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A RECENT EXPERIENCE WITH WARREN BUFFET

Posted by Steve Koerber on January 22, 2009

warren-buffetA friend of a friend had the good fortune to attend the 2008 Berkshire Hathaway Shareholders meeting at Omaha, Nebraska a few weeks back.  Here is his account:

 

It was a wonderful experience listening to and learning from the Master Investor- Warren Buffett himself and all I can say is that he stands alone as the reigning deity of financial world’s Mt Olympus!  The degree of humility and composure he exhibited, although he is the richest and most well respected human is stunning! 

I tried to take some notes and would like to share with you some of the best questions and answers which came across during the conversation between we mortals and God.

Having read about him, observed him and worshipped him for a few years now, I think it is reasonable to believe that this guy is exactly what he seems: a plain-speaking, tee totaling man of uncrackable integrity who works really, really hard and sticks to his investing and management principles through boom and bust which makes him a freak of nature since he is above normal human tendencies. He is like a comet streaking through the heavens every 75 years or so.

The questions the shareholders threw at him for 7 continuous hours ranged from finances, life, religion, career, politics, sports and several other streams. And he answered everything with a Zen like calm and confidence.

Even if you are least bothered about investments and finances, I insist, please read on.

What does it take to become a successful investor?

Brilliance or Smartness?  Neither, Success in investing doesn’t correlate with I.Q. Once you have ordinary intelligence, what you need is the temperament to control the urges that gets other people into trouble in investing.

When do you deicide to invest in a firm?

The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they’re on the operating table. (Mr. Buffett bought Coke when it had its biggest fiasco after launching New Coke; he bought American Express when it went through a loss making phase in the early 60’s).

What do you look for in people when they come to sell their firms to you?

I don’t look for the usual credentials such as an MBA, a pedigree (Harvard, Wharton), or cash reserves or market cap of their firm.  What I look for is just a passion in their eyes; I think that’s the key. A person who is hungry will always do well. I prefer it when people even after selling stay on and work for the firm; they are people who can’t wait to get off their bed to get to work.  Passion is everything; there is no replacement for innate interest.

Mr. Buffett, you told us that Berkshire Hathaway has $ 45 Billion in cash. Why aren’t you investing?

Up until a few years back I had more ideas than money. Now I have more money than ideas.

When do you plan to retire?

I love my job; I love it so much that I tap dance to work. Mrs. B, the founder of Nebraska Furniture Mark worked until she was 104, she died within 6 months of her retirement, that’s a lesson to all my managers, don’t retire! I personally am going to work 6-7 years after I die, probably that’s what they mean when they say – “Thinking out of the Box”!!

Why do stock market crashes happen?

Because of human nature for greed and insecurity. The 1970s were unbelievable. The world wasn’t going to end, but businesses were being given away. Human nature has not changed. People will always behave in a manic-depressive way over time. They will offer great values to you.”

What are the things that are taught wrong in Business school and the corporate world?

I like such open ended questions, I think Business schools should refrain from teaching their wards about profit making and profit making alone, it gives a sense of 1 dimensional outlook to the young students that loss is a curse. In reality, in the corporate world, failure and loss making are inevitable. The capital market without loss is like Christianity without hell. I think they should teach the student on how to buy a business, how to value a business? Not just on how to determine the price of a business.  Because price is what you pay, value is what you get.

Do you still hate Technology stocks?

With Coke I can come up with a very rational figure for the cash it will generate in the future. But with the top 10 Internet companies, how much cash will they produce over the next 25 years? If you say you don’t know, then you don’t know what it is worth and you are speculating, not investing. All I know is that I don’t know, and if I don’t know, I don’t invest.”

How to think about Investing?

The first investment primer was written by Aesop in 600 B.C. He said, ‘A bird in the hand is worth two in the bush.’ Aesop forgot to say when you get the two in the bush and what interest rates are; investing is simply figuring out your cash outlay (the bird in the hand) and comparing it to how many birds are in the bush and when you get them.”

