Last Sunday, we ran the first part of a transcript of a webcast featuring Warren Buffett at the IMD, the world’s leading business school.

This is part 2.

The transcript was kindly provided by IMD to NextInsight on our request. Buffett visited IMD campus in Lausanne, Switzerland on May 20 to celebrate 20 years of family business research and education at IMD.

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Eithan is chairman of Israeli company Iscar; Prof Schwass and Hunter are with IMD.

 

JOACHIM SCHWASS
How important is money to you?

WARREN BUFFET
Well, it is nice to have all you need. But I have had all I've needed since I was in my mid-twenties. I mean, you know, I have got everything in life that somebody could want – but I have had that all… I've got a job I love, I work around people that I love, and they like me; I get to do what I want to do every day; I've got my own canvas to paint on.  So that makes me rich. 

Now, I also want to be able to eat well, and sleep in a house that is warm in the winter and cool in the summer, and go to some football games and things like that; but I don't have any great desire to build a tomb that rivals that of the pharaohs, for example, either when I am dead or when I'm alive! I don't want a fleet of yachts or anything of the sort. To me, standard of living does not equate with cost of living.  Up to a point it does; and then when you leave that point… you know, I don't want to own a baseball team so that my name is in the paper every day, you know, as the owner of the team; and I don't want to… I am not that interested in art, you know – I am not knocking anybody else for this – but I don't want to have the world's greatest art collection just because rich people frequently do. I want to enjoy my… I want to be around my friends, I want to do what I love to do.  Fortunately I get to do it!

JOACHIM SCHWASS
And you are planning to give everything away to charity. 

WARREN BUFFETT
All my Berkshire shares will go to charity.  But that doesn't involve one bit of sacrifice on my part – I mean, they are just a bunch of certificates in a safe deposit box.  I have got everything I need in the one percent that is outside of Berkshire to take care of me in every way that any normal human being could ever hope to be taken care of; and the rest can go back to society - because society has enabled me to do what I do. 

JOACHIM SCHWASS
What have you passed on to your children?  You have three children.

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What I told my kids is exactly what my dad told me: "Anything you do (as long as it's legal!), I'm behind you, I'll back you. You don't have to be me – you have to be you!". And my dad gave me in effect unconditional love in that respect. And both my wife and I have said the same thing to our three children.

WARREN BUFFETT
I have got three children, and each one I… after seeing how they have handled themselves in life, I have contributed to a foundation that each one runs individually.  So they are able to participate in this society in their own way; not only with money, but with their own energy and time – because that is a big part of it too. But what I told my kids is exactly what my dad told me, and it was wonderful; my dad said to me that "Anything you do (as long as it's legal!)"; he said "Anything you do, I'm behind you, I'll back you.  You don't have to be me – you have to be you!".And my dad gave me in effect unconditional love in that respect.  And both my wife and I have said the same thing to our three children; that what they do is just as important as what I do.  I may get paid better than they do, but what they do is absolutely as important as what I do – and maybe more important.  And they ought to follow their own compass; they ought to follow their own passion.  And if they turned out to be… whatever aspect of society they elect to join, if they do it well, help out other human beings at the same time, we are going to admire them every bit as much as if they were the world's greatest golfer or the world's richest person or whatever the hell it may be – they are all of equal value. 

JOACHIM SCHWASS
We have just spent a bit of time with the IMD MBA students, and one MBA student asked the question "What is your own personal definition of success?". 

WARREN BUFFETT
Well, I will tell a story first:  there is a woman in Omaha, she is in her 80s, she is a Polish Jew.  She is a wonderful person, she is a friend of mine.  And when she was a young teen I guess, she was at Auschwitz with other members of the family, not all of whom came out.  And she says, she has told me "When I look at someone, I am slow to make friends because in the back of my mind the question always is 'Would they hide me?' ". Now, I would say this:  if you get to be 60 or 70, or my own age – 77 – and you have a lot of people who would hide you, you are a success.  And if you don't have anyone that would hide you, no matter how rich you are, no matter how many honorary degrees you have been given, no matter what hospitals are named after you – you are a failure.It is another way of saying "How many people love you?" basically.  And I have never seen anyone who has the love of dozens of people as they get older who is not a success, and who doesn't feel like a success.And I have seen a number of people who have all the trappings of success, by the world's measurements – who are rich, who have their names in the paper – and there isn't a person on earth that loves them.  And they can't be a success.So if you have lots of people that love you when you are 60 or 70, you are a very, very successful person.

