50 Master Moves That Shaped Berkshire Hathaway

"They want to do things on a handshake where you really trust the other person"

Steve Jordon on how a young Buffett's retirement plan gave birth to the greatest track record in modern-day investing

Published 5 years ago on Jun 12, 2015 Read
N Mahalakshmi

How many newspapers have a beat reporter following a single company, one that would eventually end up owning the publication? Unlike Warren Buffett, the legend that he has been tracking for the better part of the 48 years that he has spent at the World-Herald, Steve Jordon was not born in Omaha but in West Virginia. Jordon has been attending the Berkshire annual meeting much before it became the current jamboree. Having attended some 20 annual meetings, his earliest memory is that of Buffett, Coke in hand, shooting the breeze with shareholders in the lobby of the Orpheum Theatre 18 years ago.

How have Warren Buffett and Charlie Munger influenced each other over the years?

They both grew up in Omaha and had a Midwestern, American upbringing emphasising education and hard work. They both worked in the same grocery store when they were kids but at different times. They met in 1959 and they liked each other from the beginning and got along. Each thought the other person was really smart and wanted to talk to each other and kept communicating. Warren asked Charlie if he was interested in investing and steered him in that direction towards investments.

And at the same time, as they both worked together on investments, Charlie had better or other ideas than Warren about the ways they could invest in things. They stayed in different parts of the country and had different contexts. So, Warren would hear about something they should invest in. He would ask Charlie what he thought. Then Charlie would have things that he would ask Warren about. They were able to trade ideas back and forth, so that each learned from the other and enforced their viewpoints.

Both of them are independent thinkers. Both had ideas that they would try out on each other to see what the other thought. That advanced their business. That’s how they influenced each other over the years and still do today. Charlie, for instance, was the one who recruited Todd Combs to be a money manager. Charlie met Todd first and liked him and then introduced him to Warren and then they hired him. Adding those money managers to Berkshire Hathaway was an important step.

Can you recall some more examples?

Charlie knows Li Lu, who knew of a Chinese company called BYD that made batteries and automobiles. They would exchange ideas and Charlie learnt about BYD and invested in it personally. He suggested to Warren that Berkshire should invest in BYD. So, they bought about 10% of BYD.

Early in their partnership, Charlie was the guy who spotted Blue Chip stamps as an investment. The advantage of that company was that it generated cash and they could use that cash for other investments. That was the kind of thing that Charlie had. In a general way, Charlie encouraged Warren to invest in really good companies at a fair price rather than trying to find cheap companies that make a little bit of money. Both of them have an ethical stance that they don’t want to break regulations. They want to do things on a handshake where you really trust the other person. 

Warren says that in the more than 50 years that they have been together, they have never had an argument. They are very different people in terms of interests and temperament. So, how do they deal with their differences?

They say they don’t have arguments but they disagree on things. Warren had invested in some airline over the years. Charlie advised against doing that. But he did it anyway; he thought it was a good idea. Warren bought a series of newspapers and it is really Warren’s idea. Warren had talked about the newspaper business not being as good as it used to be because of the way people’s information systems are changing. Warren has a model in mind for the newspaper businesses he owns.

Charlie’s view is that it is just something Warren likes. I think it is pretty clear that he did it without Charlie’s consent. It was something that Warren wanted to do and whatever Charlie thought, he was going to walk the sidelines on that one. So yes, there is a difference of opinion but not a significant one in terms of the company; it is just a very small piece of it. I am not sure Warren would have invested in BYD had Charlie not wanted to do it.

A question would come up at the annual meeting once in a while about BYD and Warren would say, ‘Charlie is the expert’. It may not be a disagreement. They just decided that is your baby and this is my baby. If one of them has a difference of opinion, it doesn’t shake their friendship. They just have a different viewpoint from each other. Sometimes, they will admit that they were wrong and sometimes, they won’t.

You talked about Charlie influencing Warren; but at the individual level, how has Warren influenced Charlie? 

I think it has probably somewhat gone that way. It was Warren who suggested to Charlie that he go into investments instead of law. I think Charlie might have found that path anyway but Warren had a really good way of explaining what a model of investing would be like and how that would work for him. Warren influenced Charlie to join Berkshire Hathaway. Charlie thinks Warren is the smartest guy he knows. So when Warren talks about something, Charlie pays attention to that and is influenced by it. Warren is the guy who makes public statements for the company; Charlie doesn’t. But his ideas are contained in what Warren talks about. If they both think something is a good idea they will talk about it together. 

Is there anything about Warren and Charlie that isn’t much known?

When Charlie was working at grandpa Buffett’s store, he got $2 for working 12 hours. Just then, a new social security law had been passed. They had to pay grandpa Buffett 2 cents and they got $2 bills in return. Two cents was for the social security tax. Charlie’s grandfather didn’t like it and thought it was the big government taxing the little man. He didn’t like the social security system at all because it was taking the two cents away. He was conservative like Warren’s father, who was that way; he was a Republican. Warren’s a Democrat.

Warren’s son is a Republican. Warren’s grandson is a Democrat. If you look at Poor Charlie’s Almanack, both of them are opposed to being ideological. But Charlie says they learnt about it in different ways. He said Warren’s dad was a right-wing ideologue. He thought that Franklin Roosevelt and all those social programmes were wrong. So, Warren learnt and then he hung around with guys who were also right-wing ideologues. Warren learnt from that to stay away from ideological-type stuff. Charlie’s father was not ideological. He said all he had to do was imitate what his father did. In both cases avoiding being too ideological helped with their cognition. Then, both of them have a strong ethical component.

They believe in doing business the right way and not breaking the law or fudging the rules. They believe in doing things that are not just legal but also ethical. Doing business in the middle of the road rather than straying off to one side or the other. Both of them are big supporters of education. Charlie has donated to universities and Warren is a big supporter through the family foundation and the Gates Foundation, too.

What is the most surprising thing that you learnt about Buffett when you were writing your book, The Oracle & Omaha?

At 26, when he returned to Omaha from New York in 1956, his plan was to retire. Ben Graham had retired at a young age and decided to live off his investments. I think Warren originally had planned that as well. But his relatives started asking him to manage their money. So he set up that first partnership with seven of them. Then word started getting around and he had more people come to him and eventually he had 13 of them. He combined them into one partnership and that is what he ran up to the time he acquired Berkshire.

At some point, he realised he was having fun and that this was what he wanted to do. So, he started going after people. In the 1950s, there weren’t many people with $5,000 or $50,000 sitting around waiting to be invested. These had to be doctors or people with family wealth. He started talking to people in those circles and that became his business. He dissolved the partnerships at a time when he didn’t know what to do with the money. The fact that he didn’t have any particular plan and he started doing it and it just happened, that was surprising to me. You would think the guy would have calculated what he was going to do but he didn’t. It just turned out that way. 

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