Monday, April 29, 2013

Investing Like Warren

For some investors, the Big Event this coming weekend is not the Kentucky Derby - it's the annual meeting of Berkshire Hathaway in Omaha.

Every year more than 30,000 Berkshire shareholders fans head for Nebraska to attend the "Woodstock for Capitalists", as CEO Warren Buffett calls it.

It's not that there are any burning issues - the actual business part of the meeting lasts for about 15 minutes - but instead it is the opportunity to hear from Buffett and his partner Charlie Munger talk about their views on investing.

The closest I have ever come to attending the meeting occurred a number of years ago.  A client directed me to invest some of his funds in Berkshire.  However, because the purchase was only made about a month before the annual meeting, my client needed a letter from me stating that he was a shareholder, which of course I gladly did.

My client traveled to Omaha and had a great time.  He had his picture taken with Buffett, and as a gift to me, had Buffett autograph my letter to give to me (my brush with greatness!).

To this day, the client will not let me even talk about selling a share of Berkshire, for which I am grateful, since the performance of the stock has been ridiculously good (see chart above).

Buffett's investing record, of course, is probably the best in modern times, and so naturally there is great interest in "how to invest like Warren".

Buffett himself is quite open about his process, and dozens of books have been written about him.  Apparently there is even a bookstore in Omaha called the Bookworm Book Store that specializes in Buffett books, and will do a banner business this week.

The real secret to Buffett's success, in my opinion, is that he is relentless in his pursuit of information and knowledge. 

Buffett's friend and fellow billionaire Bill Gates has said that he is amazed on how open Buffett is able to keep on his calendar.  Most of Buffett's days and nights are spent reading and talking to other investors he trusts, and very little in meetings.

This came out in an article published this week in the Omaha Times.  The piece was focused on Todd Combs and Ted Weschler, who are the two money managers that Buffett hired at the end of 2011 to help him transition some of his investment duties.

Here's the part that caught my eye:

That kind of compensation wasn't on Combs' radar when he first saw Buffett in person. He was among 165 students in a Columbia University investing class.
Combs didn't meet Buffett that day but says, “I still remember it like it was yesterday.”

One of the students asked what he could do now to prepare for an investing career. Buffett thought for a few seconds and then reached for the stack of reports, trade publications and other papers he had brought with him.

“Read 500 pages like this every day,” said Buffett, or words to that effect. “That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”

Remarkably, Combs began doing just that, keeping track of how many pages and what he read each day. Eventually finding and reading productive material became second nature, a habit. As he began his investing career, he would read even more, hitting 600, 750, even 1,000 pages a day.

Combs discovered that Buffett's formula worked, giving him more knowledge that helped him with what became his primary job — seeking the truth about potential investments.