PAUL HUNTER
That is a very touching definition of success; and clearly you have been successful by your own standards and by many other people's standards as well.  When you look back over the last – you have been playing this game for the best part of 66 years now; I think you traded your first stock when you were 11… 

WARREN BUFFETT
I started late!

PAUL HUNTER
Where does that passion and energy come from?  It is very obvious today – and I am sure it is obvious to our viewers.  Where does that come from? 

WARREN BUFFETT
Well, I was lucky in terms of the parents I had.  And frankly, I was lucky to have been born in the United States – even though I am broadcasting from Europe! - but I had all kinds of opportunities.  I mean, I had a good education, I was wired in a way that enabled me to profit far beyond what you might expect from just being able to allocate capital; and I was very lucky in that I found what I liked to do when I was very young – and that was partly accident. But I have been able to play in the game I wanted to play virtually my entire life.  I have never had to compromise in terms of doing something I really didn't want to do because my kids were hungry.  So I have been lucky in so many ways. And the most important thing, actually, I tell the students (well the most important thing may be who your parents are but you can't do anything about that); the most important thing, though, is picking the right spouse.  If you have the right spouse, a lot of good things are going to happen.  If you have the wrong spouse, a lot of things are going to happen too! But I was very, very lucky in that respect.

JOACHIM SCHWASS
Do we have any questions coming in?

PAUL HUNTER
Yes we certainly do.  Eitan, I have a question that I must ask you.  There was a quote in an article that I read recently where you said "Warren Buffett is the perfect balance between heart and pocket and mind".  What were your first impressions of Warren Buffett, those first five minutes?

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I saw a very modest man. A very modest man. I was shocked; no guard, no chauffeur, no nothing there. And my fist impression is a man that I want to work with.

EITAN WERTHEIMER
The first time I met Warren physically was on the 25th October 2005 in Omaha.  It was 9 o'clock.  I saw a very modest man.  A very modest man.  I was shocked; no guard, no chauffeur, no nothing there. And my fist impression is a man that I want to work with.  I knew it from the first second.  And I also had a little hint from Warren before I left; he gave me the annual report of Berkshire Hathaway, and I asked if him he was willing to sign and write something; and he wrote to me "To Eitan, with whom I will share a long journey".  So I got the signal also very clear. And it was love at first sight.  It was love at first sight; I knew from the first minute it was what I was looking for.  And today I have basically two fathers:  my old father and a new father. 

WARREN BUFFETT
Actually I'm his grandfather! 

EITAN WERTHEIMER
You're too young for that! 

PAUL HUNTER
And Mr. Buffett, that was a two-way process.  Now, you had that same feeling straight away.  Do you always have that feeling when you are making a deal with an organization? Does that feeling have to be there? 

WARREN BUFFETT
It is usually there.  Sometimes there will be a situation – maybe I am dealing with an estate even, you know, so it is hard to get that strong a feeling in those cases!  But I love the people that we are associated with.  I have passed on deals where I have thought that the person who was in charge would cause my stomach to churn.  I don't need my stomach churning!  I mean, that should be one advantage of being rich – that you don't have to put yourself in situations where your stomach is going to churn! So we have a group of managers, and I am a good friend with many of them.  Not all of them – some of them I don't have that much contact with; but the ones I have got… I mean, I have really added enormously to my life – if there wasn't any financial implication at all – by the people I have been able to associate myself with. 

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And I have never seen anyone who has the love of dozens of people as they get older who is not a success, and who doesn't feel like a success. And I have seen a number of people who have all the trappings of success – and there isn't a person on earth that loves them. And they can't be a success. So if you have lots of people that love you when you are 60 or 70, you are a very, very successful person.

PAUL
OK.  We are getting a lot of questions in from around the world; and Joachim mentioned earlier you have got seventy-six companies in Berkshire Hathaway – a pretty eclectic mix of companies.  A question that has come in from one of our viewers is "Is there a key management or leadership style that you are looking for, or does every company manage in a different way?".

WARREN BUFFET
They have very different styles.  Some of them have been… a good many are MBAs.  But plenty of them did not go beyond high school; a few of them dropped out of grade school.  They have very different styles.  They are leaders in their own way; people like to follow them.  But I am always amazed at just the different shapes and forms that they come in.I mean, if I had brought them all here today, you would have a very different-looking group - but they all would have a passion for their business, and they all would have qualities that cause other people to want to follow them over the next mountain.  They have people that believe in them.  They can't see beyond the next mountain; maybe the individuals can't – but they believe that the person that they are following can. But it comes in a lot of different ways.  They do love their businesses, though. 

PAUL
OK.  So that passion has got to be there. 

