AUDIENCE MEMBER 00:08
Mr. Buffett, Mr. Munger, my name is Norman Rentrop. I’m from Bonn, Germany. I want to thank you very much for so patiently listening and answering and sharing yesterday and today. And I’m a shareholder since 1992. And this is my first meeting.
I came here being inspired by Robert Miles’ book, “101 Reasons to Own Berkshire Hathaway.” And I was very careful, listening to you, the reasons how you pick good people, that it’s love for the business and not so much love for the money.
And I’d like to hear a little bit more on your philosophies, now that Berkshire Hathaway is more and more buying companies. On this, how you make sure that it’s true love and how you pick people.
WARREN BUFFETT 00:56
It’s a terrific question. I don’t know exactly how to answer. Maybe Charlie will think of it while I’m stumbling around, but —
I really — I think I can do that quite well. But I don’t know of any way to give somebody else a set of questions to ask, or, you know — I don’t know how to tell someone else how to select managers using those criteria: do they love the business or do they love the money?
It’s very, very important. I mean, it’s crucial. Because it — well, we see it all the time. I mean, you’ve got people around who love the money. And you see them in public companies and doing things that we wouldn’t want to have associated with us.
And on the other hand, if they love the business, and we’ll tell — I’ll tell an owner this. I will say to them, “You built this business lovingly for 50 years, and maybe your parents before you, maybe even your grandparents.” One of these businesses we’re buying is fourth generation.
And the clincher, in fact, I used it with Jack Ringwalt back in 1967. I said to Jack, who had built it over a long period of time, “Do you want to sell this? You know, do you want to dispose of this, the most — you know, your creation, your painting? Or do you want some 26-year-old trust officer to do it the day after you die?”
And the thought of who was going to handle this masterpiece, which he’d created himself, was important to him. And I tell him, If they want to put it in our museum, we will make sure, A, it doesn’t get resold, that it gets the proper respect, and that you can keep painting it.
We won’t come in and tell you to use reds instead of yellows or anything like that. So even though it’s a masterpiece now, you can keep adding to it.
So we like to think that we’re the Metropolitan Museum of businesses and that we can get really outstanding creations to reside in our museum. But it — we’ve got to deliver the kind of museum to these painters of businesses, in effect, that we would want, if we were doing the same sort of thing.
To some people, that doesn’t mean a damn thing. I mean, all they want to do is auction their business, you know. And they probably cheat on their figures a little in the last year or two before they sell it to dress it up. And they do all kinds of things.
And they employ some investment banker who pretends that he’s getting bids from other people to jack it up some more. And that’s standard procedure for a lot of people.
We have no interest in buying in with them at any price because we don’t want to be on the other side of the table for the rest of our lives with somebody that’s going to do that.
If somebody loves their business — and I love Berkshire, I mean, you create something over a period of time — it means something to you.
Some people get it out of how they decorate their home, or some people get it out of all kinds of different things, their golf game or whatever. But some of us get it out of building a business. And it has to be enormously important, what kind of a home it finds.
And there comes a time, in many situations, for estate taxes, or because the kids don’t get along, or whatever the hell it may be, why people need to do something with that business. But they don’t want it auctioned off. And we get — we have a good home for that.
I think I can tell pretty well what people’s motivations are when they come in with a business. And so far, we’ve batted pretty well.
We’ve made mistakes. There’s no question about that. But in a sense, I think they’ve gotten fewer over the years.
And we have — our disappointments with people have been very, very few. We’ve been wrong about the economics of the business sometimes. But that’s our mistake, not theirs. We’ve seldom been wrong about the people.
And I wish I could give you a checklist that you could go down, and you could say, “Well, this guy loves the money. So he’s going to be gone in six months. And this one loves the business. So as long as I leave him alone to do his job and appreciate what he does, be fair with him, that he’s going to stay around here as long as he can.”
Charlie, have you got any thoughts on how you separate these people out?
CHARLIE MUNGER 05:10
I think our culture is very old fashioned. In other words, I think it’s Ben Franklin and Andrew Carnegie. It’s very old fashioned.
And what I think is amazing about Berkshire is how well these very old-fashioned ideas still work.
Can you imagine Andrew Carnegie calling in a compensation consultant or — (laughter) — an investment banker to tell him whether he should buy another steel mill? Or —
We don’t get imitated much. We’re imitating the behavior of a period that has been gone for a long time. But, I don’t see — a lot of the businesses we buy are kind of cranky like us and old fashioned. And I hope we continue it that way.
WARREN BUFFETT 06:12
They’re sitting out there, Charlie. (Laughter)
CHARLIE MUNGER 06:14
Yeah, yeah. Well, but I think the businesses do have standards. See’s has standards. It has its own personality. But it’s — but maintaining standards is a huge part of it.
WARREN BUFFETT 06:30
Charlie hit on one thing. The idea of asking investment bankers or somebody to evaluate the businesses you’re going to buy, I mean, that strikes us as idiocy. If you don’t know enough about a business to decide whether to buy it yourself, you’d better forget it.
It does not make sense. You bring in somebody who’s going to get a very large check if you buy it, and a very small check if you don’t, that displays a faith in human nature that would strain Charlie and me. (Laughter)
It’s a key point, which you raise. And frankly, if I think there’s anything we’re good at, I think we’re pretty good at what you’re talking about there.
It’s an important part of capital allocation. Because we do not — we are not in a position to manage the businesses ourselves.
And we want management as well as the business. And we’ve gotten it. And we’ve gotten it in spades from people that stay on and have done a terrific job for us. And it makes life a lot easier, too.
Let’s go to number 1 again.
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