Warren Buffet Rules

From his letter to the shareholders of Berkshire Hathaway....

Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing formulas.

For those of you who don't know much about him, he is a financial genius that heads Berkshire Hathaway. Buffet has always been extremely wealthy. In 2008, according to Forbes he was worth an estimated 62 billion and overtook Bill Gates, who held the crown for 13 consecutive years, as the richest man in the world. The unique thing about Buffet is his extremely impressive philanthropy, charity, and general outlook on his wealth.

Buffet lives in the same house that he bought in 1958 for 31.5K, makes a 100k salary as the CEO for Berkshire Hathaway, and plans to give away the majority of his wealth before he dies. He is leaving some money for his kids but only "enough so they can do anything but not enough so they want to do nothing". Buffet is a strong proponent of the Bill and Melinda Gates Foundation. So much so that in 2006 he donated 10 million class B shares to the foundation which had a value of approximately 30.7 billion dollars.

"I don't have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It's like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don't do that though. I don't use very many of those claim checks. There's nothing material I want very much. And I'm going to give virtually all of those claim checks to charity when my wife and I die." (Buffet 1988)

With 40 years of 20% compounding returns for Bershire Hathaway, Buffet is maybe the most successful investor ever. I said last week that I love to get his take on the economy when there is something I don't understand. His annual reports of Berkshire are read by pretty much anyone with an interest in finance. The shareholders meeting is held annually in Omaha and is a really large event. Last year an estimated 27,000 people attended it. Buffet does a presentation, speech, and Q and A, and all shareholders of Berkshire Hathaway are invited.

When Bill Gates first met Buffet the meeting was scheduled for 30 minutes. It turned into 10 hours and Gates became a strong advocate and devotee of Buffet's philosophy. The guy is 78 years old wears Lebron's sneakers. He loves throwing out first pitches at MLB games. He doesn't have a driver or a cell phone. He rarely ever flies on a private jet even though he owns one of the world's largest private jet companies. He bough a farm at age 14 from savings and investments from a paper route. Buffet was one of the biggest reasons why I was confident in voting for Obama. He was an economic adviser and big advocate for Barack as President. When the economy was plummeting and congress was considering the bailout, Buffet put 5 billion of his own money into the newly restructured Goldman Sachs to attempt to stabilize it and urge congress to pass the bailout as soon as possible. Soon after his investment in GS, he put 3 billion into GE for the same reason.

Its refreshing to see such a wealthy man have such a down to earth grasp and outlook on reality. Buffet's thoughts and advice on finance and the economy are still extremely relevant. In short, as the title of the post says, Warren Buffet rules. What an extraordinary man.

(This following video is of the interview with Warren Buffet by Charlie Rose. It was done a few months ago but its really good and relevant. Its an hour long so it might not be for everyone. But if you have an interest in the economy or finance than I would suggest checking it out or maybe just reading the transcript.)



-Wolfie