Jan 24, 2017

The Sage of Omaha: Words of Wisdom from Warren Buffett

By Erica Toews T'18

Last weekend, the Investment Club took 20 Tuck students to Omaha, Nebraska to meet Warren Buffett. We spent the morning at a Berkshire Hathaway subsidiary called Nebraska Furniture Mart, the nation’s largest home furnishing store. Rose Blumkin (“Mrs. B”), an immigrant from Russia who came to the U.S. in the early 1920s, started the company in the basement of her husband’s pawnshop. Her philosophy was, “Sell cheap and tell the truth.” She hated debt, so she held a giant warehouse sale to blow out her inventory and made enough cash to pay off the bankers. The company grew, opening stores in Kansas City and Dallas. Chief Strategy and Development Officer Jeff Lind told us, "When we go to a market, we go big. We try to be market dominant wherever we go." The first company to sell the $150 “mermaid pillow” covered in sequins, Nebraska Furniture Mart received orders by the thousands after a video went viral on Facebook.

We met Warren Buffett at Anthony’s steakhouse for an open Q&A session with a few other schools. Here is some wisdom he imparted and life lessons he shared.

  • On the morning of the 45th presidential inauguration, Buffett expressed optimism about the future of America and “its secret sauce. Our system unleashes human potential. People keep working even after they don't need the money. It’s a land of opportunity, but you have to work hard to get there. America can’t be stopped. Nor can the world.”
     
  • Always abide by what is important and noble. Stay within your circle of competence by considering businesses you know how to value. People overcomplicate investing, but it doesn’t require anything in academic journals. Buffett never uses formulas but values every business he has ever bought. “What matters is the discounted value of cash flows from now until judgment day.”
     
  • It is within your reach to become a successful investor. Buffett bought his first stock at age eleven during World War II. “It’s a terrific playing field. All you have to do is buy a few good businesses and sit on them. I have thousands of choices but only need to be right about the ones I choose to bring into my universe. Investing is just assigning yourself the right story. We’ve known how to do this since biblical times: a bird in the hand is worth two in the bush. This is all you need to know about academic finance.”
     
  • Be confident. Don’t get caught up by fear the way the United States did in 2008. “You don't have to be smart, you have to be brave. The problem won’t be your logic but whether you’re paralyzed by what people around you think. It doesn’t take brains, but it does take emotional stability.” The best advice he ever received was from his father: “Keep an inner score card, not an outer score card.
     
  • The most important decision you make in your life is who you marry. You’ll become a better or worse person based on who you spend your life with. Don’t marry someone with unrealistic expectations. In addition, “the most important job you have is being a parent. People don't feel bad about their lives if they feel good about their kids.”
     
  • Warren Buffett has pledged to give away 99 percent of his net worth to philanthropy within twelve years of his death. He does not engage in impact investing because he prefers to keep investment decisions separate from philanthropic endeavors. The purpose of investment is to make as much money as you can, so he invests in “easy businesses. However, philanthropy is about tackling important problems that have defied money and intellect, so you want a high failure rate. Things get muddled up if you try to maximize two variables in an equation.”
     
  • Live where you want to live, then build your business around that. Buffett lived in New York for many years, where he had a thirty-minute commute to the office. In Omaha, his commute is five minutes. “I’m more productive when I’m happy. I have a better life in Omaha than I did in New York.” 
     
  • Keep an audited record of what you do and how you do it, and be extremely careful about who you let in. Have investors who are in sync with you and “do business with classy individuals. If they’ve got the wrong expectations, you’ve got the wrong crowd. I can’t satisfy people who think I can beat the market every month.”
     
  • You are at an age when you can determine the person you want to be. Think about your heroes: they’re leaders because they behave in a way that makes people believe and follow them. What do you admire most in other people? You can emulate those qualities.

After lunch, we visited two other Berkshire subsidiaries. Borsheims is a jewelry store with a business model similar to Nebraska Furniture Mart: “sell, sell, sell, and watch the floor.” They offer inventory at low prices and are committed to building customer loyalty. Borhseims buys in breadth with little depth to focus on customization and uniqueness. The store is proud to be part of special moments in their customers’ lives, such as selecting an engagement ring, and their diamonds are either created in labs or ethically sourced.

Oriental Trading Company is a party supply store with the vision, “To make the world more fun.” When the company declared bankruptcy in 2010, Berkshire Hathaway acquired it within 45 days. Though most of their marketing is print, most of their orders are online. We toured the fulfillment center, a massive warehouse of conveyor belts, fans, and cardboard boxes. The company is increasing safety and efficiency with a “pick to voice” system: instead of a clipboard, warehouse workers wear headsets connected to small wearable computers that tell them where to go and what to do.

I’m so grateful to Tuck for the opportunity to meet Warren Buffett. He is an inspiring figure, and he truly believes that we can all positively impact the world of business.

Read more from Erica