Speaker 1: Pushkin too quick.
Speaker 2: No, it's perfect, push kid stop, you got it.
Speaker 1: The title of this show, Jacob, is Old Warren Buffett.
Speaker 1: So when does a man get old? I asked myself
Speaker 1: that every.
Speaker 3: Day yet no today.
Speaker 1: Yet We did a whole show on Young Warren Buffett.
Speaker 1: He is ninety five years old as of this recording,
Speaker 1: so somewhere in there he became the man he is today.
Speaker 1: To recap our last episode on Young Warren Buffett, this
Speaker 1: weird kid who had obsessive hobbies becomes investor in things
Speaker 1: that they called cigar butt companies. He found tiny companies
Speaker 1: that were worth more than they appeared by their stock price.
Speaker 1: Would buy that stock, wait for the pop, wait for
Speaker 1: the pop, and.
Speaker 3: Then sell it. And it's very different than the Warren
Speaker 3: Buffett we know today.
Speaker 1: Yeah, and in the last episode, he buys a textile mill,
Speaker 1: Berkshire Hathaway, which then becomes his holding company for all
Speaker 1: these other companies you know, insurance companies, products, all sorts of.
Speaker 3: That's the transition into the Buffet we know today. He's
Speaker 3: not buying and selling. By the end of the last episode,
Speaker 3: he's buying and holding.
Speaker 1: And he's starting to think about these big American brands,
Speaker 1: Coca Cola, Gillette, Razors, Dairy Queen. Right, you can't get
Speaker 1: more American than that. So today we're going to talk
Speaker 1: about Warren Buffett's superpower that he really leveraged in this
Speaker 1: sort of second half of his life, and that is
Speaker 1: that he was now famous. And this is the fundamental
Speaker 1: thing about Warren Buffett. Regardless of the decisions he makes
Speaker 1: by himself late night when he's deciding which companies to buy,
Speaker 1: he is a man who is now famous for being brilliant,
Speaker 1: famous for being investor, famous for being rich, famous for
Speaker 1: being folksy and all American. And that that wasn't just
Speaker 1: a result of his decisions. That was the way he
Speaker 1: ended up making so much money, his fame the Buffet Premium.
Speaker 1: We are going to start in nineteen eighty three because
Speaker 1: this is the first time that Berkshire Hathaway has an
Speaker 1: annual meeting that you might recognize today. Annual meetings are
Speaker 1: traditionally very boring and back before the nineteen eighties, like
Speaker 1: no one went to them, like maybe some old retirees
Speaker 1: and some.
Speaker 3: People work for the company, maybe a mutual fund manager
Speaker 3: trying to look busy.
Speaker 1: Yeah, So famously, the Berkshire Hathaway meetings used to be
Speaker 1: in a loft in the mill in New Bedford, Massachusetts.
Speaker 1: There's a story about like it sort of ending early
Speaker 1: because people just wandered away right meeting and turned Buffett
Speaker 1: eventually move the meetings to the National Indemnity Cafeteria in Omaha.
Speaker 1: That's an insurance company owned And in nineteen eighty one
Speaker 1: only twenty two people showed up. But in nineteen eighty
Speaker 1: three people were starting to hear these stories about this
Speaker 1: famous investor, Warren Buffett. Right, he was close to being
Speaker 1: a billionaire at this point. And a crowd one hundred,
Speaker 1: few hundred show up at the meeting, and Buffett gets
Speaker 1: this chance to do what he's done one on one
Speaker 1: for most of his life, which is to kind of
Speaker 1: hold court to talk about his philosophy of life and investing.
Speaker 1: This is what you say, he's dispensing, folksy wisdom, dispensing
Speaker 1: folks say wisdom, yeah, yeah, yeah. This is in the
Speaker 1: first graph of coverage of the Berkshire Hathaway shareholder meeting
Speaker 1: in Perpetuity. Right, people are traveling across the country to
Speaker 1: see him. Eventually, they would, you know, fill auditoriums and
Speaker 1: then arenas people would start to like dress up as
Speaker 1: Warren Buffett, they would read poems about him, seeing songs.
