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The nerd of Omaha

Source : BUSINESS_STANDARD
Last Updated: Wed, Jan 02, 2013 20:54 hrs

There were times when brawn mattered more than brain. In the battle between nerds and jocks, jocks always had the last laugh. But the second half of the 20th century witnessed the rise of nerds. Bill Gates was consistently on top of the Forbes list of billionaires for long. The investing career of Warren Buffett is so successful that Fortune has had an expert on him since 1966. Jocks should be worried.

Tap Dancing to Work is Fortune’s editor-in-large Carol J Loomis’ compilation of the magazine’s coverage on Mr Buffett. Through articles published over 46 years, the book looks into Mr Buffett’s investing philosophy and career, and how it evolved over the years. When Mr Buffett was an obscure hedge fund manager in Omaha, Ms Loomis was the first Fortune journalist to mention him in a story in 1969, though she misspelled his name as “Buffet”. For decades, she was Fortune’s expert on Mr Buffett, and many have been long urging her to write a Buffett biography. Though much of it is written by Ms Loomis and other Fortune writers, the best parts of the book are written by Mr Buffett and his billionaire friend Bill Gates.

This collection chronicles the career of a man who does not quite fit the stereotype of a billionaire. Mr Buffett spends much of his time reading and thinking. He has been reading books on investing since the age of eight. He does not split his stock. When Mr Buffett was once asked when he would sell his Coca-Cola shares, he replied: “Never.” He rarely travels beyond Omaha. He does not venture beyond his area of expertise. For long, he refused to use an electronic computer. He is not swayed by the latest fads in the investment arena. He has a schedule free of meetings. Listening to stupid people gives him “blinding headaches”. He would not do business with people he dislikes.

Mr Buffett loves his work. His unwillingness to compromise the integrity of his work enraged a Fortune editor, Daniel Seligman; at one point, Seligman wanted the magazine to not publish the great investor’s article. When he was 19, Harvard rejected Mr Buffett because he had the social skills of a 12-year-old. In other words, if the jocks in the pre-industrial age needed a punching bag, Mr Buffett would have been the most obvious candidate. But, as Ms Loomis points out, in the information age, few jocks can afford a stock of Berkshire Hathaway. Today, it sells at a hefty price of $134,490.

In a conversation in this anthology, Bill Gates and Warren Buffett admit that if they were born a few thousand years ago, they would have at best been an animal’s lunch. Mr Buffett says that, being rich, he can easily avoid dealing with people who would make his stomach churn.

Like many Buffett biographers, Ms Loomis thinks that the sophistication of Mr Buffett’s investment philosophy lies in its simplicity. Mr Buffett invests only in businesses he understands. He studies the ins and outs of them. His investment philosophy has not changed in the last 46 years — at least not on a fundamental level. However, his egalitarian scruples have possibly waned over the course of time. As Ms Loomis writes, Mr Buffett used to say that he would leave only a few hundred thousand dollars for his children. Now it appears that he would set aside around $25 million for each.

Interestingly, both Ms Loomis and Mr Buffett admit that Mr Buffett was wrong in his inflationary predictions in 1977 because he could not foresee that Paul Volcker, who took charge of the Fed in 1979, would “break the back of inflation”. But many economists know that this is a “bedtime story”. Mr Volcker did not consistently follow an anti-inflation policy. By the middle of 1981, the US was facing double-digit inflation again. However, it is unfair to blame Mr Buffett for a foresight that even the most competent economists lacked in the seventies. No one could have imagined that the US would soon be experiencing historically low levels of inflation for decades.

Similarly, in a 1983 Fortune article, Seligman reasoned that the efficient market hypothesis argued that mere mortals couldn’t consistently beat the market. According to academic theorists, Seligman wrote, Warren Buffett was just plain lucky. But the efficient market hypothesis, in its weak form, does not deny the profitability of fundamental analysis that Mr Buffett has been successfully employing to pick stocks for years.

One of the highlights of the book is Mr Gates’ reminiscence about his first encounter with Mr Buffett in 1995. Prodded by his mother, Mr Gates went to meet Mr Buffett, prepared to be unimpressed, though he would soon be convinced that he had never met anyone who thought about business with as much clarity. Not surprisingly, he still feels the same.

The prose is often bland, and the disparate nature of the articles does not allow them to form a coherent whole. But investors around the world who hang on Mr Buffett’s every word are likely to find the book a worthy read.


TAP DANCING TO WORK
Warren Buffett on Practically Everything 1966-2012
A Fortune Magazine Book
Editor: Carol J Loomis
Portfolio Hardcover
368 pages; Rs 799




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