Absurdity and Rationality in Omaha

For one weekend each year, Omaha, Nebraska becomes the center of the business universe as Warren Buffett presides over the Berkshire Hathaway Annual Meeting. Thousands of shareholders descend on Omaha, giving the meeting a feeling that is equal parts business school, Grateful Dead show, and Star Trek convention. But Bill Mann still can't figure out why so much coverage of the meeting focuses on the wrong stuff.

Format for Printing

Format for printing

Request Reprints


By Bill Mann (TMF Otter)
May 2, 2001

You may notice a heavy tilt at The Motley Fool toward coverage of the Berkshire Hathaway (NYSE: BRK.A) annual meeting this week. This is as it should be: Not only is Berkshire Hathaway's chairman, Warren Buffett, among the world's most successful investors, but he is also one of the great thinkers and communicators on subjects of corporate and capital management. Berkshire Vice Chairman Charlie Munger, meanwhile -- also chairman of Berkshire investee Wesco Financial (AMEX: WSC) -- is one of the most quotable curmudgeons of our time.

This is an event that is made for fawning overexposure. At what other time and place do two billionaires answer the masses' questions for six hours? These are two men who have made many around them extremely rich. And yet I find myself amazed at how much of the coverage of the Berkshire annual meeting revolves around stuff that doesn't matter at all.

How many times must we hear about the "vindication of Warren Buffett" following the collapse of the technology stocks he has habitually shunned? Guess what: Buffett doesn't give a rip about vindication, nor does he view investing as a zero-sum game. Those who reported on the weekend's events in Omaha in this way are clueless.

And Buffett reserved a few well-deserved barbs for those who helped feed the recently deflated stock market bubble, saying: "What the Internet offered was the ability to monetize the hopes of others. A lot of money was transferred from the gullible to the promoters. It's been a huge trap so far." It should be painfully clear to anyone who has studied Buffett, however, that he has neither envy for people who do well investing in areas he will not go, nor much compassion when others lose their shirts through their own avarice or stupidity.

What Buffett displays in abundance is rationality. Though vindication is an attractive motivation for sticking to one's guns, it is merely emotional. Nothing in Buffett's statements or actions suggests he has given those who were critical of him over the last several years for "missing out" on the huge runups in many technology stocks a moment's thought.

Actually, his comments about technology companies this past weekend were eerily similar to those made in recent years. When Buffett says "Our record of persuading decent, intelligent people to stop doing dumb things is very poor," he is effectively showing his trump card: Warren Buffett is not trying to have Berkshire beat all other investments in any given year.

While Berkshire Hathaway has never been the top-performing investment in any random 365-day period, it has appreciated more than 171,000% over the 34 years of its existence. What Warren Buffett has forsaken is the feeling of being the winner in any single sprint for the right to be among the greatest marathoners of all time.

You'd think someone who had achieved these kinds of returns would be fairly ecstatic about the stock market's potential to make people rich. You'd also be dead wrong. In fact Buffett believes those who expect to make 15% per year -- well below his historical compound average return -- in stocks over the next 15 years are "living in a dreamland."

How has Buffett done it, then? By being more rational than those around him, by being patient, and by being slavishly devoted to his formula for selecting investments:

  1. Can I understand it?
  2. Does it have sustainable competitive advantages?
  3. Is the management good?
  4. What's the price?

None of this is to say the people surrounding Buffett and Munger necessarily share their hyper-rationality. The Berkshire meeting alternately reminded me of a rah-rah Tony Robbins-type event replete with fawning feel-good vibes, a Grateful Dead show with participants who come year after year after year, and a Star Trek convention, with participants obsessing over bit players -- like Warren Buffett's personal secretary being treated like Uhura.

(Buffett's personal secretary is, in truth, a really nice person who duly deserves any and all accolades she gets. I couldn't help but sense, however, that she found all of the attention to be a bit bizarre.)

The city of Omaha has its own little quirks. There's a main street called West Dodge, signs to which point to West Dodge West and West Dodge East. For a reason unknown to me, Omaha has a Mexican Consulate. It also has a restaurant called "Ethnic Sandwich," which I was too cowardly to try. ("Is this sandwich made with real ethnics?") Oh, and one more thing: There's a Popeye's restaurant in Omaha with a banner out front that says "Gizzards." No price, no descriptor like "fresh" or "fried" or "fricasseed." Just "Gizzards." Mmmmm.

Out of all this, though, one comment from Charlie Munger took my breath away. Asked by an 11-year-old shareholder what he attributed to successful investing, Munger replied: "If all you succeed in doing in life is getting rich by buying little pieces of paper, it's a failed life. Life is more than being shrewd in passive wealth accumulation."

Munger, for his part, has made charitable donations in the millions of dollars to institutions that are important to him, including the Los Angeles Public Library System, Good Samaritan Hospital, and several schools. He also came up with Berkshire Hathaway's unique shareholder-designated charity, through which each owner of Berkshire Class A stock has the annual opportunity to select the charity to which Berkshire will donate on his or her behalf.

Here we were, at a meeting for which some people had traveled several thousand miles to hear the investing and business wisdom of Warren Buffett, and Munger reminds us that much of our energy should be dedicated elsewhere. That the comment came from someone whose life success has ostensibly been defined by the very activity of buying pieces of paper is noteworthy. If someone who has reached the height of success in investing can keep from being defined by these actions, it should tell us mere investing mortals that much of the time we spend concentrating on investing is really time wasted.

I fully expected to come home from Omaha a smarter, wiser, and even more principled investor. I did not expect to leave the Berkshire Hathaway meeting wanting to be a better person. That the management of a publicly held company can so fully place their interests in alignment with those of shareholders is inspiring. That so few managers of other companies follow their lead in corporate governance is sad.

Fool on!

Bill Mann, TMFOtter on the Fool Discussion Boards

Bill Mann wonders how it is that everyone who believes in reincarnation seems to have been someone famous in a past life. At the time of publication, Bill held beneficial interest in Berkshire Hathaway. To view all of Bill's holdings, please visit his profile. The Motley Fool is investors writing for other investors.