How do you feel after donating $40 Billion to the Bill and Melinda Gates foundation? You are a hero to us!

I feel nothing. I haven’t sacrificed anything in life.  I have had a good life. I donated after I turned 75. I think I admire those people who sacrifice their time, share their food and home, as the people to be emulated not me. Besides, what is money before a man’s life?

What do you think are the pitfalls in donation?

I have never donated a dime to churches or other such organizations; I need to believe in something before I end up doing that. I have been observing the Bill & Melinda Gates foundation for years now and I am confident they will do a fantastic job of making use of the money. I am a big believer in Outsourcing, others believed in me as an Investor and gave their hard earned money to invest. I believe in Bill Gates, he is a better donor than me.

Why do you work from Omaha and not Wall Street, New York?

Wall Street is the only place where people alight from Rolls Royce to get advised by people who use the Public transportation system.

You seem to be so well read, tell us how it all started.

My father was a stock broker, so we had all these financial books in our library. He introduced me to those classics and I got into them. I am lucky that my father was not a fan of Playboy! Reading is the best habit you can get. Well, you can learn from teachers too, and have mentors but there are so many constraints attached- they will talk fast, talk slow, they might talk like a pro or they might be terrible communicators. Books are a different animal altogether, I love reading! The beauty about reading and learning is that the more you learn the more you want to learn.

People who join Berkshire Hathaway seldom leave. How do you get along well with all your executives?

I try to get quality people. I always say – Hire someone in your organization who is better than you are. If you do that, you build a company of giants. If you get people worse than yourself, you build a company of dwarfs. And do not try to do everything yourself.   Delegate the jobs and look out of the window. The results will come. That’s how you build institutions. It happens only when you empower others, believe in others. I am an investor, I am very secured at that, I have no clue how to make Coca-Cola or how to dole out credit cards (Mr. Buffett owns 8% of Coca-Cola and 13 % of American Express). I understand the wisdom of the aphorism that you cannot please all the people all the time.  Of Course, you will always find qualities that you don’t like in people around you, but if you observe carefully the love of the work unites you both. There is no point in being obsessive about a bad quality in a person, whom you otherwise respect.

I am a small time businessman from Dallas, Texas, what do I need to do to hit big time?

Be patient, Achieving your financial goals and dreams will not happen overnight. As such as we would all really love to accomplish our goals in a few years, this is an ongoing process. Defining your financial goals is not a one-time task; you need to keep adding new plans at different stages in your life. We all admire the skills of Olympic ice skaters, pro golfers, and concert pianists. But do we remember that they didn’t acquire their skills overnight? They had to practice hours on end for years to achieve their dreams. The key to success is to continue learning throughout your life with a voracious appetite.

I think it is marvelous that you have had a golden run with investing, how did you do that?

My rule is to be fearful when others are greedy, and be greedy when others are fearful. Besides, I call investing the greatest job in the world because you never have to swing. You stand at the plate; the pitcher throws you General Motors at 47! U.S. Steel at 39! And nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it. Stay dispassionate and be patient. You’re dealing with a lot of silly people in the marketplace; it’s like a great big casino and everyone else is boozing. If you can stick with drinking Coke, you should be OK. First the crowd is boozy on optimism and buying every new issue in sight. The next moment it is boozy on pessimism, buying gold bars and predicting another Great Depression, most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.

Mr. Buffett you have seen so many crashes and recessions, your take on facing recessions and stock market crashes?

If past history was all there was to the game, the richest people would be librarians. Every scenario is different. But always remember, Tough times do not last. Tough people do.

What is the 1 biggest advice you would impart to a young investor like me?

Think for a moment that you are given a car and told this is the only car you would get for the rest of your life.  Then you would make sure that you car is taken care of well, it is oiled and detailed every now and then. You would make sure that it never gets rusted, and you would garage it.  Think of yourself as that car. You just get 1 body, 1 mind and 1 soul. Take care of it well. Invest in yourself that would be my advice.

