Make Way for the 'Economic Pearl Harbor'

Warren Buffett voiced support for Henry Paulson's $700 billion proposal to buttress the buckling US financial system, calling it "absolutely necessary." I found that surprising. The move certainly saves our asses for the next couple of weeks, but we're facing deeper, potentially fatal problems with our system if its checks and balances (the market, essentially) can no longer support it.

Regular injections may sustain a diabetic, but it's hardly appropriate for the powerhouse of global consumption.

Now for some comic relief.

"It's nice to have a lot of money, but you know, you don't want to keep it around forever," Buffett said. "I prefer buying things. Otherwise, it's a little like saving sex for your old age."

He said sex!

Buffett recently announced intentions to infuse Goldman Sachs with $5 billion. The latter must be relieved beyond measure. If Berkshire Hathaway were a blanket, I'd be trying to crawl into it too.

(Thanks, Benj, for the Bloomberg link.)

On Buffett's Succession

Warren Buffett, nurturing gardener of Berkshire Hathaway, is making good-bye preparations. And while he's the first to admit he'd hate to retire, the 76-year-old CEO and chairman is aware the time to descend will come whether he wants to or not.

Details of the retirement are hush-hush but he did mention he'll be trying some hirees on for size in the coming months. The only position explicitly covered is that of chairman, which will be adopted by son Howard Buffett to preserve the Berkshire culture.

Potential shoe-fillers should prepare to be paid by investment performance, not title (read: phantom phallus) size. And if said candidates aren't too keen on Omaha, they can expect to live "wherever they feel best about life. Wherever you can think best, the information is readily available," confirmed Buffett.

Dire topic matter aside, the Oracle of Omaha is chipper. "I feel terrific. You ought to try this peanut brittle," he said during a news conference. A box of candy sat between himself and Charlie Munger, whose role as vice chairman will not be filled.

83-year-old Munger is rolling with that choice in good humour. "I do not need to be replaced," he said. "If you fade away, you do not need to be replaced."

After all that rag the homies moved onto business as usual, mentioning in passing they're over their railroad prejudices, among other things.

I'm fond of Buffett and Munger (something you probably already know about me) and am consequently bummed, though I've often wondered what sort of hell will break loose when the big men leaveth. Glad we're all being practical here.

Why I Love Warren Buffett

They say Warren Buffett made his first stock purchase at the age of 11, a small number of Cities Services shares for $37 each. When the price hit $40 he sold, only to see them hit $200 some years later.

This allegedly taught him what it meant to invest for the long term. And not just in companies but in the people behind them, too.

One thing I admire about Warren Buffett's annual shareholders letters is their lengthy tell-all nature. You feel the same intimacy encountered when hearing the precious particulars of a good friend's life. He reflects, makes jokes and considers past decisions. He also takes great pains to explain the underpinnings of his methods.

After describing the past year's goings-on and some recent acquisitions including Business Wire, in his 2005 letter Buffett reflects upon the way Berkshire develops relationships:

Unlike many business buyers, Berkshire has no “exit strategy.” We buy to keep. We do, though, have an entrance strategy, looking for businesses in this country or abroad that meet our six criteria and are available at a price that will produce a reasonable return. If you have a business that fits, give me a call. Like a hopeful teenage girl, I’ll be waiting by the phone.

Berkshire does it for keeps.

Businesses aren't just currency machines. They're functioning entities with a culture and an ethos supported by people.

Two contributing reasons to Buffett's decision to join forces with Business Wire lived in company president Cathy Baron Tamraz's two-page letter to him: “As president of Business Wire, I’d like to introduce you to my company, as I believe it fits the profile of Berkshire Hathaway subsidiary companies as detailed in a recent Wall Street Journal article [...] We run a tight ship and keep unnecessary spending under wraps. No secretaries or management layers here. Yet we’ll invest big dollars to gain a technological advantage and move the business forward.”

A close watch on finances, coupled with the gumption to take educated risks, made strong recommendations. Let's add a third element: Cathy who, upon reading Berkshire's profile, wasted no time in developing what appears to be a straightforward, no-nonsense relationship from the get-go.

As a proponent of sincerity in networking I should first have mentioned how important I think it is to start yourself off right before even trying to develop relationships with others.

A responsible financial plan, where you don't spend what you haven't earned, may seem old-fashioned and conservative. But a chill attitude about credit will ease a young business out of your hands faster than you can lift it off the ground. Each debt you take on is like a blood pact against your business's strength. Is a blood pact something you really want to make at every open opportunity? The way you manage money reflects a lot about your character.

A willingness to look facts in the face, take criticism and scrutinize the raw elements of your enterprise are also critical. Buffett knows his businesses in and out. And as well as he knows the balance sheets, he knows the people running them.

Then there's the people element. You should never discount the partners and employees whose near-term destinies it will be to make your business a great one. Even if you don't know all the details of their kids, you should at least keep eyes and ears open to what they love, why they work with you and how they manage others - particularly your customers.

