WARREN BUFFETT: Yeah. I’ll give you two different answers.
The most important factor, subject to this one caveat I’m going to give in a
second, is a passion for their business.
We are frequently buying businesses from people who we wish to have
continue manage than them and where we are, in effect, monetizing a lifetime of work for them.
I mean, they’ve built this business over the years. They’re already rich
but they may not be rich in the liquid sense. They may have all their money,
or a good bit of it, tied up in the business, so they’re monetizing it.
They may be doing it for estate reasons or tax reasons or family reasons, whatever.
But we really want to buy from somebody who doesn’t want to sell.
And they certainly don’t want to leave the business.
So we are looking for people that have a passion that extends beyond
their paycheck every week or every month for their business.
Because if we hand somebody a hundred million or a billion dollars for their business,
they have no financial need to work. They have to want to work. And we can’t stand there with
a whip. We don’t have any contracts at Berkshire. They don’t work, as far as I’m concerned.
So we hope that they love their business and then we do everything possible
to avoid extinguishing, or in any way dampening, that love.
I tell students that what we’re looking for when we hire somebody, beyond this passion,
we’re looking for intelligence. We’re looking for energy. And we’re looking for integrity.
And we tell them, if they don’t have the last, the first two will kill you.
Because if you hire somebody without integrity, you really want them to be dumb and lazy,
don’t you? I mean, the last thing in the world you want is that they are smart energetic. So
we look for those qualities.
But, we have generally — when we buy businesses,
it’s clear to us that those businesses are coming with managers with those qualities in them. Then
we need to look into their eyes and say, do they love the money or do they love the business?
And if they love — there’s nothing wrong with liking the money. But if — what it’s really
all about is that they built this business so they can sell out and cash their chips
and go someplace else, we have a problem, because right now we only have 16 people at headquarters
and we don’t have anybody to go out and run those businesses.
So we — it’s necessary that they have this passion and then it’s necessary that
we do nothing to, in effect, dampen that passion. Charlie?
CHARLIE MUNGER: Yeah. The interesting thing is
how well it’s worked over a great many decades and how few people copy it.
CHARLIE MUNGER: I think the corporate types — the
corporate managers — ought to study investing better because they’d be better managers.
And I think that everyone who thinks through the investment process
learns more about how the world really works. And I think that’s very worth having.
But I do not like as big a percentage of GDP as we now have
going to money management and its attendant frictions.
And I don’t like the percentage of the nation’s brainpower
that is now in all of these different forms of highly-compensated money management.
I don’t think it’s a good thing for the country, and
I hate the fact that we’ve contributed to it by our own predilections.
WARREN BUFFETT: Charlie is only sitting up here next to me as
part of his outreach program, actually. (Laughter)
Please don’t take any pictures that you could blackmail him with, being associated with me.
Charlie made a very good point there about
how managers would do better if they understood investments.
I find it absolutely fascinating, and I’ve seen this throughout my life, I’ve seen it close up.
I will have friends who are CEOs of companies and they’ll have somebody else handle their money.
If you say to them, you know, should you buy Coca-Cola or Gillette or something like that,
they’ll say that’s much too tough.
I don’t understand that sort of thing. What do I know about investing?
And then some investment banker walk in the next day with the idea they buy a $3 billion company,
which is just buying a lot of shares of stock in one company, and they’ll run through some
little two-hour presentation and turn it over to a strategic planning group and think that they are
then the ones that should make that decision as to whether to buy multibillion-dollar businesses
when they really don’t feel they’re qualified to make $10,000 decisions with their own money.
And it’s extraordinary what you see in corporate America and the acquisition activity.
It’s a little like they say about making sausage and making laws, it’s better unobserved.
Charlie, you have any further thoughts on that? You’ve seen a lot of it with me. (Laughs)
CHARLIE MUNGER: Well, I do think that the present era has no
comparable precedent in the past history of capitalism.
I think we have a higher percentage of the attention of our intelligent classes into
buying little pieces of paper and getting — trying to get rich doing it, and
in promotional activities with big profit sharing fees.
I can recall no past era which had a similar concentration of this
type of activity. Can you, Warren?
WARREN BUFFETT: No, but I think you would say, probably, too, that we’ve seen
sort of baby versions of this, something subsequently happened, that —
CHARLIE MUNGER: Oh, yes. If you want to talk about what are the future implications,
a lot that I see now kind of reminds me of Sodom and Gomorrah, and —
WARREN BUFFETT: We weren’t there, incidentally. I mean — (Laughter)
CHARLIE MUNGER: No, but there’s a published account. (Laughter)
And I think when you get as much sort of regrettable activity going
on and sort of feeding on itself in frenzies of envy and imitation,
that — it has happened in the past that there came bad consequences.