My Diary 549 --- ZT Having Dinner with Warren Buffet

Friends & Family,

As some of you know, I had the opportunity to recently visit Berkshire Hathaway in Omaha, listen to and have lunch with Warren Buffett with other students from business schools around the world.  I was very fortunate, however, to be able to sit right next to him not only during the Q&A session but also during lunch.  We had a simple steak lunch (Warren Buffet chose the chicken parm) and a root beer float (apparently one of his favorites) at Piccolo.  His demeanor and words really touched me, and I wanted to share with you some of the sound bites that really resonated with me.  One thing that really surprised me, is that he is extremely humble, self-deprecating and very humorous.  I wish you could have been there to personally witness his comedic delivery, but you’ll just have to imagine him saying it in a very sweet old man voice.  All I can say is, he is an amazing person.

*On technology*:

 “One of these days I’m going to get a cell phone.”  [as he fiddles with the microphone]

*On the crisis on Wall Street*:

 “Wall Street had to call off the Christmas party this year because they couldn’t find 3 wise men…  [pauses]  They had a hard time finding a virgin too.  [everyone laughs]  In fact, a very good investment banker I know in New York lost his job recently and went back home to his wife.  They started to look for ways to costs.  He said to his wife, ‘if you can learn how to cook, then we can fire the chef.’  His wife said, ‘Well, if you can learn how to make love, then we can fire the gardener too.’”  [everyone laughs]

*On his investment in Goldman Sachs:*

 “At the time, the market was on the verge of literally falling apart.Before I made the investment, I had to believe that the government was going to provide support in a big way and understood the gravity of the situation.”

*On getting older*:

 “Recently, I walked over to Charlie Munger and said to him, ‘Charlie, I think we should buy Microsoft at $16, do you agree?’  I got no response. Later that day, I walked up to Charlie again and said ‘Charlie, I really think we should buy Microsoft at $16, do you agree?’  Still no response. Finally, at the end of the day, I went up to Charlie and said, ‘Hey Charlie, I really think we should buy Microsoft at $16, do you agree???!’  Charlie yelled, ‘For the third time, yes!’”

*On who he hires to manage his businesses**:*

 “I ask, do they love the business, or the money?  I mean, I can do anything I want to do in the world -- that doesn’t require athletic ability of course -- so why do I tap dance to work?  I want people who will do the same thing for the business even if I own it.  I want someone who, if independently wealthy, would work just as hard and get up every morning at 6am to go to work.  Three-fourths of my managers are independently wealthy and don’t need the money.  They do it because the love it.”

*On hiring as it relates to marriage**:*

 “A wife is the most important hiring and personnel decision you will make in your life.  To have a successful marriage, you know what is the number one quality you should look for in a partner?  It’s not looks.  It’s not intellect.  It’s not even character…  [pauses]  It’s finding someone with low expectations!”  [everyone, including Warren, laughs]

*On firing managers*:

 “I tend to wait too long and will continue to do so.  I would rather do it later than earlier.  I would pay a lot of money to not have those situations, because I hate them.”**

*On what is success:*

 “In Omaha, there was a woman by the name of Belle Eisenberg, who recently passed away.  During the Holocaust, her family was sent to Auschwitz, and she was the only one to make it out.  She told me one day that every time she meets someone, she asks herself whether that person is the type of person who would hide her [from the Nazis].  I think, if there are a dozen or more people who would be willing to hide you, and you them, then I’d say you’ve lived a pretty successful life.  I know people who are worth billions, and their own kids wouldn’t hide them.”

*On investing in gold to hedge against inflation**:*

 “Gold has a mystical quality to it, and it becomes more attractive as paper money becomes meaningless.  But Gold is a terrible investment -- it sits there, stares back at you, and doesn’t produce anything.  The idea that humans mine gold out of the ground in South Africa, transport it all the way to the U.S. only to lock it back underground in the Federal Reserve…  it seems like there’s a better use of people’s time.  [everyone laughs]  The best inflation hedge is talent and increasing your own skills and capabilities.  Therefore it won't matter if the form of currency is paper, gold or seashells; you want to be the best at what you do.”

*On the U.S. facing increased global competition**:*

 “I love competition.  See, the way you get the heavyweight champion of the world is by finding the best guy and having him knock out people along the way.  Competitiveness is a good thing.  We shouldn’t stifle it.  If horses could have voted, if there was the Horses Association of America, the tractor would have never been invented.”  [everyone laughs]

*On putting your career aspirations on hold and finding a safe job**:*

 “I never believe in putting things on hold.  One day a student from Harvard Business School picked me up from Logan International Airport.  During the car ride, I asked him what he wanted to do, and he said ‘I’m thinking about going into management consulting.  It’s not what I want to do long term, but I think it will look good on my resume.’  I said to him, ‘What?  That plan sounds about as good as saving up sex for old age.’  [everyone laughs]  We all know the story about Wilt Chamberlain.  On his tombstone it says, ‘At last I sleep alone.’  [everyone laughs again]  I didn’t want to go to college.  I wanted to get where I wanted to go as fast as possible.  There aren’t many years in life.  If you can, you should do what you want to do as soon as you can.”