Speaker 1: He became this American brand, just like the brands that
Speaker 1: he love, like Coca Cola and Dairy Queen. So as
Speaker 1: part of this episode, I'm going to tell you the
Speaker 1: story of how Warren Buffett leveraged this fame. But I
Speaker 1: also have in my hand a collection of folksy wisdom
Speaker 1: that I'm going to make you read through this episode.
Speaker 1: You can shuffle them, you could pop them in whenever.
Speaker 3: So you've handed me a stack of index cards, each
Speaker 3: of which has a pithy piece of folksy wisdom from
Speaker 3: Warren Buffett, little Buffet quotes. I'm going to lay them
Speaker 3: out before me, and I'm going to pull from him
Speaker 3: as appropriate.
Speaker 1: During the show Love It. In the mid nineteen nineties,
Speaker 1: the annual Berkshire Hathway Meeting gets moved to the Colisseum
Speaker 1: in Omaha. This is when they start calling it the
Speaker 1: Woodstock for Capitalists. Ten thousand people show up, then twenty
Speaker 1: thousand people show up. Ten years later, people are dressing
Speaker 1: like Warren Buffett, reading poems about him, you know, painting
Speaker 1: pictures of him trying to give him gifts. They're buying
Speaker 1: products and souvenirs at the Berkshire halfway meeting.
Speaker 3: Boks are Berkshire companies, right, They're buying seased candies and exactly,
Speaker 3: dairy Queen dilly bars exactly.
Speaker 1: And at the center of it is Warren Buffett, just
Speaker 1: answering questions off the top of his head, you know,
Speaker 1: preaching this Buffet way right.
Speaker 3: And rule number one is never lose money. Rule number
Speaker 3: two is never forget rule number one love it.
Speaker 1: There's this great quote that Buffett gives in the book
Speaker 1: The Snowball by Alice Schroeder that sums up his attitude
Speaker 1: this whole thing. Right, I was at my best at
Speaker 1: giving financial advice when I was twenty one years old
Speaker 1: and people weren't listening to me.
Speaker 3: I could have.
Speaker 1: Gotten up there and said the most brilliant things and
Speaker 1: not very much attention would have been paid to me.
Speaker 1: And now I can say the dumbest things in the
Speaker 1: world and a fair number of people will think there's
Speaker 1: some great hidden meaning to it or something.
Speaker 3: This is insightful, but not so insightful that he stops pontificating.
Speaker 1: No, because this was his new competitive advantage, huh, and
Speaker 1: it turns out a little bit of a curse.
Speaker 3: I'm Robert Smith and I'm Jacob Goldstein. This is Business History,
Speaker 3: a show about the history of business.
Speaker 1: When we told the story of Young Warren Buffett, it
Speaker 1: was a story of, you know, a crafty man using
Speaker 1: research and math and hard work to make millions of dollars.
Speaker 1: But Old Warren Buffett's a little bit of a harder
Speaker 1: story because he sort of starts with a billion dollars
Speaker 1: and just continues to get richer, right, And he is
Speaker 1: also a man at this point who is making his
Speaker 1: own weather. He doesn't have to be smarter or faster.
Speaker 1: He may be, but doesn't have to be because he
Speaker 1: is Warren Buffett. And people just want to do business
Speaker 1: with him. They want to be part of the magic.
Speaker 1: So in the nineteen eighties, Buffet's already putting together this
Speaker 1: whole empire under the brand Berkshire Hathaway. He has the
Speaker 1: insurance company generating cash. He's got sees candy. Have you
Speaker 1: ever had to seize candy?
Speaker 3: I have, Yeah. My step grandfather used to give me
Speaker 3: a box for Christmas when I was a boy.
