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Berkshire Hathaway
Life lesson from Dad

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By hartmanbirge
July 10, 2002

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I have just returned from a two-week hiatus due to my father's funeral. Normally a topic such as this would be the most private affair and not something I would discuss in an open forum � yet I believe his investing story should be shared, as he was exceptionally proud of this area of his life. With all due respect to Warren Buffett I think my dad's philosophy was the best I've ever seen. Not only his philosophy of identifying investment winners (similar to Buffett's) but also his philosophy on how those investments are used. My dad never earned what I would term a great salary. In fact he was "wiped out" more than once over the course of his life as was my grandfather before him. But both men landed on their feet as their lesson was passed down from one generation to the next. After seeing his business interests go under in the early 30s my grandfather plowed what remained of his entire net worth into several stocks during the depths of the depression and accordingly he came roaring back and by the mid-30s was able to put four kids through college and travel the world � a very rewarding life. Although my dad was not what I would call wealthy and never reached the financial level of his father I believe he lived a very profound, rewarding life as well. He had financial independence. What allowed him to achieve it and what did it mean in his day-to-day life?

There was a consistent theme for both father and grandfather � both were exceptional equity investors. Both men subscribed to the same philosophy. To quote dad, "Buy quality and stick with it." It's a simple phrase really, so hard to do, but those simple words define his philosophy in every facet of his life. I doubt that either my dad or his father ever read Ben Graham and dad was certainly no parrot of Buffett � I'm not really certain that he knew who Buffett was other than some rich guy out in Omaha. The philosophy of both dad and his father was what I'd characterize (for familiarity) as a Munger philosophy and both discovered it well before Buffett (or Munger) ever did. When dad died he owned nine stocks. Most of the nine he had owned over twenty years � some thirty. In the time I knew him I never once saw him flinch or pace the floor in nervousness about price fluctuations. His analysis of quality was never what I would term a balance sheet heavy quest. Dad was an accountant's worst nightmare � passionately hating quantitative analysis and paperwork. Although he attended the London School of Economics I never heard him refer to economics as a useful investment tool but it was rather a part of the whole picture. He was a voracious reader of History (his major at Harvard) and read the morning paper "First Sports then down to business." He had a very holistic, multidisciplinary view of the world. After he died I noticed a stack of nine annual reports on his nightstand. That was it � no spreadsheets, no data templates, no calculators. Another quote comes to mind...."Own only the best � I own the best transportation company, the best bank, the best manufacturer, the best pharmaceutical company, and the best consumer products company." As if to say "DUH! That's all there is to it...so intuitively obvious. Why waste your time with the rest."

What did he look for other than industry dominance and what was his philosophy? Every stock that dad owned paid a decent dividend. To my knowledge he never owned bonds or precious metals or any of "that other crap" as he called it. I think it was in large part because he personally identified with the companies he owned as if they were a part of his identity � and in retrospect they were. During his period of ownership he never reinvested the dividends but rather used them for life's expenses and his standard of living. And here's a key principle - The stocks were not there to amass paper wealth or to grow and be sold for capital gains... rather they served a useful purpose throughout his life. They benefited him EVERY year � not some distant date in the future. They gave him steadily rising income and protection against the ravages of inflation. He certainly used the dividend stream to buy more shares at attractive prices but he spent those dividends as well. His stock portfolio was a life tool, which greatly defined who he was.

His stocks and their dividend stream gave him an aura or a persona of character and power. For example, Dad didn't do consumer loans and lower himself to a verbal joust of price haggling � I never once saw him object to a price, he either liked it and bought or walked away. A car purchase? He walked down to the dealer (always walked everywhere) looked at the sticker price in the window, went inside, skipped the adorning salesmen, wrote a check for the car and drove it for the next ten or twelve years. Maybe a ten-minute transaction � just like that. Total control...total class. The money for that car purchase and life's periodic ad hoc charges came from his stock dividends. The dividend stream allowed him to own the stocks forever and sell only rarely. I only recall that he sold two stocks � one after "an 800% gain" and the other after a quick double. None of the stocks were cyclical or economically sensitive. He owned Coke and Phillip Morris and GE and Merck for decades. As if by magic all of the ones he owned seemed to fall into that category of "If you had invested $10,000 in this company thirty years ago you'd now have X (an amount of huge multiple increases). In retrospect the companies were not THAT hard to identify as being great thirty years ago. They were dominant then and pretty much remain so today. Are GE's accounting problems or Merck's pipeline problems or MO's legal problems really that important in the grand scheme of things? Maybe so, but my dad would have scoffed at such drivel and kept leveraging those dividends into an awesome quality of life. Not a bad way to go about it huh?

HB


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