It's my opinion that these are the characteristics that put an enterprise at Berkshire caliber, bearing in mind it ain't Google. You're not looking to explode in a handful of years, you're building a solid foundation that many people can feel good about standing on, perhaps even after you're gone.

The conclusion to Buffett's 2005 letter includes the following admission:

Charlie [Munger] and I are extraordinarily lucky. We were born in America; had terrific parents who saw that we got good educations; have enjoyed wonderful families and great health; and came equipped with a "business" gene that allows us to prosper in a manner hugely disproportionate to other people who contribute as much or more to our society’s well-being.

It's not everybody who shares Buffett's net worth, or the sense of immense gratefulness and personal responsibility he exhibits to the people who make it possible and society at large. It merits noting.

Moreover, we have long had jobs that we love, in which we are helped every day in countless ways by talented and cheerful associates. No wonder we tapdance to work.

Oh yeah, that last thing. It helps to pursue something you love doing. Be passionate. Please.

Warren Buffett Commits Largest Donation in History of US

Days after the news of good friend Gates' retirement, seventy-five-year-old Warren Buffett, the second-richest man in the world, announced he'll be donating 85% of his fortune to charitable foundations. The bulk of this donation, This marks the single largest donation anyone in the US has ever made, trumping the monetary contributions of Carnegie and Rockefeller, even accounting for inflation. It also highlights the intimate friendship that has existed for years between Gates and Buffett.

Of course, no good deed goes unpunished and Buffett has his critics. There remain a few who feel he's provided his children with too much of an advantage, despite the fact that they lived out relatively normal childhoods in Omaha and aren't lifting a finger to contest the whoppin' $37 billion of dad's money that's not going to them. He's allotted them stock in the illustrious Berkshire Hathaway and has enabled them to devote much of their lives to charitable work. In 2004, his son Peter Buffett and wife Jennifer each received a $40,000/year salary for 30 hours of charity work per week within the family foundation. I'd hardly call this cushy, but I suppose there's always reason to nitpick.

Inherited wealth makes me rather uncomfortable, and that's hardly a unique sentiment. Even King Solomon, the Bill Gates of his own time, laments this problem: "I hated all my toil in which I had toiled under the sun, seeing that I must leave it to the man who will come after me; and who knows whether he will be a wise man or a fool?" (Eccl. 2:18-19) All you need to do is turn the television on to witness the countless kids who've made a mess of their lives with mom and dad's money.

Acknowledging the same discomfort (he's been known to say inheritances are privately funded food stamps), Buffett gave his kids a grander gift than madd bills: he enabled them to mold their own futures and make their own decisions about money. (Therein lies the power of getting stock and not cash.) How do you know your kids have internalized your respect for the dollar? When you can let go of 85% of your fortune without a one of them raising a finger to stop you. "Love is the greatest advantage a parent can give," Buffett says in the Fortune story that broke the news about his donation - a sentimental notion, but one many can relate to. The gift of character is infinitely more valuable than a signed check you didn't earn.

Buffett made the majority of his money through the stock market, following mentor Benjamin Graham's philosophy of securities analysis and his own contrarian guidelines. He is worth an estimated $44 billion according to Forbes, just a few billion shy of Gates' $50 billion. Like Gates, who has been without question the spearhead of Microsoft from its inception, Buffett's fortune was carved with a sense of passion and deep propriety: "I get to do what I like to do every single day of the year," he says. "I get to do it with people I like, and I don't have to associate with anybody who causes my stomach to churn. I tap dance to work, and when I get there I think I'm supposed to lie on my back and paint the ceiling. It's tremendous fun." His annual reports to Berkshire Hathaway shareholders read like letters to close friends, demonstrating his enthusiasm for his work.

In a letter to Gates and his wife, Buffett writes: "You have committed yourselves to a few extraordinarily important but underfunded issues, a policy that I believe offers the highest probability of your achieving goals of great consequence." Even in contributing to charity he follows the principles of securities analysis, investing deeply into an undervalued (in this case, underfunded) niche. He also lends insight into value of a different kind: that with great fortune come significant responsibilities within the world - larger ones than most people will encounter in their lives. For a full and satisfying life, it's critical to take care of your money the way you would a well-kept garden, keeping it circulating in productive arenas to prevent it from stagnation, thereby ensuring a rippling sustainability beyond yourself. Following your dreams doesn't just enrich you; it enriches everything you touch, as it should.

By no means do I think social responsibility should be imposed by outside forces upon the man who takes the plunge into the land of his dreams - and succeeds beautifully - by his own will, wits and other merits. A person's financial decisions are deeply personal. But Buffett and Gates (who recently announced his 2008 retirement to devote time to his foundation) ensure the value they spent their lives generating remain productive within the world and to their own children.

Read more about the story here.

Warren Buffett, Melinda Gates and Bill Gates in New York on Sunday, June 25, 2006, shortly after Buffett announces his decision to donate $1.5 billion per year to the Bill and Melinda Gates Foundation. [AP]