In Praise of Buffett

This is a small post, as the common vocabulary goes- a quickie. Quick and a climax which is seldom intellectually satisfying and for all practical purposes adding just a mere notch to my blogging bedpost.
Having said that, why not go ahead and do the deed, indeed.

At the very outset, I have never been a fanatic worshipper at the altar of Buffett. Surely, I like the man for his extreme intellectual sharpness but fanaticism he doesn’t invoke. But that should not be taken as a limitation of that man in any measure. I have just become incapable of being swayed by extreme passion these days, for goods which the vast majority swears by.

Coke? yeah okay. Pizza? yeah okay. Buffett? Yeah, okay.
But my greatest weakness has been for the wisdom and the character that Charlie Munger carries.

Tapdancing To Work300.grid-4x2

However, I have been reading Carol Loomis’s book “Tapdancing to work:Warren Buffett on practically everything“. And the more I read, the more I find myself humbled. For one, Buffett has an exemplary clarity of thought. Not that it is a surprise for Buffett observers, but the more I am reading the newspaper articles around Berkshire Hathaway’s purchases, the more I find myself in awe.

Fortune articles are sanitised version of Buffet’s ideas. It doesn’t talk about the different permutations and combinations he considers for a given matter. It doesn’t concern with the fine judgement and skill he brings to the table before pulling the trigger. It doesn’t consider with the different consequences he might be thinking of because of his actions. All we see is the final action and its post mortem by financial media (Fortune in this case). But even in such sanitised version, Buffett sets a very lofty example for people to follow.

I, for one, am particularly hamstrung by my clarity(or the lack of) in thoughts. And if I am to consider putting in Buffett’s clarity in the vast Gaussian curve of humanity’s, then Buffett will figure out somewhere far off in the horizon, sitting pretty at the mark of 6 sigma.

I will rank myself perhaps somewhere in between negative single sigma and the mean. So being humbled is being disingenuous. Ravaged is more like it.

The second quality that jumps out in case of Buffett, is the huge amount of domain knowledge he carries in his head. Stupendous is an understatement. Encyclopedic will be close. He is known to beat the professionals in their own game- and the game not being that of stock picking but that of deal making.
When Capital Cities Corp was in talks with American Broadcasting Company for a merger, Buffett pitched in along with Tom Murphy to negotiate. On the other side of the table two extremely sharp, smart veterans of deal making were present representing the interests of ABC Corp. The name of the gentlemen were Bruce Wasserstein and takeover specialist Joseph Flom.

Peter Petre (the journalist reporting it in 1986 for Fortune) writes:

“As the two sides neared an agreement, the professional dealmakers held out for more. “Buff ett is so smart,” remembers Wasserstein, “that you had to be careful to avoid being picked.” As the dealmaker tells it, he and Flom demanded that Cap Cities sweeten its cash off er for ABC with stock; but Buff ett, who was not to be pushed far, finally closed by throwing in some small change—a thin veneer of warrants that raised the deal’s value by perhaps 3%.”

Sharp as a whip.

I think another Buffett biographer wrote that Warren always pushed a super hard bargain and used the existing structure to his advantage. When the brokers were making market for illiquid pink sheet stocks, Warren would repeatedly drive the purchasing price down by first quoting a price and then withdrawing it.

In his 1986 Annual Report also where he posted the Business Wanted notice- he lays out one binding condition regarding valuations- the seller has to reveal his price. No preliminary talks will be entertained without a price tag. That’s remarkable!

Any negotiator will tell that the one who names the price first-loses.

The third aspect which comes out of all this is the picture of a man who has put multiplitudes multitudes of 10,000 hours in perfecting his trade. Concentration of his efforts, time and resources in perfecting one single idea. Thats the discipline of a samurai.

I for one, am still looking out for a job which will pay me to become wise.

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A Success Template

This is an annotation and commentary of the wonderful interview that Mr Tom Murphy did with Harvard Business School talking about his early childhood and career. The idea for this post was taken by Greg Speicher’s wonderful post

Thomas ‘Tom’ Murphy was the  CEO of Capital Cities till 1996. He joined a small broadcasting company in New York in 1954 and gradually went on to build the television broadcasting empire that Capital Cities eventually became. He engineered some cannily crafted deals, acquisitions and partnerships finally to emerge as one of the most successful and legendary broadcast executive in the then USA.  In 1985 he shocked the media world by announcing the acquisition of American Broadcast Company(ABC) for $3.5bn. Incidentally it was his long association with Warren Buffet that helped him to iron it out. Finally in 1996, he sold the Capital Cities/ABC for $19bn to Disney.