Speaker 1: Wid grhead parents too, and they are these lovely boxes
Speaker 1: of fancy chocolates. Half of them are disgusting. You just
Speaker 1: don't know which.
Speaker 3: You don't know, right, And they could put a man
Speaker 3: You know what, I don't want the cherry. Nobody wants
Speaker 3: the cherry. I just want the like the chocolate tree.
Speaker 1: No fruit, No, don't put the fruit in there. But
Speaker 1: old people love it. And it was a great successful
Speaker 1: American company. Right. He has a couple of newspapers at
Speaker 1: this point, he's got a bank, he owns some of ABC,
Speaker 1: the TV network, Geico insurance. So he is very successful
Speaker 1: and very rich. But this is the nineteen eighties, right, go,
Speaker 1: go Gordon Gecko. Right, is that his name, Gordon Gecko?
Speaker 3: Greed is good?
Speaker 1: Right? The movie Wall Street, it's all about financial innovations.
Speaker 1: We're all going to be rich.
Speaker 3: We're not all going to be rich in Wall Street
Speaker 3: for the record, Yes, the Wall Street people get rich.
Speaker 1: Rich, yes.
Speaker 3: Yes.
Speaker 1: And that guy in Omaha, he doesn't really know what
Speaker 1: he's talking about. Right. He doesn't believe in borrowing vast
Speaker 1: sums of money. He doesn't believe in junk bonds any
Speaker 1: of these things. Right, you just can't buy and hold.
Speaker 1: This is the nineteen eighties. And this is also the
Speaker 1: era where finance professors are starting to put forward something
Speaker 1: called the efficient markets hypothesis, which you and I know.
Speaker 3: Well, yes, yes, I mean it's basically the idea that
Speaker 3: in a big liquid market like the US stock market,
Speaker 3: the price of a stock today reflects the true value
Speaker 3: of the company. And obviously that's not true every day,
Speaker 3: but in a simpler format means you can't do what
Speaker 3: Warren Buffett does. You can't look at a stock systematically
Speaker 3: and on average beat the market.
Speaker 1: Because the price is the price, and that reflects all
Speaker 1: the information. And unless you have insider information, which Warren
Speaker 1: Buffett never claimed, essentially like you can get lucky. And
Speaker 1: they would say at this point, the professors, and they
Speaker 1: did say Warren Buffett was just pretty lucky. He made
Speaker 1: some lucky calls over the years.
Speaker 3: Or also, as we talked about in the last episode,
Speaker 3: he came along at a time when the market was
Speaker 3: less efficient, and he focused on the even less efficient
Speaker 3: aspects of the market.
Speaker 1: Right.
Speaker 3: Remember in the last episode, he's like buying companies that
Speaker 3: are not even traded on the New York Stock Exchange
Speaker 3: at a time when fewer people are paying attention and
Speaker 3: so I think clearly those markets were inefficient and he
Speaker 3: was exploiting those inefficiencies. Now it's the eighties, so not
Speaker 3: only is the market more efficient, but Buffett has to
Speaker 3: deploy so much money that even if there's some weird
Speaker 3: little bus company in New Bedford, Massachusetts, it's too little
Speaker 3: for it to move the needle for him, right, he
Speaker 3: has to be playing in this big efficient market.
Speaker 1: Yes, and more than that, the finance professor should have
Speaker 1: realized one of the reasons why the market was efficient
Speaker 1: was Warren Buffett. That variety showed, he showed and he
Speaker 1: closed those arbitrage gaps. So absolutely, but you know he's
Speaker 1: still like people are looking at him. Even his method
Speaker 1: of using mostly cash to like invest in whole companies
Speaker 1: and holding them just feels out of date in the
Speaker 1: nineteen eighties because this is the age of the leveraged buyout.
Speaker 1: You don't use your own money, You borrow massive amounts
Speaker 1: of You rate a company that doesn't want to be sold, right,
Speaker 1: you use that debt as leverage to pry the company
Speaker 1: away from the owners. Then you take that debt and
Speaker 1: you shove it down the mouth of the company, and
Speaker 1: then you take out a cleaver, and you chop up
Speaker 1: the company into little pieces and sell it all.
