Imagine If Warren Buffett Was Your Grandfather?
A Blog by Pádraic Ó Máille.

‘It’s interesting that I had such a close relationship with my grandfather. Because your parents always judge you: they say ‘You shouldn’t do this, or you shouldn’t do that.’ But with your grandparents you have a feeling that you can say anything or or you can do anything and they will support you. That’s why you have this connection.’
Novak Djokovic.

I asked a group of transition year students last week what their greatest worries in life were. I wasn’t surprised to learn that they dreaded failing exams; not being liked; and not living up to their parents expectations.

What did fascinate me however was the inordinate amount who fretted about something bad happening their grandparents.

I came to recognise the benefits of the ‘Grandparents Factor’ late on in life.

I’d missed out on the grandparents thing simply because mine had all passed on before I was born. It was only when I began taking my 80 year old father-in-law for a drink each Friday evening that I became aware of this most potent form of mentoring. It quickly became the most valuable and important couple of hours in my entire week.

Pat Carroll was both interested and interesting, and very much in that sequence. He was totally non-judgmental and always looked for, and found, the good in each and every circumstance. He praised lavishly and on occasions hinted at where things could be done better. He told stories that I will remember to the day I die and each had a certain moral or learning point that stuck with me for ages.

Most of all he had wisdom. That deep seated wisdom rooted in experience and nourished in the most challenging university in the world – the university of life.

He believed implicitly that it was in the quality of your decisions that your destiny was shaped. And in order to make sound decisions it was imperative to acquire sound information.

He provided that source of sound information to countless thousands of people so much so that when he passed on at the tender age of 93 I feared from whence I’d source my information and wisdom.

Then out of the blue I had another ‘Grandfather Experience’ last week.

I stumbled upon a letter from not one, but two grandfathers. It was 30 pages long and it felt like it had been written especially for me. If you like, you too can read it on this link.

http://www.berkshirehathaway.com/letters/2015ltr.pdf

Why would you want to?

Simply because it’s direct from two grandfathers who have collectively generated an average return of 19.2% per annum on their investments since 1965. In public house parlance that would mean you’d roughly double your investment in less than 4 years.

Warren Buffett (85), and his business partner of many years Charlie Munger (92), published their annual letter to shareholders on February 27th last. And even if you may not own any Berkshire Hathaway stock valued at $200,000 a share, you have direct access to 30 pages of pure and unadulterated thinking from two of the most successful investors in history.

I believe this letter should be required reading in every school and university and should be promulgated from every pulpit and altar of all our ecclesiastical establishments.

Here are 7 pearls of wisdom I gained from reading the letter.

1. Begin Powerfully.

In Connemara it’s said that ‘tús maith leath na h-oibre’ (a good start is half the battle). Psychologists refer to this as the Law of Primacy. We recall that which we hear first. Nowhere is this more important than at the beginning of any class of presentation be that an email, a letter or a formal presentation.

Buffett and Munger eschew using any fancy graphics or imagery in their opening page. They resort moreover to the old fashioned maxim of ‘show me the performance.’ The opening page is a simple summary of Berkshire’s performance versus the S&P 500 each year since 1965. That’s 51 years of performance based evidence. The return on the S&P 500 over that period was 9.7%. On Berkshire, it was a staggering 19.2%.

The message is simple. Be upfront about your performance compared to the best. Secondly keep it simple and easy to assimilate. There is absolutely nothing complex or complicated about the presentation of this data. Any non-financial person could read and understand at a glance that this is an outstanding performing alliance.

2. Recruit Only the Da Vinci’s of Their Craft.

Observe the way Buffett and Munger describe a newcomer to their investment portfolio.

‘The newcomer will be Precision Castparts Corp. (“PCC”), a business that we purchased a month ago for more than $32 billion of cash. PCC fits perfectly into the Berkshire model and will substantially increase our normalized per-share earning power.

Under CEO Mark Donegan, PCC has become the world’s premier supplier of aerospace components (most of them destined to be original equipment, though spares are important to the company as well). Mark’s accomplishments remind me of the magic regularly performed by Jacob Harpaz at IMC, our remarkable Israeli manufacturer of cutting tools. The two men transform very ordinary raw materials into extraordinary products that are used by major manufacturers worldwide. Each is the da Vinci of his craft.’

Their recruitment policy says much about their values. Note the respect and praise they mete out to each. They exert much emphasis on ‘da Vinci’ like performers. In describing Donegan and Harpaz you could easily imagine a Messi and Saurez – performers, regularly capable of producing magic.

3. Admit Openly When You Get Things Wrong.

Note how self-deprecating Buffett is (he deliberately singles himself out in this example, not Munger) when referring to failure and error and mistakes.

A few, however – these are serious mistakes I made in my job of capital allocation – have very poor returns. In most of these cases, I was wrong in my evaluation of the economic dynamics of the company or the industry in which it operates, and we are now paying the price for my misjudgments. At other times, I stumbled in evaluating either the fidelity or the ability of incumbent managers or ones I later appointed. I will commit more errors; you can count on that. If we luck out, they will occur at our smaller operations.’

