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Every once in a while, I come across this quote. Usually by someone painting an idealized picture of an investor ingesting information all day in a library-like office. Just like the oracle does. I hate to say it: it grinds my gears.
Don’t get me wrong: I love to read. But what ticks me off is when a specific behavior gets taken out of context and fetishized.
An introvert investor’s dream? Sit quietly by yourself and read all day.
Here is an entire collection of quotes about the importance of reading. Suffice it to say that value investors love to read and highly recommend you read a lot, too. The pinnacle of this obsession may have been Todd Combs’s recommendation to “read 500 pages every day.”
“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.”
Must. Read. More.
I’m not going to argue with that statement. That is how you compound knowledge. And perhaps it is how Buffett spends most of his time today. But consider Dan McMurtrie’s framework of the ruler and the conqueror. Starting in the 1980s, Buffett became part of the business establishment. CEOs called to hear his advice, presidents invited him to dinner. Almost anyone in business and finance would make the trip to Omaha to see him if invited. Unless you’re also running one of the world’s largest conglomerates, you should probably learn about how Buffett got to the top, not how he rules his empire now.
Did a young Buffett read a lot? Yes, he certainly did. Did he spend all his time churning through annual reports, newspapers, books, and trade journals enough? No. Buffett understood how to balance his stack of reading materials with a solid travel schedule. He did not expect to solve the world’s investment puzzles solely from the comfort of his desk.
He built and maintained relationships that allowed him to source and discard ideas and evolve as an investor (not to mention enrich his life). Just think about the influence that Munger had on his pivot towards quality investing.
Buffett once told George Goodman during a visit to Omaha:
“You can think here. You can think better about the market; you don’t hear so many stories, and you can just sit and look at the stock on the desk in front of you.”
Guess what else he said:
“I can be anywhere in three hours. New York or Los Angeles. I get all the excitement I want on those visits. I probably have more friends in New York and California than here, but this is a good place to bring up children and a good place to live.”
Show me the evidence!
Don’t take it from me. In 2005, a doctoral student went through the effort of cataloging Buffett’s social ties in a dissertation with the cumbersome title: “How can Strategic People Networks (SPNs) be successful? An inquiry into the causes and nature of social networks striving toward a mutual goal.”
The link takes you to the appendix which contains an overwhelming collection of snippets showing Buffett with his friends, neighbors, investors, fellow board members, CEOs, golf and bridge players, and politicians. You get the impression that all he did was chat, play bridge, and visit the White House. Obviously, that’s not the case either. But allow me to pull out a few examples and demonstrate that Buffett the voracious reader also had an appetite for connecting with people and venture into the real world.
“Buffett’s huge network of knowledgeable and influential friends also has been a help along the way. Buffett has been an original thinker, but it cannot have hurt to discuss prospects for a television station with Tom Murphy, chat about a common investment with Laurence Tisch, or talk with Jack Byrne about insurance. ‘His network of mends has been very important,’ says broker Hayes.” Of Permanent Value, The Story of Warren Buffett
Snowball.
This is from Alice Schroeder’s The Snowball on the essence of Buffett’s lifelong journey and passion for accumulating money.
“That passion had led him to study a universe of thousands of stocks. It made him burrow into libraries and basements for records nobody else troubled to get. He sat up nights studying hundreds of thousands of numbers that would glaze anyone else’s eyes. He read every word of several newspapers each morning … Since childhood, he had read every biography he could find of people he admired, looking for the lessons he could learn from their lives. He attached himself to everyone who could help him and coattailed anyone he could find who was smart. … He never stopped thinking about business: what made a good business, what made a bad business, how they competed, what made customers loyal to one versus another. He had an unusual way of turning problems around in his head, which gave him insights nobody else had. He developed a network of people who—for the sake of his friendship as well as his sagacity—not only helped him but also stayed out of his way when he wanted them to. In hard times or easy, he never stopped thinking about ways to make money.”
GEICO.
Today, Berkshire owns all of GEICO. But how did Buffett first learn about the company? Ben Graham was the company’s chairman and Buffett was Graham’s student. Surely, Buffett must have figured it all out on his own by reading financial reports?
