A few days ago, 90 MBA students were at IMD Business School in Lausanne for an interview session by MBA Programme Director Benoît Leleux with his two guests Warren Buffett and Israeli family business ISCAR Chairman Eitan Wertheimer.
You can also watch the 42-minute video of the entire session here:
It’s available online until 19th Jun 2008.
I have also compiled and rephrased some of the questions posed to Warren Buffett and his replies below.
How do you manage all your companies?
I don’t. The key to management is about getting things done by other people. I can’t run those business as I don’t know a thing about them. I have managers I don’t see for three or four years. On the other hand, there’s one I talk to every day. We have no company meetings.
There’s a 2-page letter they get from me once every two years. I tell them we have all the money we need, but we don’t one ounce of reputation we can afford to lose. Never trade reputation for money. Never do anything that you do not want to appear on the front page of the newspaper. If there’s anything close to the line, you can forget about it.
I also asks them about the succession plan – what I should do if they were no longer around.
Is there a key management style that you look for?
They have many different styles. A good many of them have MBAs. A couple of them did not go beyond high school. They are leaders in their own way. I’m often amazed in the different shapes and forms they come in. They all have passion for the business. They have qualities that would cause people to want to follow them over the mountain. People believe in them.
You buy companies forever?
Yes. We have no exit strategy. We have an entry strategy but there is no end game. We just want to keep on adding more and more good businesses.
I buy the right business with the right people at the right price. They have long term competitive advantage with people who are passionate about the business. I don’t check out all the details. I have in mind what the business will be worth in the long term. I don’t need a big team of lawyers or financial guys to do the due diligence. I don’t believe in farming out the due diligence.
I trust the owner to run the business exactly the same after the acquisition as he did before.
What is it that holds Berkshire Hathaday together?
It’s the culture. Something to do with developing in the culture. After a while, it creates its own momemtum. People self select themselves. We pay our directors $900 a year. People buy into the culture and want to be part of it.
Do you consider Berksire as a family business?
Yes, we consider Berkshier a family business. We have our principles laid out for decades and we don’t change them.
What is your succession plan for yourself?
We have three people identified by the board. The person who succeeds me should be relatively young. It helps to have a long run at the job. I do not want to hand it over to someone who will only be here for three or five years.
How important is money to you?
I have all that I need ever since I was in my mid twenties. I have a job I love, around people I love and they like me, I get to do what I like to do every day. I eat well and have a house that is warm in winter and cold in summer.
The standard of living does not equate with the cost of living. Up to a point it does, and then you leave that point. I want to be around my friends; to be able to do what I love to do. Fortunately, I’m able to do it.
All my Berkshire shares will be going to charity, but it doesn’t involve a single sacrifice on my part. They are just a branch of certificates sitting in a safe deposit box. I have everything that I need in the one percent that is sitting outside of Berkshire. They can take care of me more than a normal human being can ever hope for. The rest can go back to society as society has enabled me to do what I do.
I told my children what my dad told me. “Anything you do (as long as it’s legal), I’m behind you. I’ll back you. You don’t have to be me. You have to be you.” What they do is more important than what I do. They have to follow their own passion.
What is your own definition of success?
I would measure it by the number of people who love you when you are sixty or seventy.
Where does that passion and energy come from?
I was lucky in terms of the parents I have and where I was born. I had all kinds of opportunities. I had a good education, and I was wired in a way that made me good in allocating capital. I was lucky that I managed to find out what I liked to do when I was very young.
I was able to play in the game that I wanted to play virtually all my life. I never had to compromise in terms of doing something that I really didn’t want to do because my kids were hungry.
The most important thing (besides your parents) is picking the right spouse. If you have the right spouse, a lot of good things are going to happen. I was very, very lucky in that aspect.
One thing you mentioned is that Berkshire is nowhere near as prominent as it should be in Europe. Why there and why now? With the weak dollar, this might not be a good time.
I should have done it earlier. I haven’t and I’m correcting the mistake now. We should be on the radar screen not only in Europe but also in Asia. We do have something to offer to certain businesses. It might not be important to them today. If you have a great family business, keep it. But there might come a time when a change is necessary. I want to be on that radar screen so that when the time comes, people will think of calling us.
What does Berkshire Hathaway bring to the table that other companies do not?
Freedom to continue doing what they are doing. To be part of something bigger and to prepare for the future. They can get rid of any bankers or wallstreet that they need to please. They have someone who appreciates them. We don’t have many competitors.
Are you looking at Asia?
We are always interested in business as long as they meet our size requirements. Certainly there are some in Asia. In terms of marketable securities, I look all over the world all the time. We bought some in PetroChina a few years ago.
You have a remarkable return of about 21%pa since you started investing. How do you do it?
I try to buy things that I understand. I look at the stock market as a place to buy businesses, not at a place where the prices move up and down. I have a very fundamental approach which I was lucky to learn when I was nineteen years old by reading the right book called “The Intelligent Investor“. Reading that book changed my life in a big way. I learn a few things over the year but I had the right framework from Benjamin Graham.
Do you feel that US policies in place today are still weakening the strength of the US dollar?
We are doing pretty much what we have been doing in recent years. When you do what you have been doing over and over and you expect to get a different result, that’s insanity.
End of compilation – Note: A more complete version of the transcript has been uploaded here: Warren Buffett Interview.
Warren Buffett comes across as a very humble person (he certainly is) and is well liked by many people. He’s a great success we all have much to learn from.