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I recently had a chance to talk with Warren Buffett biographer Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life. Has Buffett been hurt by his investment in, and defense of, Goldman Sachs (NYSE: GS ) ? What was behind Buffett's bad investment in Moody's (NYSE: MCO ) ? How does Buffett measure success going forward? In this third of five installments, Schroeder tackles those questions.
Mac Greer: Buffett and Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B ) made a $5 billion preferred stock investment in Goldman back in September 2008. Buffett has praised Goldman's CEO, Lloyd Blankfein, and has defended Goldman's marketing of securities that led to the SEC civil suit. Alice, to what extent do you think Buffett's connections to Goldman have altered Buffett's public perception as a good guy?
Alice Schroeder: You know, I don't think it has been very helpful, because in the past, when he bought these preferred stocks and he became a defender of companies that were not necessarily great companies, he was not as well known as today, and he was not thought of as America's, or even the world's, business ethical leader. Especially after the financial crisis, there was this opportunity to play such a strong role in reform, and Goldman has become a symbol, for better or worse, and outsized. It has become a disproportionate symbol relative to what the firm is, of everything that went wrong on Wall Street. His association with that is unfortunate, and I wish that without hairsplitting about whether Goldman legally did something right or wrong, I wish that he would simply take the symbolic view that he would be better off taking a step back and not being so closely associated with that, because in the long range of history, he will have more influence if he were not.
Mac: And in the Snowball, Alice, you write that Buffett's mother had a 100% outer scorecard about everything -- she cared desperately what people thought of the family and of their image -- whereas Buffett's father had a 100% inner scorecard -- an internal compass. What do you think Warren Buffett's scorecard looks like today?
Alice: Well you see, these two things ... were in him all the time, because he is a principled person, and there are people who think he is a hypocrite; he is not a hypocrite. He is someone who has [a] war with himself over various things -- the desire to make money, the desire to be thought well of by others, which was the mother issue that you brought up. He has that, perhaps, to a greater degree than most people, but at the same time, he is also a principled person who genuinely wants to do right. He has his little hypocrisies, admittedly, and they have come to light lately, but I think we need to have some perspective here. By the standards of Wall Street, this is someone who has at least tried. He is not one of the villains, here. He may have fallen short a bit of people's hopes, but at the same time let's not place too much blame on him. Let's look for who the real villains are, which I think is Moody's. I think his association with Moody's is worse, much worse, than his association with Goldman Sachs.
Mac: Let's talk about that association with Moody's. Do you think that he had a blind spot there, or is Buffett being a bit disingenuous when he talks about Moody's?
Alice: Well I think he is trapped. Having owned the stock and made the decisions that he made, it is very difficult to go back and say, I was greedy and I ignored or had a blind spot about the flaws in their business model and the conflicts of interest that they had. I think he is trying to be consistent, but what you had with Moody's is I think pretty clear. The very things that made them so profitable were the flaws that made them cause the problems that they did. They were able to put triple-A ratings on these securities that didn't deserve it because there was no check on their behavior. There was nothing to stop them from doing that because they had, in effect, a duopoly.
That was part of what made them so attractive to him from a business standpoint. It is a nuance thing, but I think for him to go back and say, gee, I wish that I hadn't seen this incredibly profitable company, because it was profitable for the wrong reasons, is beyond what he can do.
Mac: Going forward, how do you think Warren Buffett measures his success?
Alice: Well, he has for some years wanted to measure it by his influence and the way he would be remembered as a teacher. This past year has been disconcerting because it has undone some of his influence. I don't know what his thoughts and plans are to try to come back from that and turn that around. He has got a lot of wisdom to offer. If you had the opportunity to spend a lot of time with him, I think almost anybody would really learn a lot. I think that if he can just devote himself to teaching the nuances of what he knows, I think it would be terrific, and that would be his legacy.
Check out parts one and two of our interviews with Alice Schroeder:
In part four of our interview, Alice talks about whether a bigger Berkshire means smaller returns for investors.