WARREN BUFFETT
Passion is the key. 

PAUL
OK.  Another question – and a lot of viewers have picked up on what you mentioned before about philanthropy; and I think you are donating almost eighty-five percent of your fortune to the Bill and Melinda Gates Foundation; and they are very active in what is going on today in China, what is going on in Burma.  A common thread in some of the questions is "How do you strike that balance? How do you become… how do you move from being purely a business person to a philanthropist?  And what advice could you give to people who might be looking for that balance?" 

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L to R: Hunter, Prof Schwass, Buffett and Wertheimer.


WARREN BUFFETT
Well, I think it depends very much on the situation of the individual.  Some people are in a position to participate actively in philanthropy, and others aren't - and they shouldn't feel shameful of the fact that they can't; I mean, they may be having plenty of trouble feeding their family and taking care of family illnesses and that sort of thing.  But when you have an enormous surplus that comes about in a very, very large part because I was born in the right place, at the right time, to the right parents, with a talent for something that pays off enormously in a market system – I mean, if I had been in a different economy, this ability to allocate capital would have meant nothing; but in a market system, the rewards are outsized.  Which is fine - I happily accept them! But in the end I think you want to figure out, once you have taken care of your own needs and your family's needs, I think one way or another you should go back to society.  And I had planned originally that my first wife… the two of us planned, when we were in our twenties (because I did tell her "We are going to get rich!"); I said… and she said – we both agreed on this – that there would be a foundation that would basically get all my money; that we should leave our kids enough so that they could do anything, but not enough so that they could do nothing.  And we followed that. 

She died before, while I was alive; which I did not expect – she was younger and women live longer – so then I had to make a decision as to what the best position was of the share. And I looked at the various options.  I have left significant foundations each a ???; and there is another family foundation that is a little bit larger. But I have watched the Gates Foundation operate for a number of years; I have seen two very, very, very bright, extraordinarily well-intended people, who had a common objective with me: who did not believe that… they do believe that every individual's life is as important as anyone else's – regardless of gender, regardless of geography, regardless of color – and they were going about the process of trying to affect as many people's lives for the better per dollar spent as could be done.And the chance to join them, have them work for nothing – I was like that! and carry out a part of what I had already seen in action made my job enormously easy!I mean, I get to do what I love and I hand over a bunch of certificates, stock certificates, and they get to do something important with it.  And that is the best solution I can come up with. 

PAUL
OK, great.  A lot of people know from looking in the press and TV coverage today, you are spending most of this week in Europe; you were in Germany yesterday, Switzerland today; I believe you are moving on to Spain and Italy between now and the end of the week. You mentioned in your shareholders' meeting a few months ago that you felt that Berkshire Hathaway were nowhere near as prominent as they should be in Europe.  Why Europe? Why now? Particularly as people may think that with the weak dollar this may not be opportune timing.  What has been your reasoning and thinking behind that? 

WARREN BUFFETT
Well the answer is I should have done it earlier!  But I haven't, and I am correcting one of my previous errors!  But it is an important error to correct.  And we should be on the radar screen - not only in Europe but in Asia; possibly in larger countries, because we need larger companies.  But we do have something to offer certain businesses – not all businesses.   And it may not be important today – I mean, if you have a great family business, keep it! I mean, the best thing you can do is own it!  But there comes a time when a change may be necessary.  And I wanted to be, Berkshire Hathaway, to be on the radar screen so that when that time came, people thought of calling us. Now, Eitan thought of getting in touch with us – but not everybody does.  And I think we have been particularly weak outside the United States, and that is why I am over here trying to correct that. 

PAUL
You mentioned that Berkshire Hathaway have a lot to offer companies.  Eitan there was a quote from you recently where you said "What we have got from Berkshire Hathaway is a lot more than money"; that Warren Buffett has a lot more than that to bring.  What is Berkshire Hathaway bringing to the table that perhaps other organisations may not be doing? 

EITAN WERTHEIMER
Freedom to work, freedom to do your… sing your song.  That is what we wanted, and that is what we got.  And to be part of something much bigger.  And to prepare for the future – I mean, what can I ask for more?  Tomorrow, today – and love. 

WARREN BUFFETT
They hand us their stock certificate, and the next day they are still the owner in every way except that stock certificate.  They get rid of any need for any bankers, any presentations to Wall Street, any need to please; constituencies that they don't really care about that much perhaps.  What they get a chance to do is to do even better what they have been doing before, and they have someone who very much appreciates that applauding for them; and to know that that situation will continue for decades and decades and decades.  And that they are not just… it is not like Gin Rummy, you know, where you pick up one card and discard another - we don't do that in Berkshire; we keep picking up cards but we keep them all in the hand! And there really aren't many… we don't have many competitors. 

