Herewith one of my Pittsburgh Post-Gazette pieces that made it on a Sunday: a rare occasion.
Sunday Forum: How
Warren Buffett got rich
Rudolph H. Weingartner has a few thoughts on how
to get from here to there
Sunday, August 16, 2009
Reading
the wonderful biography of Warren Buffett by Alice Schroeder, "The
Snowball: Warren Buffett and the Business of Life," got me to thinking
about the different ways in which people have become really, really rich and
how unusual Mr. Buffett is in that category.
The
norm among the mega rich (let me pretend that there is such a norm) is that,
above all, such a specimen knows one thing superbly well -- Rockefeller, oil;
Carnegie, steel; Walton, retail; Gates, software -- on which his fortune rests.
I am taking stick-to-it-ive-ness and luck for granted.
What
this Buffett biography reveals is that its protagonist would never have made it
into the firmament of the richest men of all time if he had lacked just one
trait of quite a few that were necessary to his phenomenal success.
Let
me state briefly of what Mr. Buffett's wealth consists: his dominant interest
in a company, Berkshire Hathaway. While that outfit began life as a textile
manufacturer, that activity has long since moved to other lands. Instead, B-H
is a holding company that owns or has a significant stake in roughly four score
companies, ranging from those that write insurance to others selling jewelry.
Since Mr. Buffett took over B-H, it has gained flamboyantly in value and, until
the recent time of troubles, its stock was always significantly ahead of the
market. What Bernard Madoff falsely claimed, Warren Buffett, the Oracle of
Omaha, did.
OK,
that's the achievement. What did it take to accomplish it? Start with two gut
traits, necessary for so much success. The first I call nose. It's my
term for informed intuition, the ability to smell out what is plausible or
more. Necessary but certainly not sufficient. Plausibility is not basis enough
for the investment of millions. Needed for that is a trait that is in many ways
antithetical to the immediacy of insight, namely analytical savviness, a
certain brand of brain power. Antithetical because the exercise of that power
takes a great deal of time and patience. On many occasions, the biographer
Schroeder reports, the application of that ability converted Mr. Buffett into a
virtual hermit, shut up in an office, reading and calculating.
This
is not a trivial point. In general, if not inevitably, people who are
brilliantly intuitive tend to go by the seat of their pants, hit or miss and,
if good at it, hit more than miss. But Warren Buffett is not one to think that
a major investment decision can be left to the gut, however much it may be the
starting point. Laboriously, it is necessary to determine its actual value, a
measure that is not revealed by the price of its stock, by gross sales or even
by the profit its activities bring in. That value has to be dug out by delving
deeply into its operations and assessment of its assets, together with a
calculation as to what the company can become if its practices were modified.
That's work, even drudgery; it requires plowing through irrelevancies to get to
what is relevant. The intuitive Mr. Buffett is capable of squelching his gut
and doing the work.
OK,
again. What's next? Intuition acknowledged, laborious homework done, what does
it take to act, where acting means allocating millions? This calls for that
second gut trait: grit, the courage to go after an envisaged goal, obstacles
and uncertainties to the contrary notwithstanding. Now taking risks is not a
characteristic conventionally associated with the patient analysis of endless
prose and numbers. The ability to act decisively is seldom found together with
professorial studiousness. But what heightens the tension in Mr. Buffett's
enterprise is that his findings are inevitably in conflict with conventional
wisdom. Were that not so, the Oracle of Omaha would be just one of many bidding
for a large slice of a company. Grit must take him to go against the grain.
The
writing of a big check is not the end of the story. With his investment, Mr.
Buffett gains authority, a power that must now be put to use. Since it has been
determined that much more is possible for this company than it has so far been
able to actualize -- promising an increased future value -- it must now change
its ways. Almost always that requires that new people be put in charge, a
crucial and possibly wrenching change. To effect such a transformation calls
for two aptitudes, neither of which can be expected from a person who had
locked himself up to delve into the books of the enterprise just garnered: the
ability to fire -- not the most endearing trait and one that Mr. Buffett
exercises with reluctance -- and the ability to hire. This crucial move calls
for the knack of sizing up people for their skills and character, preceded by
the humdrum work of surveying who's out there. How many people do you know who
are good at either of those tasks, even where the stakes are much lower?
Finally,
consider the context within which Mr. Buffett operates. You rub my back and
I'll rub yours is one maxim that applies. But serving as the basis of all
transactions, including relations with powerful governmental agencies, is
trust. Mr. Buffett would not be one of the richest men on the globe if he were
not universally regarded as truthful and honorable. In the long run, that
reputation can be earned only by someone who actually is honest and upright.
It
is not a mystery, looking at the traits and abilities that Warren Buffett
possesses to a superlative degree, that he should have achieved so much. But as
is true for so many outstanding players in history, it is a mystery how such a
fortuitous bundle was packed into a single person.
Rudolph
H. Weingartner is a professor emeritus of philosophy at the University of
Pittsburgh (rudywein@comcast.net).
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