Speaker 3: Yes, yeah, am I supposed to like that or not
Speaker 3: like it? I have a complex emotional response to I
Speaker 3: don't know.
Speaker 1: I just got carried away good into the nineteen eighties, right,
Speaker 1: And like Buffett would definitely borrow some money to close deals.
Speaker 1: But like he thought debt was terrible, that you would
Speaker 1: be overladen with debt. He once said, oh, I should
Speaker 1: have given this to you. Right, once said debt is
Speaker 1: like gasoline makes the cargo faster, but it causes an
Speaker 1: explosion when you crash.
Speaker 3: I mean, in that metaphor, debt seems totally reasonable. Like
Speaker 3: I drive a car, I put gas in it. I
Speaker 3: just don't crash, Just don't crash. There you go.
Speaker 1: And you know, Buffett like he was not a big
Speaker 1: breaker up of companies. You know, he just wanted large
Speaker 1: and larger chunks of Coca Cola.
Speaker 3: Grandpa, if you weren't willing to own a stock for
Speaker 3: ten years, don't even think about owning it for ten minutes.
Speaker 1: Exactly, we're in Buffett exactly right. I mean, Buffett wanted
Speaker 1: companies with a durable advantage, ones that could make money
Speaker 1: for a long periods of time, like a very Grandpa move, right,
Speaker 1: But the nineteen eighties were about to test Warren Buffett
Speaker 1: and this theory. Why don't we take a break right
Speaker 1: now and we'll return with business history in a moment.
Speaker 1: So we have the wild things Wall Street are doing,
Speaker 1: we have the leveraged buyouts, we have the finances doubting
Speaker 1: Warren Buffett, and the first crack really appears in nineteen
Speaker 1: eighty six. So Warren Buffett gets a call from John
Speaker 1: Gutfrind of Solomon Brothers. He's the CEO of Solomon Brothers.
Speaker 3: And he's the guy in Liar's Poker, right, like classic
Speaker 3: eighties Wall Street guy.
Speaker 1: Yeah. And Solomon is a huge investment firm at the time.
Speaker 1: They specialize in bonds, and they're part of this go
Speaker 1: go Wall Street thing in the nineteen eighties. But at
Speaker 1: this moment they are in trouble, right because all these
Speaker 1: leverage buyouts are happening right out in the real economy,
Speaker 1: and all of a sudden, Solomon Brothers itself, the investment firm,
Speaker 1: is targeted for takeover by one of the raiders, Ron Perelman,
Speaker 1: and you know, like Raider Action on Raider on raider violence.
Speaker 3: Right.
Speaker 1: And you know the thing about being rated by another
Speaker 1: company is you start to think, oh, I'm not going
Speaker 1: to have a job, so they're going to come in
Speaker 1: and fire everyone in the country.
Speaker 3: Certainly if you're the CEA, you're thinking, I'm going to
Speaker 3: have a job soon.
Speaker 1: So the CEO gutfriend is panicking and he calls Warren Buffett,
Speaker 1: who knows from previous deals, and he's like, help, I
Speaker 1: need a white Knight. I need someone to come and
Speaker 1: hear with a huge investment, a lot of money into
Speaker 1: the company, who will basically be a big sign that
Speaker 1: says like stay away. Like, sure, you could take on
Speaker 1: Solomon Brothers, but you can take on Solomon Brothers and
Speaker 1: Warren Buffett, Uh huh, I don't think so. Now, this
Speaker 1: is not normally the kind of business that Warren Buffett likes, right,
Speaker 1: because they don't make something that an average American can
Speaker 1: buy at their corner store.
Speaker 3: Right. I used to call.
