertise because he was impressed by IBM’s ability to retain corporate clients and to be specific about what it intended to do and how it intended to do it.
Berkshire Hathaway returned to its pre-2008 levels of value and profit in the second quarter of 2014, and generated a net profit of $6.4 billion. The company’s stock, which had been trading at $7.50 when Buffett fully took it over in 1965, was trading in 2014 for $200,000 per share.
Buffett learned to play the ukulele when he was 18 to court a young woman he fancied. That effort failed, but he married his wife, Susan, in 1952 and continues to play the ukulele today, including at his annual meetings. After 25 years they physically separated, but remained married and cordial until Susan’s death in 2004. He married his companion Astrid in 2006. He is an avid bridge player and sponsored the Buffett Cup, a bridge tournament held immediately before the Ryder Cup for golf and in the same city.
While Buffett is officially retiring at the end of this year, he is still active and newsworthy, and will remain chairman and the principal shareholder of his company. He is always worth listening to—he has made a career and a profession out of being Warren Buffett. Speculation will continue long into the future over the extent to which his motives were anything other than self-enrichment, camouflaged beneath his populism and perceptive sense of humor. Nevertheless, this combination makes Buffett one of capitalism’s all-time great originals.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
