Andrew Kilpatrick

Of the legion of books about the iconic “Oracle of Omaha,”, this is the largest, a 1,600-page elephantine, unauthorized biography by Andrew Kilpatrick. This fact-filled tome was kindly given to me by an esteemed money-manager, John Pinto, and his Olympic Gold Medalist-wife, Donna deVarona, both longtime Buffett investors, whose photos grace p. 934. The book (OPV) is a colorful, entertaining and often educational account of Warren Buffett’s (WB’s) life and especially of the details of his investments, all well salted with his sagacious, profound and humorous philosophies. The “prophet of profit”, the “sultan of savings”, WB became alternately the richest or second richest person on the planet (and in the history of the world, even adjusted for differences in purchasing power), and he has also made vast fortunes for many others. Some 20,000 attended the Annual Meeting of his holding company (Berkshire Hathaway, BRK/A or /B on NYSE) in 2003 when OPV was published. $10,000 invested with him in the 1950’s would be worth some $260 Million by 2003 — a compounded annual return of 30% after fees. (He and Munger, his No. 2, often caution that they “can’t maintain BH’s past growth” and “don’t know if BH is a good investment from today’s prices…Our money exceeds our good ideas.”)

He has never run a business; he invests in others, thousands of others, in work-a-day businesses from bricks to furniture to jewelry to ice cream to insurance to endless newspapers to pots and pans. As such, he and the many companies that he has bought offer one of the most fascinating and diverse case studies of all time. Among his endless achievements, he is credited with “saving Salomon Brothers from bankruptcy” and Father Flanagan’s Home for Boys from collapse due to accounting fraud. He has had failures, too, which he’s quick to admit: e.g., ironically, Berkshire Hathaway (BH) was “a horrible investment”, a textile mill that he purchased in 1959 and resisted closing until 1985. (“We went into a terrible business, because the assets were cheap.”) His failures, his narrow escape from the jaws of the SEC, and his self-effacing wit make him more human and lovable than any of his peers.

From a business perspective, we learn such priceless gems (many now widely quoted axioms of our times) as:

“I love to buy and hate to sell…
“The best time to sell is never…unless the price becomes silly.”
“I’m indifferent to short term performance…
“I’m a decade trader, not a day trader…
“I try to come up with one good idea every year or so…
“I buy great companies at fair prices not fair companies at great prices…”

(The latter distinguishes him from his idol, Ben Graham, who was able to buy “cheap” (less than one times book value in the one-off post-Depression 1930’); WB began buying in the 1950’s and added the component of growth and PEG ratios to his criteria; he has generally paid 10 x earnings or 7 x cash flow, but, not long ago, he paid 16 x earnings for General Re.)

“Wait for a fat pitch, one in your comfort zone, around your belly button…
“When in doubt, don’t buy…
“The secret is to avoid risks, not overcome them…
“It’s easier to avoid a dragon than to slay one…”

His legendary investment rules include:

1) Resist the temptation to be fully invested all the time.
2) Maintain your cool temperament; keep a distance from the madness of Wall Street, such as in the Midwest.
3) Only invest in things about which you have reasonable knowledge.
4) Be disciplined and PATIENT.
5) You don’t need the best possible price; just get value. (“The price is what you pay; value is what you get.”)
6) Don’t over-diversify. (He has generally held only 5-25 securities.)
7) “Don’t buy stocks; buy businesses.”
8) Don’t be guided by what others say: “Wall Street is the only place where millionaires go in limos to take advice from those who ride the subway.” Do your own research.
9) Keep everything as simple as you can.
10) Buy businesses, not stocks; don’t “play The Market; own businesses.”

What about Buffett, the man? This Titan of Our Times is humble, shy and shuns publicity as much as he can. He is 5’11”, 170 pounds, a boastful consumer of junk food, who has no exercise regime but miraculously seems to avoid gaining weight and medical issues; his spare time is devoted to his passion (bridge), his wife of 40+ years and his three children. Born in Omaha in 1930, he was the son of a right wing conservative, almost a religious zealot (who wanted Warren “to consider the ministry”); his dad was a stock broker who was raised by a humble family in the grocery-store business — “We barely made a living selling groceries for three generations” — but his dad also served several terms as a U.S. Congressman. The Buffett’s moved to D.C., where WB attended Alice Deal Jr. High and Wilson High. At age 13, Buffett hated D.C. and ran away from home (back to Omaha), where the police picked him up. His dad was a political and religious ideologue, which taught WB to avoid causes, as they’re too distracting and don’t accomplish enough to justify the negatives. Buffett idolized his dad nonetheless and concluded that “The Bible is the best source of ethics,” although WB openly admits to being a non-church-going agnostic (pp. 13, 78, 82) and once said, “Ben Graham is my God”; still, “My dad and I shared the same values.”

An average student, WB has never disclosed his IQ but maintains that “a 125 IQ is all that is needed” for success in most things. Some insist that he is a “genius” and has a “total recall memory”, while others note that he has difficulty remembering names. Rejected by Harvard, to its everlasting regret, he obtained his MBA at Columbia, where he was inspired by Ben Graham. Making money always held WB’s attentions, not academics. (“We become what we think about,” said Napoleon Hill in his Think and Grow Rich.) As a boy, WB held multiple paper routes and, in high school, began buying vending machines; he had $10K saved by the time that he graduated from high school, circa 1948. He is tight-fisted to a fault; doesn’t give much to charities (maintaining that he can make better use of the money and that charities will get most of it when he’s gone anyway); he is “an average tipper” (having never worked for tips); he jokes of owning “only one suit”; he drives a 1991 Lincoln and has lived in the same, modest home since 1960, and has only one vacation home (in Laguna Beach, CA.). His beyond sterling reputation, however, is not devoid of scars. In 1976, he and Munger were the subject of an SEC investigation for alleged “stock price manipulation”; while they avoided prosecution (as did 90% of the SEC’s targets in those days), it resulted in a return of $175,000 to investors and a settlement with the SEC “without admitting guilt”. Since that close scrape with the law, WB has been an assiduous protector of his integrity, preferring to “lose money short term but never to lose one shred of reputation.”

Buffet has become widely revered for his success, integrity and his fair treatment of his shareholders (“partners”), associates and others. He is known for his sense of humor, his quick wit, which he turns on himself in lovably self-effacing jibes, blaming himself for most negatives in BH’s Annual Report. His desk is “neither clear nor messy”; he avoids lawyers and all manner of consultants. At work, he spends “five hours reading and two hours on the phone and then takes reading home”; he hates meetings. He doesn’t use computers and refers to the Internet as “a fad” (presumably facetiously). While the companies that he controls employ 60,000 and his holding company, BH, comprises the fifth highest market cap on the Forbes 500 List, BH employs only 13 (and no lawyers) and occupies an unabashedly humble 4,000 square foot office in Omaha.

From reading this and other accounts, it seems likely that Warren Buffett possesses an IQ and memory that is somewhere between average and genius but that his real “genius” lies in his focus and perseverance, his uncommon common sense, his wit, his ethics, his human foibles and his lovable ways. Warren Buffett is the consummate “Little Engine That Could [And Did]”. As such, he inspires us and gives us all hope. As Andrew Kilpatrick’s journalistic account has helped us see, this Greatest Investor in the History of the World may not have changed the world, but he has certainly made it a better place for all of us, while leading many thousands to financial security. So, thanks now to Warren Buffett and his unsolicited chronicler! I here commend this admirable 10-pound book to all.