PAUL HUNTER
We are getting a lot of questions in today, not just from Europe but also from Asia.  We have had a question in from James Dane of ???.com; and he is asking "Is Asia an area of interest to you?"; he is saying that stock, you know, price multiple earnings now have really been drifting down quite significantly in Asia – are you looking for bargains there? Is that part of your global strategy? 

WARREN BUFFETT
Well, we are always interested in businesses as long as they meet our size requirements.  And certainly there are some in Asia that would – many in Asia, perhaps – and we would love to hear from those people just like we would love to hear from people in Europe.In terms of stocks, moving to marketable securities, I look all the time every place.  We had a big investment in PetroChina a few years back, and we have interests in various European countries, and we have a big interest in Pasko, the Korean steel company.So I will look all over the world for marketable securities.  And I will hope people all over the world will think of Berkshire in terms of getting in touch with us on operating businesses, control businesses.  

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IMD campus in Switzerland. Photo courtesy of IMD
 

PAUL HUNTER
We have anothe question in - perhaps a more targeted question.....

WARREN BUFFETT
"What are you buying today?".

PAUL HUNTER
Well, we've had a lot of those, but we are trying to filter those!  But a targeted question in terms of education; one of our viewers is asking "Are you interested in investing in education? And why not buy a business school like IMD?". 

WARREN BUFFETT
Well, in the philanthropic area, about a third of the money in the Gates' Foundation is directed toward education.  And starting next year the Gates' Foundation might give ??? some full-term in terms of their spending behavior.  So they will be spending maybe four billion dollars or something like that, and something like a third – maybe a little less- will go towards education.But in terms of educational businesses, there aren't many that are in the 75 million and up dollar category.  And we have not had any offered to us that meet our criteria. 

PAUL HUNTER
An interesting question has come in from someone saying "Thanks for your definition of success", which they appreciated; "What is your definition of luck?". 

WARREN BUFFETT
Luck?  Well, something I've had a lot of!  Well, I mean, obviously, as I mentioned, I was born in the right place, at the right time, to the right parents – now, how much did I have to do with that? I call that the "ovarian lottery"!  I mean, I won the ovarian lottery!  And that is a pretty important lottery to win!I mean, you know, the tickets you get in life… I was born in 1930 - if I had been born female, I would have had the same chances I have had; if I had been born black I would not have had the same chances I have had; if I had been born in many parts of the world, I would not have had the same chances.  So I won the ovarian lottery!  I didn't have a thing to do with that, obviously!  So just chalk all that up to luck and, you know, that is a huge part of my life. 

PAUL HUNTER
OK.  So a lot of luck, a lot of success.  Let's look at some of the numbers as well:  you have had an average return on investment of 21 percent since 1965, which is pretty staggering.  Is there a particular secret to how you choose your stocks and how you choose the companies you invest in? 

WARREN BUFFETT
Well, I've tried to stick with things I understand. And I don't… you know, I look at the Stock Market as a way to buy businesses; not to buy little things that jig, go up and down and that have charts attached to them and all that sort of thing. So I have a very fundamental approach which I was lucky enough to learn when I was nineteen years of age by reading the right book; a book called "The Intelligent Investor" by Ben Graham.  That was luck.  I mean, picking up that book changed my life in a very, very, very big way.  I don't do anything extraordinary; I don't have any great insights about the world, you know, ten years or twenty years from now – I really just look for things that are obvious.  And I have been doing that a long time.And there are a few more things… I learned a few things over the years; but I had the right framework from Ben Graham.

LQM E57322I look at the Stock Market as a way to buy businesses; not to buy little things that jig, go up and down and that have charts attached to them and all that sort of thing. So I have a very fundamental approach which I was lucky enough to learn when I was nineteen years of age by reading the right book; a book called "The Intelligent Investor" by Ben Graham.  That was luck.  I mean, picking up that book changed my life in a very, very, very big way.  I don't do anything extraordinary; I don't have any great insights about the world, you know, ten years or twenty years from now – I really just look for things that are obvious.  And I have been doing that a long time.And there are a few more things… I learned a few things over the years; but I had the right framework from Ben Graham.

PAUL HUNTER
So that is a framework you have stuck with… 

WARREN BUFFETT
All the way! 

PAUL HUNTER… for the last number of years. 

WARREN BUFFETT
Yes.  It still works! 

