The Snowball: Warren Buffett and the Business of Life

"It’s on the list, firstly, because Buffet is the most successful investor in history. Secondly, he’s a successful investor based in Omaha, Nebraska, miles away from the City and Wall Street – like the beginning investor. Thirdly, his investment philosophy has been based on some very simple ideas, which are essentially a modernised version of Graham. He is asking the question, ‘How well protected are the earnings of these companies I’m buying from competition?’ Which leads him to talk about ‘moats’ and the like. “Buffet is the most successful investor in history” There’s a nice story in the book about Buffet as a kid noticing a kind of pinch point where all the trams went through and thinking, ‘There must be a way of making money out of this.’ That’s, in a sense, the investment philosophy: if you have a pinch point, you have a profitable business. In the 1980s, people started talking about ‘hollow corporations’. Apple is not quite the best example, because Apple does have retail stores. But Nike, for example, doesn’t make the shoes. They don’t sell the shoes. What Nike does is, essentially, brand the shoes, which others make and others sell. That’s where the value in the chain actually is, which is how you end up with these companies, like Apple, which don’t employ very many people, although they’re very large and very profitable businesses. If you looked at the largest companies in Benjamin Graham’s day, they would have been General Motors and US Steel and so on, companies that employed very large numbers of people, as well as having very large sales and plants. Many of today’s largest companies don’t. They’re characterised by these controlling, coordinating, competitive advantages like Apple and Nike. That’s the next generation of the kind of companies Warren Buffet likes. Many of his first investments were local newspapers. See’s Candies was a famous early investment. As you probably know, all of this is funded by the insurance business which underpins it. There are supposed to be some reasons for being in Nebraska to do with lax Nebraskan insurance regulations. That’s right. He’s not just a hick from Nebraska who turns out to be a wildly successful investor. There’s another side to that, which is the relative modesty of his lifestyle given his extraordinary wealth. The one time I’ve been in Omaha, the taxi drivers insisted on driving me past Warren Buffet’s bungalow. It’s the main tourist sight of Omaha. No. I think Buffet strikingly doesn’t get involved with the management of his companies. The head office of Berkshire Hathaway in Omaha is tiny. His philosophy has been very much about finding good managers and letting them get on with it—by which I mean good managers who are there at the time he buys the business. Yes, Nebraska Furniture Mart and Mrs B, Rose Blumkin, who reportedly went to the store daily till she died aged 104. You want to look at the underlying fundamentals of the business. You want to ask how sustainable these are against competitive threats and you want to ask what is the quality of the management of this business. Help you organise your thinking, really. It’s like the Efficient Market Hypothesis. It’s useful to know about these things, so long as you don’t take them too seriously. You should think about probabilities but it’s not going to help you to do the elaborate calculations that investment consultants would do or that there are now spreadsheets that will do for you. Salomon Brothers. In the late ’80s, when it was struggling, he bought into it. Later there was a scandal, many of the senior managers of the business had to be fired and he ended up having to become the chairman. That was a big mistake, as he acknowledged. Carol Loomis, a journalist, helps him write the very amusing Berkshire Hathaway annual shareholder letter. There are endless aphorisms that are the sayings of Warren Buffet."