You personally know many of the Financial executives who are engineers of the current turmoil in the financial world, surprisingly even after record losses, those executives receive astronomical salaries and bonuses and arrogantly declare that they deserve it, why didn’t you advice them from making such decisions and what’s your view on their justification for their pay?

I like sharing my ideas but don’t like imposing my ideas on anybody. It doesn’t make sense and is a waste of time. If somebody has decided that they know everything that is there to know, nobody can help them. The best way to learn and succeed is to know that we know nothing. There is an entire universe out there and still some of us think we can know everything. In the world of investing a few people after making some money tend to imagine they are invincible and great. This is the worst thing that could happen to any investor, because it surely means that the investor will end up taking unnecessary risks and end up losing everything – arrogance, ego and overconfidence are very lethal.

Personally I don’t feel too comfortable with too much extravagance, because I always think like an investor. My thought process doesn’t see a lot of value in a fancy car or a designer suit. Thinking like an investor always is very important to bring in a sense of discipline and focus.

Before reading balance sheets and investing you need to make sure your outlook and mindset is that of an investor. Never let ego, arrogance and over-confidence control you – not just as an investor but also as a human being. You will never have internal peace if you are unable to look at everybody around you with love, compassion and understanding. Irrespective of who the person is, he or she can teach you something you don’t know. I have learnt so much from people all around me and I wouldn’t have been able to learn all these wonderful things if I had not spoken to them with a smile.

giantsTo quote Sir Isaac Newton- If I have seen farther than others, it is because I have stood on the shoulders of giants.

 

It was a 7 hour conversation and I could just capture some of the best questions and answers. As 37,000+ dazed, amazed and grateful shareholders trooped out of the stadium after the meeting, I found myself recalling one of my favorite quotes – 

 

“A man has to learn that he cannot command things, but that he can command himself; that he cannot coerce the wills of others, but that he can mold and master his own will: and things serve him who serves truth; people seek guidance of him who is master of himself”.

 

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2008 The Year in Review

Posted by Steve Koerber on January 1, 2009

2008 The Year in Review  2009-300x20111

January started with a rush. Buyers were plentiful for realistically priced properties.  My first sale of the year resulted from a phenomenon that often occurs around the festive season – “a change of family circumstances”. My Australia-bound family of five decided Auckland was a better option.  Instead of moving over the ditch, they paid $1.25million and moved around the corner to a similar but bigger version of the home I had recently sold for them at auction for $1.3million.  Ironically, bucking recently reported migration trends, the family who bought their home had just returned from an unsuccessful attempt to enjoy life in Brisbane.  On a more poignant note, New Zealand lost the legendary Sir Edmund Hillary.  His state funeral was held in Parnell on January 22nd.

February is usually one of the busiest months for home sales and 2008 didn’t disappoint.  With the kids back at school and business as usual, I managed to list and sell six properties during what seemed to be a very warm spell.  Things were also hotting up for Remuera residents Bob Bangerter and Mark Bryers as the Commerce Commission and the SFO both announced investigations into their failed Blue Chip group.  Several finance companies had already fallen by February and many more followed as investors understandably fled the sector.

Being the last month of the financial year, March is always a hectic time of year for me.  My family know that I’ll often be home late and that my weekends are focussed on open homes, listing and selling.  Having said that, Easter was earlier this year and we did fit in a nice break at Ruakaka Beach (30 minutes South of Whangarei).

April saw the biggest monthly drop in the number of Auckland homes sold for many years.  Compared with April 2007, Barfoot & Thompson’s sales for the month were down 50%.  For the rest of 2008 sales volumes lagged well behind 2007’s numbers.  These results confirmed that October 2007 was the peak of the latest real estate cycle.  The sale of 44A Armadale Rd marked my 40th sale in that street.  It was a major milestone and an achievement that I am very proud of.

