By Jason Zweig | Nov. 12, 2016 9:07 pm ET
Image credit: Warren Buffett, at the White House (2010), Wikimedia Commons
Few things amaze me more about the investment-management business than the pathetically small number of firms that have emulated Warren Buffett — not merely in how he invests, but more importantly in how he treats his investors. There are thousands of companies that manage money for clients, but the vast majority still refuse to treat their clients as informed partners entitled to a fair shake and a full accounting of how the firm is run and why. More than a decade after I wrote this piece, I believe — sadly — that it’s more relevant than ever.
The Higher Wisdom of Warren
Money Magazine, July 2004
When my flight came slanting down into Omaha late on a drizzly night in April, a ceiling of rain cloud was clamped over the city like a thick pewter plate. But directly above downtown, the reflected light of Omaha’s skyscrapers reached a mile into the air to burnish the dark clouds with a dazzling silvery-white circle. Suddenly the ceiling of clouds looked like a floor — the floor of heaven. “My God,” a passenger gasped in the back of the plane, “Warren really does have a halo!”
Everyone within earshot broke into a grin, for this plane was full of pilgrims: shareholders of Berkshire Hathaway, on their way to attend Warren Buffett’s annual meeting. To them, the funny part was not the notion that a human being could set the heavens aglow, but rather that anyone might be unenlightened enough to doubt that Buffett could do just that if he tried.
Why do Berkshire Hathaway investors almost literally worship Buffett and hang on his every word as if he were a religious prophet? What makes more than 19,500 people descend on Omaha from every state in the union and 27 foreign countries? This spring, I joined them to find out.
On the day that Buffett took over Berkshire Hathaway — May 10, 1965 — its shares stood at $18. If the Dow Jones industrial average had matched Buffett’s returns ever since, the index would have ended April 2004 not at its actual level of 10,226 but at 4,832,777.
Buffett’s astounding record — bolstered by the advice of his business partner, Berkshire vice chairman Charles Munger — is one reason people flock to Omaha to listen to him. But it is far from the only one.
Each year for roughly two decades, Buffett and Munger have urged shareholders to come to the annual meeting and speak out about whatever is on their minds. This year, as dozens of Berkshire investors stepped up to microphones throughout Omaha’s giant Qwest Center auditorium, Buffett and Munger fielded questions for nearly six hours.
The floor is yours
At most companies, the annual meeting offers about as much give-and-take as a session of the Supreme People’s Assembly of North Korea. So why does Buffett throw open the floor to all at Berkshire’s meeting? “Even though Ben Graham [Buffett’s mentor] had everything he needed in life, he still wanted to give something back by teaching,” Buffett says after the meeting. “So just as we got it from somebody else, we don’t want it to stop with us. We want to pass it along too.”
Sure, plenty of shareholders ask for Buffett and Munger’s views on stock and bond prices and a host of other investing issues. But others have broader questions: What’s the best book you’ve read lately? What was your worst mistake? How can I keep learning? Is mathematics “the language of God”?
When Justin Fong, a 14-year-old shareholder from California, asks for advice on succeeding in life, Buffett and Munger don’t mince words. “Hang out with people whose behavior is better than yours, and then you’ll drift in the right direction,” says Buffett. “If this gives you a little temporary unpopularity with your peer group,” adds Munger drily, “the hell with ’em.”
This is what Berkshire’s shareholders say they love most: the interchanges that show what Buffett and Munger are made of. David Lin, 35, a Nashville radiologist, has come to the meeting seven of the past eight years. “It helps me refocus,” says Lin. “I’ve learned what things Warren thinks are important. Things like friendship, morality, developing good habits, how to live a happy life — and it’s not just about money.”
Alex Rubalcava, 24, a venture capitalist in Los Angeles, says, “Warren and Charlie talk constantly about how you don’t have to do anything just for the sake of doing something. They’ve taught me the importance of saying no to things in investing and in life.”
“You wouldn’t believe what a good feeling you get when you listen to Warren and Charlie,” says Mike Loisel, 56, a retired electrical contractor from Minneapolis. Adds his wife Connie, 55: “You feel like you’re part of a group of people who share the same values — solid, honest people, hard workers.”
Buffett has thought a lot about why so many people come to his meetings. “First, they come to have a good time,” he says. “Second, they come to learn. And they really feel as if they’re partners in the enterprise.”
Why do so few investment firms educate and treat their clients this way? “It’s a joke, isn’t it?” answers Buffett, adding that fund managers and brokers “don’t judge their success by investment results. They judge it by how much they can gather in assets. So they don’t want the shareholders to think of themselves as owners. They want them to think of themselves as customers.”
Most pundits talk about how important value is to Buffett as an investor. What they miss is that values are even more important to him. Buffett understands the heart of the matter for all of us: Money is not just pieces of paper or electronic blips with prices attached. It is far more: our fondest hopes, our most fervent dreams, our worst nightmares, all balled up into an explosively emotional package. Investing can be exhilarating — or terrifying. Buffett knows that no one wants to face the uncertainties of investing without help, that we all want to be comforted and feel we’re part of a community. That’s the greatest gift he gives his investors — not massive wealth or brilliant insights but the profound solace of knowing that they are not alone. How sad if the rest of the investment industry never learns from his example.
￼Source: Money Magazine, July 2004
Warren Buffett’s annual letters to Berkshire Hathaway shareholders
Roger Lowenstein, Buffett: The Making of an American Capitalist
Alice Schroeder, The Snowball: Warren Buffett and the Business of Life
Benjamin Graham, The Intelligent Investor