PAUL HUNTER
You are a very influential figure, and I know that people who are influential like yourself sometimes can get sucked into the political arena.  I know that you yourself have been involved in fundraising activities for both Hilary Clinton and Barack Obama.  How often do you find yourself being asked to comment on political issues?  And is that something you feel comfortable with? 

WARREN BUFFETT
Well I have got some views on certain political issues like tax policy and all that.  But it is true, I have worked for both Hilary and Barack, and I believe they would both make wonderful Presidents.The main thing that happens when you volunteer to work in politics is you get another call asking you to volunteer again!  But it is enormously important, who leads the country.We have got a – I am talking about the United States now – but we have a country that survives quite well even when we don't get the best; but it is better to have the best, by  a significant margin.  And so I think people should be involved in politics.  I mean, you should care who your leaders are and you should work for them if you get the chance.And because I am in the position I am in, I can raise money perhaps better than other people can.  But no matter how you work at it, I do believe in people being involved in politics. 

PAUL HUNTER
You have been very outspoken on US politics.  Do you feel that the policies in place today are still weakening the strength of the dollar?

WARREN BUFFETT
Yes I do.  Sure.  Yes, we are doing pretty much what we have been doing in recent years; and when you do something over and over again and expect to get a different result, that is insanity! 

PAUL HUNTER
OK.  We are running rapidly out of time here; we are going to have to wrap up shortly.  Joachim, I would like to bring you in at this stage.  You have seen this relationship growing up and have done a lot of research and even a case study on what has been going on between Berkshire Hathaway and Iscar.  What do you believe makes this particular relationship remarkable?  And what are the lessons that family business can learn from them? 

JOACHIM SCHWASS
I think this all started with the Wertheimer family – you, your dad, your wife – attending our "Leading a Family Business" Progam a number of years back.  And I think what a number of family businesses can learn from your particular case is the effort you took to educate yourself about family businesses; how they function, learning from others, looking at family business from a very structured viewpoint.  And asking that key question:  "Will, in future, will we as a family still be the best possible owners for the business?"And obviously you went through this analysis; you came up with a response to this, and you found a solution.  And I think this is, for me, the incredibly strong part of this particular case:  selling a family business does not really mean a loss.  It is a value-added and win-win situation for many parties involved in this.  Plus it creates a future for the business itself.So I think this is probably the key lesson we would want people to take away from this particular case, from this particular example.  Once families are confronted with the situation of wanting or having to sell, there are opportunities out there – and opportunities which are good for the family, good for the ownership and good for the business.

PAUL HUNTER
Mr. Wertheimer, you have found a soul mate through this process; Mr. Buffett, you have found a very interesting company to invest in.  Are there any last words that you want to leave with the viewers?  You mentioned to our MBAs before that you considered your life as an "unfinished painting".  What are the brushstrokes that you see applying to the canopy in the next few years? 

WARREN BUFFETT
Well what is exciting about the painting is I don't know what the brushstrokes will be tomorrow.  I know in general what they will be – but one thing I know is I love having that paintbrush in my hand! 

PAUL HUNTER
So you are in control of what is going on - and let's see where that takes you. 

WARREN BUFFETT
Well, I get to keep painting, and that is a lot of fun! 

PAUL HUNTER
Fantastic.  Mr. Wertheimer, Mr. Buffett, Professor Schwass, many thanks indeed for taking time today.  For all of our viewers, thank you very much for joining us.  Unfortunately we only scratched the surface of your questions; we didn’t manage to get to all of them.  But thank you for your interest, and there will be plenty of information about all that is going on at IMD with Mr. Buffett and  Mr. Wertheimer up on our website; so if you want to go to www.imd.ch, then you are very welcome to get some information there.So from everybody here at IMD, thank you very much for joining us today.  Bye-bye.


Part 1 of the webcast was published last Sunday:
WARREN BUFFETT: Insights and wisdom of the greatest investor



 
350moonlakeL to R: Dr Ansgar Cheng, Moonlake Lee, Dr Gregory Choi (University of Connecticut), Audi Wong. Photo by Leong Chan TeikEight Singaporeans who are Buffett fans made the long flight to Omaha, Nebraska to attend the Berkshire Hathaway AGM last month. Not content with just attending the AGM, they also visited Buffett-linked places such as his office and home. The experiences of the Singaporeans are captured in a 10-page special which will appear in the July issue of Pulses magazine.

500qwest
Queuing in the cold outside the convention centre where the AGM would be held: L to R Melvin Tan, Jana Lim, Kathy Zhang, David Leoy & Audi Wong.
Pic by Leong Chan Teik

 

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