Speaker 1: Investment firms casinos, like you just didn't like Wall Street. Right,
Speaker 1: But he likes the CEO and he sees a desperate
Speaker 1: firm willing to make a really good deal, and they
Speaker 1: make an amazing offer. They essentially structure a deal so
Speaker 1: that he gets stock in Solomon Brothers guaranteed fifteen percent
Speaker 1: profit whether the start the company goes up or down.
Speaker 3: That's pretty good, right.
Speaker 1: Sixty three million dollars a year in dividends like this
Speaker 1: is this is the kind of money he can use elsewhere. Right,
Speaker 1: And Solomon Brothers, they just get the reputation of the
Speaker 1: Great Warren Buffett. Now apparently Warren Buffett shows up to
Speaker 1: make the deal, has no briefcase, no papers, you know,
Speaker 1: it's just the handshake.
Speaker 3: They got a coke in one hand and a dilly
Speaker 3: bar or the other.
Speaker 1: Exact and then he will soon regret. He will soon
Speaker 1: regret this deal because in nineteen ninety one there is
Speaker 1: a rogue bond trader.
Speaker 3: Yes, I love a rogue trader.
Speaker 1: Little explanation.
Speaker 3: Rogue. They always call them a rogue. Yes, yeah, right,
Speaker 3: it's kind of rakish, rakish pond trader. It's worse than rakish.
Speaker 1: So Solomon Brothers was a big dealer in treasury bonds,
Speaker 1: and the way treasury bonds work, they're the way that
Speaker 1: the US government funds its business obviously, right, billions and
Speaker 1: billions of dollars worth, and they don't just sell them
Speaker 1: to the public. They sell them to the most esteemed
Speaker 1: firms on Wall Street, and those firms sell it to the.
Speaker 3: Public primary dealers, the.
Speaker 1: Primary dealers, and Solomon was one of those. And in
Speaker 1: order to like make it fair, there was this rule
Speaker 1: that like one firm couldn't outbid all the other firms
Speaker 1: and sort of core to the market on treasury bonds
Speaker 1: for any certain issuance. Right, So essentially everyone was supposed
Speaker 1: to put their bids in for the treasury bonds from
Speaker 1: the government and giving them up among themselves depending on
Speaker 1: what their bids were. Right. So this trader at Solomon
Speaker 1: gets this idea that like, well, they're not really watching,
Speaker 1: I could sort of create some fake buyers and like
Speaker 1: engineer this so that the government doesn't know that we're
Speaker 1: buying all the treasury bonds. And at one point he
Speaker 1: gets like eighty seven percent of a certain issuance. And
Speaker 1: if you're somebody who has eighty seven percent of anything,
Speaker 1: you can kind of set the price. You know. It's
Speaker 1: just a little little bit of a cornering of the
Speaker 1: market play.
Speaker 3: It's funny because you think think of like treasuries as
Speaker 3: the most boring, safe thing in the world. The idea
Speaker 3: that a rogue trader is going to be monkey around
Speaker 3: there is interesting.
Speaker 1: And really scandalous.
Speaker 3: Huh yeah, because the treasuries are the safest investment in
Speaker 3: the world, like the bedrock of the financial system.
Speaker 1: So he gets caught. I believe the Treasury of the
Speaker 1: Fed sends like a letter on this. People know all
Speaker 1: the way up in the company that this has happened,
Speaker 1: but they decide not to fire him. They say it
Speaker 1: was a mistake. They said he shouldn't have done it right.
Speaker 1: It ends up being this sort of massive cover up,
Speaker 1: and the government is pissed, like they are threatening to
Speaker 1: take away this primary dealership from Solomon. Basically, it would
Speaker 1: say the US government doesn't trust you as an investment firm.
Speaker 3: It would be the end of the firm.
Speaker 1: Yeah, right, So the CEO resigns. Everyone's implicated except yeah
Speaker 1: the Oh and he's the second richest man in the
Speaker 1: world at this point. He's got things to do, you know,
Speaker 1: He's got Coca Cola shares to buy, he's got to
Speaker 1: go eat Hamburgers. He has to fly to New York,
Speaker 1: place he doesn't really like and take over running Solomon Brothers,
Speaker 1: a firm which he doesn't really respect or trust.