He did an interview with Harvard Business School here. Whichever way you look, Thomas ‘Tom’ Murphy had some brilliant success in his life and career. Its important thus to read, understand and internalise the qualities of the man- that Tom Murphy is; for he can show us what it takes to be successful.

“I would say that the most fortunate thing that happened to me, outside of being born an American, was that my father and mother were just magnificent. They were very happily married. I would say that the single most important thing in my life is the wonderful family I came from”.

Its surprising with the way he starts narrating his story. If there is one word which describes it is gratitude. Of course one can always argue that when a man has achieved so much gratitude is the least thing he should feel. But then gratitude doesnt arise in vacuum. It arises from an acknowledgement of life blessings, and for that optimism is important.

Success Template #1: Be optimist, have a positive outlook to life.
Success Template #2: Yearn to be the best husband and you will be the best parent.

 “The three of us were always trying to get the best possible education for ourselves. My father was insistent about it—almost a nut about it. He wanted us to work hard and play hard.”

The importance of education is perhaps widely recognised and yet millions of us still fail to point it out enough. Its very easy to confuse education with mere collegial degrees. That might be education in the way society defines it, but that is not education as successful people define it. Broad, extensive and deep reading , the internalisation of such knowledge and its application is what defines education. Remember what Einstein said- “Education is what remains after one has forgotten what one has learned in school”.

Success Template #3: Educate yourself.

“One of the interesting things I’ve learned in my life is that one of the most uncommon things in life is common sense. It’s very hard to notice whether people have great common sense.”

It is of course a given that we as a civilization are progressively losing our ability to think, reason and figure out. But then we often confuse common sense with acceptance of common myths. There is no set out ideas behind this except that common sense, curiosity and learning by questioning are all connected at hip. One related and fantastic post can be found here at farnamstreetblog.com [ How we get duped by Common Sense ]

The second thing Harvard Business School did was it gave me associations through my classmates. We had all just come out of the service, and my classmates have become my best friends in the last fifty years.

This is one of the finest learning of mine in the last 2-1/2 years. I have learned to understand and value the power of networks. I am a slightly shy and introvert person. And keeping networks going is difficult for me. However much of the success of a lot of people I know arise from their associations. Associations and Networks are hallmarks of robust,successful systems. Ecology thrives on networks, as do democracy [Tocqueville remarked famously- Americans of all ages, all conditions, all minds constantly unite.] Much of his success in making the deal with ABC was due to his association with Warren Buffet.

Success Template #4: Form networks, nurture them and harness them

From here starts some of the golden words on businesses, investing and money making. Listen carefully, my friends for it is the sage speaking:

“There are not many great businesses that come along in a lifetime”

“Because of the limited availability of licenses, there was limited competition, and so it exploded over the next thirty or forty years”

“The business is not capital intensive, nor is it labor intensive.”

“The costs are somewhat fixed so as you had greater and greater sales, the margins would just continue to grow.”

“So just by being sensible about our business, we continued to grow the company and buy businesses from other people who didn’t see the potential profitability that we saw.”

This is absolute gold. What we have in our hands, ladies and gentlemen is the very template of very successful business. The fact that great businesses are not common is iterated and reiterated time and again by Munger, Buffet and all of the focus investors. Great Businesses are great because they have rare characteristics in them. And what are they?

Success Template #5:

  • Barriers to Entry.
  • Asset Light
  • Priceability (ability to undertake pricing hikes)
  • Buy keeping the long term vision in mind.

In the following quotes he tells about how understanding his businesses made him money. Remember Buffet and Munger repeatedly point this out that understandability is the most important quality to look for in the business. And this can also be stretched to advantages and strengths of the business model.

“…as long as I could in the businesses we understood, which were television and radio.”

“When we got as big as the FCC would allow, I went into another business that I could understand, which was the newspaper business. In a sense, it’s a monopoly business like broadcasting and it is advertiser supported.”

This is interesting enough because he is reflecting a theme which is so near and dear to Buffet’s franchise model. A monopoly business.

So we can add one more addendum to the template #5,

  • Monopolies and Oligopolies only!

One thing with Tom Murphy is, his sense of ethics and personal integrity stands out. His personal constitution becomes apparent- as one who values the old world principles. In India, decades of socialism has eroded personal principles; statism has eroded personal pride; And yet, I believe success mantras in India is not any different than it is in America.  As the legend said-

“I would also say, don’t give up on your ideas and certainly never give up on your ideals.”

The entire interview can be found here. Do give it a read.