Berkshire Hathaway

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By gdefelice
September 25, 2001

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In the Drucker interview posted by stask I bumped into an old friend so often ignored in business -- Trust. The value -- the real, economic value -- of trust is almost always understated. I value it above all else when making long-term economic commitments to businesses whose economics and competitive advantages I am otherwise totally comfortable with.

Heck, I value it when I go to buy a car. I don't trust American car makers. So, I don't buy their products -- no matter how much I like the package on the outside. I trust the workers; I don't trust the management. And, I won't buy their stocks, no matter how cheap they get. I couldn't believe it when Daimler bought Chrysler. BMW, still family controlled, resisted the "sage advice" of outside consultants and bankers (at least, after the Rover mistake) and refused to hook up with a bigger player. I hope they keep their independence. I'm convinced it is an advantage in the car world, if you have a top quality product and don't need financial help. I'm betting that the quality of Mercedes will slip rather than the quality of Chryslers improve -- how else are they going to pay for the losses at Chrysler?

I trust Warren Buffett as much as my father, and I trust my father more than any other person in my life. I am not yet married.

Of course, my trust might be misplaced. There is no way to know -- no logical, explainable way to know whether one's trust in someone else is reasonable or dubious. Because of that fact, I think, it is therefore often ignored when making business decisions. While, for example, in the case of marriage trust is paramount. Though people do often fool themselves in matrimony, the smart people consider trust near the top of the list when selecting a mate. Still, you have to be right about it.

In Robert Cialdini's book, Influence (oft, and well, recommended by Charlie Munger), he describes the many ways in which shysters and charlatans "trick" people into doing things they really do not, or previously did not, want to do. It is truly amazing how the psychology of this works. You tell yourself you wouldn't be one of the suckers, but almost all of us have been. In fact, I bet everyone of us has been at one time or another. The shysters manipulate and abuse us by taking advantage of social norms and by taking advantage of our own natural predisposition to avoid behavior that contradicts our stated beliefs.

Cialdini explains that one can tell, sometimes, when a shyster is at work. He says you'll feel it in your stomach. Sounds silly at first, but I like it. We have all been there. You start to sense, physically, that you do not want to say yes to something because you believe you're being manipulated and then, all of a sudden, you've said it.

Cialdini says you have to have awareness of this reaction to defy the power of social norms and natural psychological rationalizations.

I don't trust people who prevaricate and equivocate and never take responsibility for their actions. It doesn't mean I hate them. It just means I wouldn't trust them with my money or my life or my family.

Even if you trust yourself to make the right investments, you still have to trust the numbers on the balance sheet -- and those are put there by people. If you can't trust the people, all your analytical skills are worthless. I think Graham understood this -- I assume it is part of the Margin of Safety idea.

Buffett understands this. One way he has dealt with it is by buying businesses which are insulated from people -- Coke is bigger than any manager. He has also dealt with it by only doing business with people he "likes, admires and trusts." Well, he likes people that he trusts and he admires people that he trusts. Most people think the other way. They trust people that they like and admire people that they like.

Well, I admire Warren Buffett and I like Warren Buffett because I trust him. I trust that he is honest with me because I think that he is honest with himself. I know he has the skills but so do lots of crooks and charlatans. They tell you to buy while they're hitting the sell button. The press doesn't condemn them because if they did, there would only be people like Buffett (and there are many, many others) to interview. And, of course, they don't have much interest in that.

In such uncertain times, it is comforting to have a person of such great integrity controlling the business in which most of my money is invested.

Warren Buffett really is a great American capitalist. He makes money by being honest. He is honest with himself and with potential and existing shareholders. He is honest about the facts, about reality, about his beliefs. He is honest with the owners who sell to him.

I could not imagine a better investment partner.

And that is really worth something.



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