We all think we know how Warren Buffett does just about everything. But some of what he's done might surprise you.
Buffett is not only the world's most famous multi-billionaire investor, he's also the best known--in the sense that we all feel like we know him really well. Compared to the world's other richest people, Buffett is an open book, sharing his thoughts, feelings, and philosophies in countless interviews, in his famous letters to Berkshire Hathaway stockholders, and now in the new HBO documentary Becoming Warren Buffett that features candid interviews with the Oracle of Omaha, as well as his family members and closest friends.
I've been a Buffett admirer for years, so I was surprised at some of the things I learned about him in the film, a few of which are very different from what I thought I "knew" about him. Here are some of the most unexpected Buffett "facts" I've been getting wrong:
1. Buffett grew his fortune by only investing in companies with solid long-term prospects.
That philosophy certainly seems to dominate his investing now, but it wasn't always that way. Buffett studied under the legendary investor Benjamin Graham. Graham's philosophy was that for professional investors (as opposed to people simply trying to safeguard a nest egg), the smartest approach was to only buy stocks that were badly undervalued by the market. In the documentary, these stocks are likened to cigar butts that still have one smoke left in them.
With research, investors like Buffett can discern when a company's underlying assets are worth more than its market capitalization (the total price of all its outstanding shares). When that's the case, a stock is almost always a good buy, and finding those deals is how Buffett first got rich. But he was able to amass a much more impressive fortune through investing in companies with a solid future, even if not at bargain-basement prices.
2. Berkshire Hathaway's success is solely due to Buffett's success picking stocks.
That may be the biggest part of the company's success, but it's not the only part. Since at least the 1970s, Buffett has teamed up with Charlie Munger, vice president of Berkshire Hathaway, on much of his investing. The two see eye-to-eye on most deals, although Munger says in the film that Buffett vetoes an investment he would choose about four times a year. Munger has also deeply influenced Buffett, and in the documentary, Buffett credits him with getting him to move beyond his cigar-butt stocks to buying great companies with rosy futures as well, what he calls "buying wonderful companies at fair prices instead of fair companies at wonderful prices."
3. All Buffett's investment decisions are carefully considered and based on solid research and calculations.
Avoiding financial decisions based on emotions is a core tenet of Buffett's investing philosophy. As he says in the film, you may have lots of feelings about a stock, but it will never have any about you.
Nevertheless, one of his most significant purchases came about in a fit of pique. Buffett often buys stock in companies where he anticipates the company will make a stock repurchase, which more or less guarantees at least a modest return. One of these was the (then) textile manufacturer Berkshire Hathaway.
The company was gradually winding down operations and selling off plants, and each time it did so, it would repurchase some stock. Buffett observed this pattern and purchased some shares in the expectation that the company would repurchase them. In due course, company management came calling and asked Buffett at what price he would sell his shares. Buffett said $11.50, and the company's managers agreed to that. But when they sent their formal offer, the price was $11.375. Buffett became so enraged at this double-cross that he made it his mission to buy enough shares to control Berkshire Hathaway and fire its management. And he did.
4. He's always been a devoted and faithful husband.
Well...sort of. Considering Buffett's persona as the most wholesome and Midwestern multi-billionaire imaginable, his marital history is not what you might guess. Yes, he married Susan Thompson at 21 and remained devoted to her until her death in 2004. But, as several people in the film explain, he was not the most engaging of husbands--often up in his study reading or deep in thought about some business problem or other, physically present but mentally absent.
In 1977, Susie Buffett left Omaha and moved to San Francisco to pursue a separate life. She remained married to Buffett and by all accounts still loved him. Worried about how he would manage on his own, she asked various people to look after him, including her good friend Astrid Menks. Menks wound up moving in with Buffett and lived with him for more than 20 years. The three remained close during this time, and the women took turns accompanying Buffett during public appearances, with Menks doing most Omaha events and Susie doing some that took place elsewhere. All three signed Christmas cards together.
It's an arrangement that worked for them, Buffett says in the film, although he concedes "it might not work for a lot of other people." A few years after Susie's death, Buffett married Menks.
5. Anyone could do what Buffett did.
This is part of the Buffett mythology--that he's an ordinary guy from Nebraska who simply put in the time and effort to learn how to be a smart investor and had the self-discipline to manage both his money and his investments wisely. In the film, he claims that his greatest two pieces of luck were being born American and male.
Unfortunately for the rest of us, it's not that simple--the Buffett brain is a very special piece of equipment. As many people who knew him in his youth explain, he's always had a great talent for understanding numbers, and he has amazing powers of retention as well. Could we all learn the value investing philosophy Buffett follows? Maybe. But most of us will never understand the metrics or the markets as deeply as he does.
Becoming Warren Buffett premiers tonight at 10 pm Eastern on HBO.