Not at all. Buffett was incredibly proactive and understood that solving the puzzle required, or could be vastly accelerated, by having an experienced teacher. Going out into the world to find one turned out to be an incredible shortcut.
One Saturday, Buffett boarded a train to Washington DC to visit the company. He asked the guard if there was anyone who could explain the business to him and was led to GEICO’s financial vice president, Lorimer Davidson.
“‘My name is Warren Buffett. I’m a student at Columbia. Ben Graham is going to be, probably, my professor. I read his book, and I think he’s wonderful. And I noticed that he’s the chairman of Government Employees Insurance. I don’t know anything about it, but I wanted to come here and learn.’” The Snowball
“I just kept asking questions about insurance and GEICO. He didn’t go to lunch that day—he just sat there and talked to me for four hours like I was the most important person in the world. When he opened that door to me, he opened the door to the insurance world.” The Snowball
When Buffett returned, he sold three quarters of his personal account to buy GEICO shares. Alice Schroeder wrote that “A less Graham-like analysis could hardly be imagined.”
(This reminded me of the time Bill Miller visited Peter Lynch who explained to him the business model of Fannie Mae – which became a fifty bagger for Miller.)
Travel.
Even though Buffett returned to Omaha, he kept in touch with his network in New York.
“Until 1958, his straightforward route was to buy a stock and wait for the cigar butt to light. … The days when Warren simply sat in his study at home, picking stocks out of Security Analysis or the Moody’s Manuals, were gone. Increasingly, he began to work on large-scale, lucrative projects that required time and planning to execute.” The Snowball
“When he was not traveling, he could be found wandering through the house, nose buried in an annual report.” The Snowball
“Between his duties at FMC, Vornado, Blue Chip, and Wesco, and regular trips to New York, Buffett was now traveling much of the time.” The Snowball
“Buffett grabbed Byrne and his wife, Dorothy, and immediately pulled them into his circle of friends. Now, between GEICO, Washington Post meetings, Pinkerton’s board meetings, West Coast trips for Blue Chip and Wesco, business trips to New York, board meetings for Munsingwear, a board that he had joined in 1974, and Kay Parties, he was traveling much of the time.” The Snowball
“In March 1959, Warren took one of his regular trips to New York, staying out on Long Island at Anne Gottschaldt’s little white colonial house. … On these journeys, he always set out with a list of between ten and thirty things he wanted to accomplish. He would go to the Standard & Poor’s library to look up some information. He would visit some companies, visit some brokers, and always spend time with Brandt, Cowin, Schloss, Knapp, and Ruane, his New York City network.” The Snowball
“Buffett met Murphy in the late 1960s when a former Harvard Business School classmate of Murphy’s seated them together at a lunch in New York. Murphy was so taken with Buffett that he invited him to be on the board of Cap Cities. Buffett declined but the two remained fast friends.” Of Permanent Value, The Story of Warren Buffett
Friends.
“His most important seminar, the Buffett Group meetings, took place only in odd-numbered years. Buffett enjoyed teaching so much that he actually went looking for an audience.” The Snowball
Buffett found a way to socialize that worked for his personality. He avoid formal dinners when he could and instead met for with small groups to talk or play bridge or golf.
“Rogers still has a letter dated March 5, 1987, from Buffett to Columbia University Graduate School of Business Dean John Burton which reads: ‘I appreciate the invitation to the Annual Dinner but will have to decline. My extended trip to New York always occurs in May - and even then I like to skip formal dinners as I find I can do a lot more catching up with friends in four- and six-people lunches and dinners.’” Of Permanent Value, The Story of Warren Buffett
Every two years, he gathered a group of friends which were originally dubbed the Graham Group or Grahamites and later became the Buffett Group. Their meetings took place at locations including Lyford Cay in the Bahamas, Dublin, Ireland, Williamsburg, Virginia, aboard the Queen Elizabeth II, in Arizona, and France.
