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December 05, 2006

Watch the Warren Buffett CNBC Interview With Liz Claman on YouTube

posted by MR WAVETHEORY at 12/05/2006 04:20:00 PM
Part I

YouTube has posted the interview and special that Liz Claman (anchor of Morning Call, one of my favorite shows on CNBC) did on Warren Buffett. Liz Claman followed Warren Buffett around and there are 5 parts to the series. You can watch the first part by clicking play on the video above, the rest of the videos are below. If you are in an office or cannot play video, you can read my notes which precede the videos. The title of the show is called "Warren Buffett: The Billionaire Next Door." Buffett is the chairman of Berkshare Hathaway Inc. (NYSE BKRA BKRB). He got his first start in business by selling chewing gum and coke to friends and neighbors. His grandfather would sell him chewing gum and he would sell it and his grandfather would sell him Coke - 6 for a quarter and he'd sell them for a nickel each.

The Art of the Start
The pivotal moment: 1956, just 25, rejected by Harvard. Armed with contributions from friends and family, $100 of his own money, starts a limited partnership with 7 people. He turned $105,000 into $26 million in 9 years, investing mostly in textile companies, farm equipment companies and a windmill - a stunning 24,000% increase.

How Does He Do It
"What do you look for? I look for something I can understand. I don't understand what car companies or chemical companies will win 10 years from now, but I do now that Snickers bars will win in 10 years - durable competitive advantage that's hard to find. I look for an honest and able management. I look for a price I want to pay."

WashingtonPost and Gilette Made Things Possible
He has acquired 68 subsidiaries. In 68 - National Indemnity. 89 - Borsheim. 1998 - Geico, General Re, Dairy Queen. Most recently - abroad. Recently bought Iscar. I got a letter October last year - a one and a quarter page letter, it just leapt off the page. It was a business we wanted to do business with. It said you're the only business we'd like to join. I never saw or visited the company. We bought it. We do that frequently.

I have to size up the business. That's a background I got from being in stocks. When you put all your net worth in stocks at 21, you're trying to assess the integrity of the management. You never visit it. I don't think there is an army of hotshots. We don't hire anybody.

Berkshire was bought by a partnership and alot of the people still own it. If you were to start a business, it would be crazy to start one with people who have objectives different from you. Over time, by certain policies, we got a bunch of people who see themselves as owners.

Loopholes and Communications
I don't communicate frequently. When I communicate, they take it seriously. The tone at the top makes more of a difference than anything else.

Part II

How Not to Get Greedy
I've had everything I've wanted all my life. When I got out of school at age 20. I tell the kids coming out of school, they live better than John D. Rockefeller - cool in the summer, hot in the winter. I've been eating the same thing all my life. Really getting to do what you want to do all your life. Nobody would know whether I'm honest or not. I've never had two kids sick at home and not having enough money. Maybe if that happened, then I would know whether if I am honest.

No Entourage, No Cell Phone
Married Astrid Menks at a low key ceremony, at his daughter, Susan's house. I don't need to take care of myself. Either you eat better or exercise. I said exercise. I'm amazingly healthy.

On Iscar
Our plant is 8 to 10 miles from the Lebanese board. It can be dangerous living in this country.

Part III

Rule Number 1 Don't Lose the Money. Rule Number 2 Don't Forget Rule Number 1.
Buffett Says : I Googled you (Liz Claman). I guess that means he uses Google.

On the must read book: There's a guy who has rewritten and summarized my essays, a book by Larry Cunningham called The Essays of Warren Buffett: Lessons for Corporate America. It is required reading for a course at the University of Missouri business school, Investing Strategies of Warren Buffett. The course is in its 8th year. We don't have a course on behavioral finance a course that addresses governance. Those are two aspects that apply to the Warren Buffett style. It's not always about the numbers.

The read question is whether Buffett's stellar track record can be replicated. The success he has had, I'm not sure that can be learned, but that doesn't stop anyone from trying.

The Buffett course culminates in a visit to Omaha followed by lunch at Gorats. The MU group is one of many that make the trek to Omaha each year. They will learn that good, ethical business is smart business.

At the annual meeting each year, you can get 8 hours of wisdom. All of that is nonsense. You can go for free if you own a class A share of Berkshire currently over $100,000 each.

Two pieces of advances : Stay away from credit cards - we issue them. I get letters from people every day. The second is invest in themselves.

Lebron James learned from Buffett, "Trust Your Gut"

Rule Number 1 Don't Lose the Money. Rule Number 2 Don't Forget Rule Number 1. Rule Number 3 Look for unique companies that are hard to replicate, a moat around the business. Rules 4. Circle of Competence. Do what you know. Everyone knows about the economy. Focus on what you know.

The Annual Report
It's either a report or a sales document. It's a report, so the partners can judge. Things have not always been rosy - 4 executives were indicted at General Re.

Part IV

Lloyd's of Londons Asbestos Liabilities
We wrote a policy to protect former members of Lloyds against liabilities. We ensured them. We are the biggest insurers of the biggest risk type things. Last year, we lost $3 billion. This year has been a good year. That's what insurance is about. Recently, it reported a $2.7 billion profit up from $500 million.

Berkshire stock hit a low the same day the Nasdaq hit a high. I don't tweek it. I can't play the other guy's game. We don't have a single committe of any time. Our managers never have to come to Omaha. There are no meetings. I tell them, whatever figures you're preparing, if you would enjoy if you were in my spot, I hand them alot of money, they hand me their stock certificates. I started at age 20.

These are people who are .400 batters. I do not need them to tell me how to swing. I tell just one thing: send me a letter I will keep in a private place in case they die what to do. I got that letter from Rose Blumkin from Nebraska Furniture Mart. I bought Mrs. B, their sons and grandsons. The profits have gone up every year. Profits are $400 million every year.

From Mattresses to Diamond Jewelry
Susan Jocks runs Borsheims. I get a one page letter at the beginning of every year with my goals. We get our goals. Warren is very much hand's off. If there is something I need to run by him, he's a call away. The number one thing is ethics, with such trustworthiness and honesty. It's remarkable. It's a great way to live your life.

On politics: Presidents use the pretense of asking for advice to ask for something else. George W knew the name of the stadium, Rosenblatt stadium.

Lebron James making $28 million a year, sought Buffett out for advice. He's the number one person I thought. He goes out there and drinks milk shakes and eats cheeseburgers.

How Bill Gates Met Warren Buffett
My mom encouraged me to come out. I wasn't sure we have anything in common, but as soon as he started to ask questions about business and life, I intended to only stay a short period. I stayed all day. I fell in love with Warren.

When I met Bill Gates, 10 hours we spent talking. I felt we had melt a match.

We were talking about what IBM had done, what CBS had done.

Part V

Giving It All Away. You just gave $31 billion away.

Buffett: They were initially spending a billion a year. They wanted to save the most lives, the most suffering.

Gates: It was brilliant.

Succession Plan
Buffett is 76 years old and will hand over the reigns. The plan is simple. We talk about it every single meeting. We have 3 people who do the job better than I do, the board know which of those three if it were to happen tonight. I don't believe in co-CEOs. 6 months from now, probably the same one.

There is no one who cares more. How much the charity gets depends on how well they do.

When people get to my age. Success is doing what you love and doing it well. I have met plenty of people who have not achieved that and feel miserable.

The End
Liz Claman: When you and Charlie spot a company you like, what is that feeling like.

Buffett: I'd like to say it feels orgasmic but I don't think I should say it on the air.

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