May is traditionally my month of learning & professional development.  This year I was thrilled to be ranked 16th of 1000+ salespeople within Barfoot & Thompson.  I was officially recognised by the company at our annual conference.  I was also given the opportunity to share some of my success principles on stage in front of 1500 people as part of a Q&A panel.  A week later I attended an invigorating three day real estate conference in Sydney hosted by one of the industry’s greats, John McGrath.  While there I caught the ferry to Double Bay and picked the brains of Bill Malouf, Australia’s number one real estate salesperson.  His average sale price is about $4.5million more than mine.  I learnt a lot that day!

June was the month in which the Mars Phoenix Lander found ice on Mars.  Despite some jitters in the local real estate market I continued to sell most of my listings and was enjoying my best year ever.  Barfoot & Thompson’s Auckland market share remained as strong as ever, hitting 37%.  images1

July marked the fifth anniversary of the last time the Reserve Bank of NZ actually reduced the official cash rate.  In July 2003 rates were cut to 5.00%.  In July 2008 they were cut to 8%.  With unprecedented speed, rates were cut again in September, October and December and sat at 5% by year’s end.  Money very quickly became a lot cheaper, but much harder to borrow.  In July Crude Oil hit an all time peak of almost US$150 per barrel.  By year’s end it also was down to about US$40 per barrel.  I started a coaching and mentoring group with the aim of enhancing the careers of selected colleagues within the New Zealand real estate industry.

August was a huge month for me and at one point I had five full page advertisements running in the Central Property Press.  You might think, so what?  The reason I mention this is to illustrate the power of marketing.  These impressive bigger advertisements attracted so much attention that all of the featured properties sold.  In a tighter market environment, I was successfully attracting multiple bidders to all of my auctions and selling them.  It was at this time that I realised that as many “auctions” fail as “for sales” fail.  If people try to tell you that auctions don’t work, it really is a fallacy.  The fear factor makes auctions an easy target for naysayers.  So please, before you judge auction as a method of sale, make sure you talk to someone like me who knows them inside-out.      

September saw the return from Beijing of our successful Olympians.  The team finished 26th on the medal tally and brought home 3 gold, 1 silver and 5 bronze medals. 

In early October I took the family to our favourite holiday destination, Cairns.  We spent two very relaxing weeks celebrating what was my best year in real estate.  After so many working weekends I really enjoyed the opportunity to spend more time with Katie 14, Charlotte 5 and Joshua 3.  Upon our return, the global financial crisis was in full swing and home buyers were all of a sudden a lot more cautious.  The exuberance and confidence of the past five years was gone in a heartbeat.  I dusted off the ‘tough market’ strategies gleaned from my experience of the 1998 – 2000 market and got stuck in.   

Politically speaking November was a fascinating month.  The election of Barack Obama was an historic event comparable to the election of Nelson Mandela as South Africa’s President in 1994.  In NZ we said goodbye after nine years to Helen Clark and welcomed John Key as Prime Minister.  By year’s end he appeared to be doing a pretty good job.  Most buyers I spoke to during this period were convinced 2009 was going to be a better time to buy.  Consequently it was my least successful month of the year.

December the 3rd I auctioned a cute two bedroom cottage at 15 Ventnor Rd Remuera.  Spirited bidding from 7 bidders resulted in a good sale at a figure higher than the owner’s bottom line.  An American buyer who had been in constant email contact with me said I should contact him after the auction.  I wrote back saying that the auction was likely to sell under the hammer and that he should bid.  He didn’t believe that an auction could sell in what he defined as a buyer’s market.  The result proves that the market is always buoyant at the right price.  I finished the year in new territory, recognised as Barfoot’s number one salesperson in Remuera. 

Thank you to everyone who has supported me throughout 2008.  My hope for you is that 2009 will be a year of abundance and opportunity.  Some people will struggle financially this year.  For those who do, I believe it is prudent to belt-tighten and learn from past mistakes.  Concentrate on saving and investing, rather than consuming.  And when the tough times seem like a distant memory, as they will, avoid the consumption mentality of the past 15 years, keep saving and investing!  

If you or anyone you know needs real estate help and advice this year I’d be thrilled to hear from you.

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