“The group … began in 1968 with 13 people and now has about 60, including Mrs. Graham, Munger, Murphy, Ruane, Tisch, Keough, Gates, Jack Byrne, and Lou Simpson. Sometimes Buffett refers to the group as ‘Our Gang’. During their retreats, the group holds seminars on public policy, investments, charitable giving (whether to do it early in life or late), life’s toughest and silliest moments.” Of Permanent Value, The Story of Warren Buffett
And while Buffett undoubtedly generated his own ideas, he frequently discussed stocks with friends.
“His network of business pals like Stanback, Knapp, Brandt, Cowin, Schloss, and Ruane had grown by the addition of Munger; the two of them ran up outrageous—by their standards—phone bills every month.” The Snowball
“It was one of his newer friends, David “Sandy” Gottesman, who brought him this latest idea. Gottesman was like Fred Stanback, Bill Ruane, Dan Cowin, Tom Knapp, Henry Brandt, Ed Anderson, and Charlie Munger: people who worked their own ideas and fed ideas to him. The ever-handy Ruane had connected them at a lunch in New York City.” The Snowball. The idea was Hochschild-Kohn
“From then on,” says Gottesman, “every time I had a good idea, I would call Warren. It was like vetting. If you could get Warren interested in something, you knew that you had the right idea.” The quintessential New Yorker, Gottesman valued his time with Buffett highly enough to be willing to travel to Omaha often. “We’d stay up till late at night talking about stocks,” he says, “and then I’d go back the next morning and go to work in New York. We also talked every Sunday night at around ten o’clock for maybe an hour and a half about stocks. I was looking forward to that conversation all week, thinking about what are the stocks I’m going to talk to him about. No matter what I talked to him about, he knew as much as I did about them, most of the time. After I hung up,” says Gottesman, “I used to go to bed around midnight or afterward, and I couldn’t go to sleep for a couple of hours, I was so charged up.” The Snowball
Unique insights.
In 1991, the Buffett Group met to discuss how the list of the ten most valuable companies had changed through the decades. Why didn’t the successful companies keep winning? What was a truly durable competitive advantage? This was the first year in which Bill Gates joined. According to The Snowball, while others pointed to “arrogance, complacency, and what Buffett called the “Institutional Imperative,” Gates could offer a unique perspective on technology and disruption.
“What about Kodak? asked Bill Ruane. He looked back at Gates to see what he would say.“Kodak is toast,” said Gates.
Nobody else in the Buffett Group knew that the Internet and digital technology would make film cameras toast. In 1991, even Kodak didn’t know that it was toast.
“Bill probably thinks all the television networks are going to get killed,” said Larry Tisch, whose company, Loews Corp., owned a stake in the CBS network.
“No, it’s not that simple,” said Gates. “The way networks create and expose shows is different than camera film, and nothing is going to come in and fundamentally change that. You’ll see some falloff as people move toward variety, but the networks own the content and they can repurpose it. The networks face an interesting challenge as we move the transport of TV onto the Internet. But it’s not like photography, where you get rid of film so knowing how to make film becomes absolutely irrelevant.”
This was in 1991, two years before the Mosaic browser was created by Marc Andreessen. Gates displayed incredible foresight. I don’t know if anyone at that meeting used their access to his insights to make money. But they could have.
Just two friends taking a break from a reading marathon.
Enough.
There are plenty of other examples but this should be enough for one day.
On Buffett’s visits to Allen & Co.’s Sun Valley conference: “Buffett’s friend Tom Murphy referred to this kind of event as “elephant-bumping.” “Anytime a bunch of big shots get together,” says Buffett, “you can get people to come, because it reassures them if they’re at an elephant-bumping that they’re an elephant too.” The Snowball
Today, Buffett is one of the elephants. He has no issue getting access. He doesn’t have to travel or call people unless he wants to. Ideas and opportunities flow to him. And yet, he still regularly takes part in events like the Sun Valley “summer camp for billionaires.”
I’m sure he spends a lot of time reading. But always remember that his wealth was built on the balance of compounding wisdom and relationships. In fact, the two reinforced each other. Go and do likewise.
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