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Friday, June 25, 1999

FOOL ON THE HILL
An Investment Opinion
by Dale Wettlaufer

Business Week Profiles Buffett

Berkshire Hathaway (NYSE: BRK.A) followers, heads-up. There's a great article in this week's Business Week that deserves your attention and the $3.95 cover price if you're not an AOL subscriber. If you are, membership has its rewards -- head to keyword: BW.

Written by Anthony Bianco, the piece is a very fair-minded, pretty nicely detailed look at the way things work at Berkshire Hathaway in 1999. Refreshingly absent from the piece are the usual spins on Chairman Warren Buffett having lost his touch, how Berkshire is just a closed-end mutual fund, and whatever else you see in tons of other articles published in mainstream magazines.

If you've been paying attention or have been a shareholder of the company for a while, you will likely be stunned by one piece of information in the article. Not to steal Business Week's thunder on this one, but here it is:

"Behind the scenes, though, his influence has waned. 'Charlie and I don't talk a lot anymore,' acknowledges Buffett, who says he did not even bother to consult his vice-chairman before making the epochal Gen Re acquisition."

Congratulations to reporter Bianco for getting that scoop, because it's a real revelation. Not that Berkshire Vice-Chairman Charles T. Munger and Chairman Warren Buffett have been hiding it, but no one seems to have asked the question "Hey, how's it going with you two these days?" Buffett and Munger have known each other and have been confidants and basically business soulmates for decades now. Though they've never kept their offices in the same city, the two had in past years talked on the phone almost every day, sometimes several times per day. That this change has taken place wasn't perceived by anyone, as far as I know, and at first I thought Buffett was having some ironic funning at the expense of the reporter. But it's kind of hard to imagine Warren Buffett sending a reporter away with that information. He's a humorous guy but not a sadist, and I would think he wouldn't pull this sort of joke on someone.

One cannot downplay the influence Charlie Munger has had on the thinking of Warren Buffett. If you think Buffett is one of this century's best business leaders and that is undeniably the result of the intellectual evolution Buffett went through in going from being a Ben Graham-influenced capital allocator to being a franchise-oriented investor, then you'd be acknowledging the giant intellect of the less-well known Munger, as he has had an acknowledged impact on Buffett over the years.

Earlier this year, my colleague Yi-Hsin Chang and I interviewed Robert Hagstrom, portfolio manager of the Legg Mason Focus Trust and author of two books on Warren Buffett, The Warren Buffett Way and The Warren Buffett Portfolio. At the end of the interview, I put in my request for Mr. Hagstrom to do a book on Munger, as I think the story on the two and Buffett's intellectual journey needs more depth. Hopefully, Buffett will find the time to put pen to paper and go through this himself, though his writings already stand as a landmark in the written body of work on business.

At this year's annual meeting, Munger expressed his appreciation for Hagstrom's recently published The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy, saying in effect that the work makes an original contribution to investment thinking. No wonder, though, that such a multifaceted and interdisciplinary guy would appreciate this interdisciplinary look at investing. To conclude the matter, it's really not worrisome that Munger and Buffett don't talk as much or that the GenRe deal was not done in consultation with Munger. In fact, it's one of those things about Warren Buffett that is most interesting. You can't pin the guy down. In fact, the same could be said for Ben Graham on a lot of issues, too, but that's another story entirely.

In talking with reporter Anthony Bianco today, I asked if he had any personal observations about the trip he took with Buffett, Executive Jet Aviation (the Berkshire subsidiary that offers fractional jet ownership and related services) chief Richard Santulli, and others to market Executive Jet in Europe. Bianco relayed what many have said, commenting that he was amazed at the lack of CEO/super-rich "attitude" that you get elsewhere. Bianco commented on Buffett's ego, which to some would carry negative connotational baggage, but which he agreed is the result of Buffett's surety of thought and confidence in carrying out his analyses. Bianco added that Buffett is very talkative but does not dominate the conversation. We also talked about the amount and quality of writing Warren Buffett has done over the years, which Bianco thinks really sets him apart from other CEOs and Chairmen and is the result of Buffett's clarity and surety of thought.

Overall, the article is a very good status report on where Buffett is these days. There is original material in the piece beyond what I've mentioned, but I want to leave that to the reader to find out. And while I disagree with the conclusion of the piece, as I think Buffett has and will exercise as much care in the issue of CEO succession at Berkshire as he has in building the company, overall it's an excellent piece and well worth the cover price.

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