Concession of human frailty is at once endearing and credible.

4. The Role of a Leader is to Define Reality and Give Hope.

This is a direct quote from CEO of American Express, Ken Chenault, who Buffett admires greatly. Interestingly Berkshire owns 15.6% of AXP. Not a bad idea to check out their value for yourself!

Buffett and Munger do both – define reality and give hope – in spades.

Here what they have to say about the future of the American economy.

‘The babies being born in America today are the luckiest crop in history.

American GDP per capita is now about $56,000. As I mentioned last year that – in real terms – is a staggering six times the amount in 1930, the year I was born, a leap far beyond the wildest dreams of my parents or their contemporaries. U.S. citizens are not intrinsically more intelligent today, nor do they work harder than did Americans in 1930. Rather, they work far more efficiently and thereby produce far more. This all-powerful trend is certain to continue: America’s economic magic remains alive and well.

My parents, when young, could not envision a television set, nor did I, in my 50s, think I needed a personal computer. Both products, once people saw what they could do, quickly revolutionized their lives. I now spend ten hours a week playing bridge online. And, as I write this letter, “search” is invaluable to me. (I’m not ready for Tinder, however.)

For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs. America’s social security promises will be honored and perhaps made more generous. And, yes, America’s kids will live far better than their parents did.

5. We Like People Who Make Us Laugh.

His comment on Tinder is one of many efforts to bring humour to a subject that is often portrayed as as joyless as a Mass card.

Another comment refers to newcomers who may not have seen them before.

In making your evaluation, be kind: Allow for the fact that we didn’t look that impressive when we were at our best.’

In relation to their life-prolonging diet they have this to say.

‘Viewers can also observe our life-prolonging diet. During the meeting, Charlie and I will each consume enough Coke, See’s fudge and See’s peanut brittle to satisfy the weekly caloric needs of an NFL lineman. Long ago we discovered a fundamental truth: There’s nothing like eating carrots and broccoli when you’re really hungry – and want to stay that way.’

Apart from the humour, it should come as no surprise to you that Berkshire is a significant shareholder in The Coca Cola Company and See’s peanuts. It pays to promote.

6. Embrace Technology.

Prior to the burst of the dot-com bubble Buffett was criticised strongly for his reluctance to invest in technology stocks. His response simply was that he didn’t understand it. It hasn’t prevented him however from using technology to grow his business.

‘Charlie and I have finally decided to enter the 21st Century. Our annual meeting this year will be webcast worldwide in its entirety. To view the meeting, simply go to https://finance.yahoo.com/brklivestream at 9 a.m. Central Daylight Time on Saturday, April 30th. The Yahoo! webcast will begin with a half hour of interviews with managers, directors and shareholders. Then, at 9:30, Charlie and I will commence answering questions.

This new arrangement will serve two purposes. First, it may level off or modestly decrease attendance at the meeting. Last year’s record of more than 40,000 attendees strained our capacity. In addition to quickly filling the CenturyLink Center’s main arena, we packed its overflow rooms and then spilled into two large meeting rooms at the adjoining Omaha Hilton. All major hotels were sold out notwithstanding Airbnb’s stepped-up presence. Airbnb was especially helpful for those visitors on limited budgets.

Our second reason for initiating a webcast is more important. Charlie is 92, and I am 85. If we were partners with you in a small business, and were charged with running the place, you would want to look in occasionally to make sure we hadn’t drifted off into la-la land.’

7. Have a Simple Blueprint for How Your Business Works.

Here’s their five step blueprint for how they run their multi-billion business. Is your blueprint as simple?

‘The managers who succeed Charlie and me will build Berkshire’s per-share intrinsic value by following our simple blueprint of: (1) constantly improving the basic earning power of our many subsidiaries; (2) further increasing their earnings through bolt-on acquisitions; (3) benefiting from the growth of our investees; (4) repurchasing Berkshire shares when they are available at a meaningful discount from intrinsic value; and (5) making an occasional large acquisition. Management will also try to maximize results for you by rarely, if ever, issuing Berkshire shares.’

8. Much of What You Become In Life Depends On Whom You Choose To Admire and Copy.

The most quoted advice in Smácht is the iconic Jim Rohn quote that ‘you are the average of the five people you are surrounded by the most.’ It seems Warren and Charlie agree.

‘Tom Murphy and Dan Burke. These two were the best managerial duo – both in what they accomplished and how they did it – that Charlie and I ever witnessed. Much of what you become in life depends on whom you choose to admire and copy. Start with Tom Murphy, and you’ll never need a second exemplar.’

Imagine the impact a 19.2% return on your investment would have made to your net worth over the past! Now, imagine the impact it could have on your future!

That’s the impact having Warren Buffett as your Grandfather would have.

The link again is

http://www.berkshirehathaway.com/letters/2015ltr.pdf

Pádraic Ó Máille is Founder & CEO of Smácht, a methodology that helps you realise more of your potential through the application of discipline.

To have him speak at your meeting or conference or have him facilitate a strategic thinking session in your business please contact him at p@omaille.ie or 0035387-2647817