*On what a business schools fail to teach effectively*

 “Oral and written communication.  I was totally afraid of public speaking. I would puke, hide, whatever it took to avoid it.  In fact, I went to Wharton only after checking the classes just to make sure I wouldn’t have to speak in front of a class.  After college, however, I realized I needed to do something about this fear.  So I took a 15 week public speaking class in downtown Omaha to get over it.”

*On Berkshire’s investing philosophy*

 “You can never have enough reputation.  I tell my managers to run the business in a way as if it were the only asset their family could own for the next 100 years.  There is plenty of money to be made in the center court; we don’t like to play on the front line.”

*On how he values businesses*

 “I always look at my valuation first before looking at the price.  It’s like when I used to bet on horses at the races.  I look at their performance, not their odds.  You need to have your own ideas, the ability to think in a closed room.  That’s the advantage of being in Omaha.  On Wall Street, I used to get a lot of stimuli rolling across my desk.”

*On increased government spending*:

“Government is the only one who can leverage when everyone else is deleveraging.  In economics, there is no free lunch.  But maybe it’s better to pay later than not have any lunch right now.”

*On what he has learned over the years**:*

“I haven’t learned a lot more about investing or making money since I was 25 years old.  But I’ve learned a lot about human behavior.  Let’s play a game.  If you had to pick 1 classmate, and you would earn 10% of what they will earn for the rest of their life, what would go through your mind?

Their IQ?  Their grades?  What school they went to?  Who’s the best on the dance floor?  … [pauses]  Or is it who’s the most effective human being. Who do people admire and love to work for.  Who is able to inspire and willing to give credit to other people for their successes.

* If you had to short 1 classmate 10%, who would that be?  What traits turn you off?

You’ll realize that the qualities in the people you want are behavioral, not born in.  You want someone who doesn’t keep score, like ‘I cleaned your room, now you clean mine.’  You want someone who people want to do things for.”

*On higher taxes for the rich*

 “The top 400 people in the U.S. earned an average AGI of $250 million per year and paid an average of 17.5% in taxes.  There are 24 million households in the U.S. that earn less than $21,000 per year.  The U.S. tax code has shifted over the past 10 years toward befitting the rich.

With all my money, I could hire 20,000 people to build, dragging huge stone blocks, a tomb for me that would make people forget all about the Egyptians.  Or I could pay…  hmmm, let’s see [calculating numbers in his head]…  hmmm, $2 billion a year…  30,000 people to paint my picture every day, so that I could pick the one that looks the best -- the closest one to George Clooney, whom people have said resemble me. [everyone laughs]

The ability to allocate capital was wired into me.  But if I had been born a thousand years ago, I would have been some animal’s lunch.  I am where I am because of the society around me.  To believe that I should not have to pay for my share of the burden of the common costs that created this society is outrageous.  Society has a right, an obligation, to get payment from those who are lucky.  Society contributes to who you are.  The rich should get down on their knees and be thankful for the society they are born into and be willing to pay to keep that society going.”

*On politics (FYI, he supported Obama)*:

 “You should vote based on how you want the world to be.  You should vote based on what leader you think will help take it there.”

*On life:*

 “Imagine that it is 24 hours before you are born.  A genie comes to you and says that you get to design how the world will be before you enter it.  You say, ‘That sounds great.  But what’s the catch?’  The genie says, ‘There is only one catch.  You will go to that barrel over there filled with 6 billion tickets.  You will pick one ticket at random, and that ticket will define who you will be in your world.  It could say male; it could say female.  It could say you will be born in the U.S.; it could say you will be born in Bangladesh.  It could say black; it could say white.  It could say intelligent; it could say retarded.  It could say rich; it could say poor.’

You should design the world in a way that is independent of what ticket you get.

You got your ticket.  If you now had the chance to pick 100 tickets from that barrel, but you had to give up your current life and to be one of the hundred picked, would you do it?  Chances are, maybe 4 or 5 of the hundred will say you will be born in the U.S.  Maybe one will say you are above

average intelligence.  Maybe one will say you have above average income. Would you play?  [pauses]  …Of course you wouldn’t.  You wouldn’t play, which means you are in the top 1% of society.  We are so lucky; most people in the world would give anything to play.”

--

*IJ. Lee*

MBA Candidate, Class of 2010

Haas School of Business, UC Berkeley

310.694.6025