Warren Buffett: LeBron James Can Teach Us a Valuable Money Lesson

While we may not think LeBron James can teach us anything about what we do with our money, Warren Buffett reveals just the opposite.

Jun 8, 2014 at 11:15AM

It's hard to overemphasize the importance of who is CEO of a company.

We know a lot about what Warren Buffett looks at when he makes an investment or buys company outright. But it turns out one thing that isn't discussed is of huge importance to Buffett himself.

In the 2005 letter to Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) shareholders, Warren Buffett penned the quote above when discussing the merger of Procter & Gamble (NYSE:PG) and Gillette which was finalized as the year drew to a close.

When it was all said and done, Berkshire Hathaway recognized a $5 billion pre-tax gain as a result of the merger. Considering the original cost of the Berkshire Hathaway investment in Gillette was $600 million, it is one more example to jot on the long list of successes by Buffett.

But it turns out one of the driving factors behind Buffett's investment success with Gillette wasn't simply its cost, or the "moat" around its business model, but -- taking the moat language a little further -- the man atop the castle itself.

The power of leadership
Jim Kilts took the helm of Gillette in 2001, and Buffett notes before he arrived, "the company was struggling," as the acquisition of Duracell in September of 1996 for $7 billion  "cost Gillette shareholders billions of dollars."

Buffett suggests the acquisition was a prime example of the company's "blunders," as it could neither efficiently nor effectively use its earnings to generate returns for shareholders. But Kilts swiftly changed that. Buffett went on to say:

Upon taking office at Gillette, Jim quickly instilled fiscal discipline, tightened operations and energized marketing, moves that dramatically increased the intrinsic value of the company. Gillette's merger with P&G then expanded the potential of both companies.

And while Buffett notes as a result of his work, "Jim was paid very well – but he earned every penny."

The key to remember
The compensation of CEOs draws endless attention, and much has been made of Buffett's absence in voting on the compensation of Coca-Cola (NYSE: KO) executives this year. It was just a few lines after discussing Kilts in the 2005 letter when Buffett openly admits "too often, executive compensation in the U.S. is ridiculously out of line with performance."

Yet the thing with executive compensation is that in select instances, Buffett also suggests:

Indeed, it's difficult to overpay the truly extraordinary CEO of a giant enterprise.

So is Buffett full of contradictions when it comes to this? The answer: Of course not.

In 2008, Buffett said, "Price is what you pay; value is what you get." And the same reality applies not just to the investments in stock, but those leading the company. And taking a step into another industry, consider LeBron James for a moment.

Lebron By Zennie

Source: Flickr / zennie62.

With the Heat now in their fourth-straight NBA Finals -- only the fourth time a team has done that  -- questions about LeBron's ability to lead a team have (rightfully) vanished. But what isn't discussed is that despite his $19 million salary, LeBron may in fact be underpaid.

In 2010, the Wall Street Journal suggested if the NBA didn't have such restrictive salary cap rules -- it limits how much a maximum contract can be -- LeBron should be earning $43 million a year.  Last year, an economist at the University of Oklahoma, Kevin Grier, told NPR LeBron is "getting hosed," by his current salary. 

What we can learn
In the examples of both LeBron James and Jim Kilts, the key here isn't the pay the men receive, but the value they provide.

Jim was able to improve Gillette on multiple fronts, from accounting, manufacturing, and even marketing. In the same way, LeBron is known for his ability and contributions offensively and defensively. His skill allows him to not only play, but excel on any area of the basketball court.

Discussion surrounding the value of individual leaders occurs often in sports, but not nearly enough when we make investments.

When we make investments, we can be trapped into thinking the only critical considerations are those quantitative ones based on what value can be found on balance sheets and income statements. But from Buffett, we can learn we must explore not only the value offered by the company and its business, but those at the top of it as well.

Warren Buffett just bought nearly 9 million shares of this company
While you can't buy shares of Gillette, you can buy into one company Buffett loves. Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Patrick Morris owns shares of Berkshire Hathaway and Coca-Cola. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, and Procter & Gamble. The Motley Fool owns shares of Berkshire Hathaway and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers