Buffett reportedly has sold nearly all of
his position in Wells Fargo after holding
the stock since the 1980s. Please discuss.
Buffett and [vice chairman] CharlieMunger stood by Wells when it had theaccounts-opening scandal. Their position was that Wells had learned its les-son — they paid the price for the [sales]incentives they had put in place. But,then, when other things were happeningat Wells, they [finally] said, “We’re notcomfortable with this.” And their attention shifted to Bank of America, whichthey saw as a better investment.
Last year, many observers thought that
Buffett had lost his mojo. Was there
anything to that, do you think?
Yes and no. It’s accurate only insofar asBerkshire’s size prevents it from growingas much as it had in the past. Berkshirehas largely continued the same playbookover the years. They stick to their knitting, [but] the world changes. So somethought Berkshire might have lost its way.
What about the growth aspect?
The universe of companies that fits theircriteria has shrunk, and it’s really hard togrow [a conglomerate so large] especially when they retain all their earnings andhaven’t paid out a dividend, althoughthey repurchased shares this past year.
Berkshire has this reputation for buying lower-tech companies. If they don’tgrow or if they’re cyclical or boring, itreally doesn’t matter so much as howthey’re doing in terms of earning returnson the capital they’ve [deployed] — it’sthe cash that an investment can giveyou. Berkshire has picked up companiesthat might not be exciting — like AcmeBrick, really low tech — but that throwoff cash and are generally secure in theireconomic position.
But Berkshire now has big investments
in high tech; Apple, in particular.
Yes. Apple was the largest investment in
terms of actual dollars outlaid. There are
certainly enough lower tech opportuni-
ties out there for them, too. But every-
thing is valued sky-high, and Buffett
won’t commit capital if a company isn’t
at the right price. The discipline they
have is superhuman. It’s just a matter of
Berkshire waiting out the current inter-
est rates and valuation landscape.
Does Buffett regret not having invested
in tech earlier?
He’s said that he should have boughtGoogle stock. So it’s not just things thatyou do but the things you don’t do,which is the full opportunity cost.
What’s been the main secret to
The real secret is in plain sight: Berkshirehad a long runway to compound, a CEOin place for 55 years and continuallyoperating within their circle of competence. It’s a business masterpiece. Theygrew what they knew over time butmaintained a level of conservatism asthe years went along.
You write that Buffett’s legacy is “aformula for long-term sustainablesuccess that maximizes humanpotential.” What’s the formula?Berkshire looks for good old-fashionedvalues. They take the high road. Theypush the individuals [managing theircompanies] to go forward — they motivate them with autonomy and trust.They’re careful whom they trust, butonce they find someone they trust, theygive them really wide discretion as torunning their business.
What’s the roughest patch that
Berkshire has experienced?
The early ’80s through early ’90s — awhole decade’s worth of underwriting insurance losses that really challenged them. Berkshire is still verymuch an insurer. But in that decade,they had some mishaps. For example,they bought Home & Auto Insurance,
outside of Chicago, and tried to replicate it in Miami. But that venture wasdisastrous. [However, the worst investing mistake was] Dexter Shoe, probably.The value of the business quickly wentdown. A recent mistake was PrecisionCastparts, a business they bought for$35 billion in 2016. Buffett has said heoverpaid. They wrote down the value by$10 billion.
One Berkshire strategy is buying
companies that have little growth
potential but that generate cash they
can use. Please discuss.
They take the cash from a businessthat doesn’t grow as long as the capital they invest in that business is stillearning a good return. They do different things with the cash that arebeneficial to growth. In a conglomeratestructure, you can take that cash andmove it elsewhere and re-invest it toits highest potential — and without taxconsequences, though they have to payincome taxes on the profits.
“It will be hard for corporate raidersto break up the conglomerate” afterBuffett’s death if Berkshire‘s successorsfollow the same strategies as he hasand the company “doubles in size,” youwrite. Why would it?
Berkshire has tied so many thingstogether in such a way — some intentionally, some not — that will make itvery hard to break up the company.If Berkshire becomes a trillion-dollarcompany, it would be very difficult toraise that much capital. Insiders andmajor shareholders would be against[a breakup]. So the numbers and theowners’ feelings bode against breakingup Berkshire.
Jane Wollman Rusoff is a contributingeditor who specializes in interviews withthought leaders. An author and prolificjournalist, Jane is founder of www.FamilyStarProductions.com.