Mr. Buffet - Snowball and the Business of Life

Just finished Warren Buffet's biography ("The Snowball, Warren Buffet and the business of life") - thank you JP Morgan Chase. It was a great read and generally dead on what you would expect as Buffet enters his adult life. However, there are a few surprises and a few "reminders".

When Warren was young he was an interesting character. One thing that stands out is that he stole his sister's bike. You would never think of that as part of his personality but as things unfold you can see how it happened. From a very young age, and likely since birth, Warren was singularly focused on creating wealth. His behaviour lined up with this singular focus - at all times. One story that reinforces his early business maturity is reflected in the event where a businessman needed someone to liquidate a warehouse of dog food. The gentleman was located in Omaha and needed someone that was in Washington DC to clear the warehouse (Warren was living there at the time) and the only person he trusted was Warren - who was a teenager. Warren came through and cleared the inventory within a week.

Warren also sought out some of the greats in investing landing with Benjamin Graham ("Intelligent Investor"). We often like to make investing complex bought Warren sought investments that were straightforward - investments that could produce cash and had a safety margin.

I saved on quote from Buffet's book because it wraps up how I believe most investors should invest. "...stocks are things to own over time. Productivity will increase and stocks will increase with it. There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is another way to get killed The best way to avoid both of these is to buy low cost index funds, and buy over time. Be greedy when others are fearful, and fearful when others are greedy, but don't think you can outsmart the market." "If a cross-section of American industry is going to do well over time, then why try to pick the little beauties and think you can do better? Very few people should be active investors" (pg. 825). This method is wonderfully simple and eliminates stress. Unfortunately, some people feel only complicated advice or secretive methods have value.

Buffet also believed in concentrated risk and often purchased entire companies. He could do this because this is all he did and he surrounded himself with capable operators. Having said that, as you read the book you will see that Buffet made several decisions that were not good investments and caused him significant financial pain. His portfolio of decisions were accretive over time but not without pain.

Buffet's personal life was interesting. He had this interesting skill of avoiding any relational pain to the point of letting his wife leave Omaha and relocate to San Francisco permanently. The author doesn't come forward directly on what happened but the implication was she had interests outside of Warren but none were disclosed. Warren never addresses this personally but pretends all is well. Additionally, Warren actually has another woman move in to his home in Omaha to take care of him. Practically, Warren has two wives - one for the public and one for him domestically. When his first wife passes away he eventually marries the second.

The most significant thing that came out of this book, for me, is Warren's view on the transfer of wealth. Buffet world numbers are staggering for most of us but the concept is consistent. Buffet does not believe in transferring wealth through the generations and has left most of his money to the Gates Foundation. What is significant about this is that he did not leave his money to his own legacy but to somebody Else's. Warren will go to the grave without a perpetual legacy. The remaining portion of his legacy goes to his children's' foundations. I also believe that generational transfer of wealth is not healthy. The future generations of Carla and myself will only receive educational support. Any other wealth achieved, which at this point appears nominal, will be given back to society in some way.

If you like investing and business - you will enjoy this book.

The Planned Economy - Comrade

A subtle shift has occurred, although I am not sure I am seeing it yet. The Federal Government has always encouraged certain investment behaviour through our tax system. However, we have always been free to choose to invest to our tax benefit or ignore the tax benefit. This last year we have seen the Federal Government decide how money should be invested in our economy in a significant way.

Consider:

* TARP - This was a good investment. The Federal Government likely tripled their investment. I am giving "W" credit.
* Shovel ready projects - seems to be a delay. However, we can argue that not many capitalists would invest in roads and bridges outside of the "despised" toll takers. Investment in roads and bridges is generally a government play.
* Weather proofing homes - ok, now we are getting into the planned economy. Given the choice to invest capital - read your taxes would be reduced, would we freely choose to improve the efficiency of our home energy use - not likely.
* Invest in health care - I thought that was what comes out of my pay stub every week regardless of how much money I make??

The current administration is in the beginning phase of how to best plan the economy for the upcoming year. Do we need to go there? Do we need to know how many blue Trabants need to be produced, how many green gym shorts, etc.??

Does the current administration believe that thousands of iterations of the marketplace making decisions is more intelligent then a group of intellectuals in Washington DC?

We will see - I believe the shift has begun - enjoy your gym shorts and please share your thoughts.

Tiger

Might as well spend a few minutes discussing Tiger since the buzz is everywhere. We all have inconsistency in our thoughts or actions vs. our image to some degree. I know this is something that I have always struggled with. The way others perceive you is rarely consistent with your true personality and actions.

However, Mr. Woods appears to have created a gap far wider than most can accomplish (sans Bernie Madoff). It is good to see the decision he has been made is to step away from the public spotlight and focus on his family and marriage. In the end, his efforts towards his family and marriage will be the greatest achievement of all. I hope Tiger can have do this and, in the end, come back professionaly to achieve his goals in golf.

Golf is a game that kicks so many talented individuals to the curb. We have seen one star after another either fail to live up to their billing or get there and quickly fade away. The fact that Tiger has had his issues and has still been able to focus at the level of greatness says something about his singular ability to focus.

Good luck Tiger - if you only save your family then you are a champion in my book.