Speaker 3: And this is the guy who in a way never
Speaker 3: wanted a job, right, like you've said all this to
Speaker 3: be rich, and now we have it. Yes, is such
Speaker 3: a job.
Speaker 1: And he goes to the he goes to the Treasury Department,
Speaker 1: and they're talking about, you know, this sort of death
Speaker 1: sentence for the firm, saying we are going to officially
Speaker 1: say that we don't trust Solomon Brothers. And he says,
Speaker 1: you know, I have technically not signed the papers that
Speaker 1: I will take over a CEO, so I can just
Speaker 1: go back to Omaha at any time. And then all
Speaker 1: of a sudden, you have basically the greatest financial disaster
Speaker 1: in history unfolding under you. And I'm gonna go back
Speaker 1: in Eataly.
Speaker 3: I think the Warren Buffett card now with the US government. Yeah,
Speaker 3: He's saying, do you know who I am? US government?
Speaker 1: Yeah yeah, And they're like, okay, like we want you
Speaker 1: to rescue this company because we don't want to have
Speaker 1: to rescue this company, right, And they end up putting
Speaker 1: Warren Buffett through the wringer. He's got to testify before Congress,
Speaker 1: he's got to remake the management of the firm. Not
Speaker 1: a popular guy. On Wall Street at this point because
Speaker 1: he's cutting pay for the traders. He cancels everyone's magazine subscriptions.
Speaker 1: He just thinks like they're spending way too much money.
Speaker 1: He's being the frugal Warren Buffett. Which remember you know
Speaker 1: this is Wallstall the Street in the eighties. Yes, and
Speaker 1: you know he cuts the cocaine budget exactly. It's terrible.
Speaker 1: And he tells the workers at Solomon wait for it,
Speaker 1: you got it.
Speaker 3: Lose money for the firm and I will be understanding.
Speaker 3: Lose a shred of reputation for the firm, and I
Speaker 3: will be ruthless.
Speaker 1: Eventually, Solomon Brothers gets bought by someone else, Buffett can
Speaker 1: get out. And to be clear, he ended up making
Speaker 1: a bunch of money on the deal, as he always does, right,
Speaker 1: but he would be sort of gun shy about this,
Speaker 1: lending his reputation to another business for a long time. Right,
Speaker 1: And over the next few decades he would get the
Speaker 1: call the first place you turned when you're like, oh,
Speaker 1: we screwed up, We're about to go out of business,
Speaker 1: there's a run on our bank or whatever. We need
Speaker 1: to call Warren Buffett.
Speaker 3: We did, we did. We need a smiling Grandpa face
Speaker 3: on that building.
Speaker 1: So in the late nineteen nineties, there's a firm called
Speaker 1: Long Term Capital Management. I heard of it a boiler,
Speaker 1: not long term. They were a company staffed by brilliant
Speaker 1: Nobel prize winning right, yes, economists who thought they had
Speaker 1: figured out all these global arbitrages. And then there's the
Speaker 1: nineteen ninety eight was it the Russian current?
Speaker 3: Russia? Well, and they were highly leveraged. They'd borrowed a
Speaker 3: ton of money. This is the gas lean in the
Speaker 3: fuel tank blowing up. Moment, ring ring ring.
Speaker 1: Yeah, Warren Buffett, would you like to buy everything we
Speaker 1: own and save our company? So Buffett made an offer,
Speaker 1: made an offer to save Long Term Capital Management, but
Speaker 1: he had pretty strict terms. He's like, I'm going to
Speaker 1: buy all your assets for very cheap and you all
Speaker 1: need to leave the company. And they didn't like that.
Speaker 3: Give you a little money and you're fired.
Speaker 1: Yes, how about that? For socium of investment firms had
Speaker 1: to sort of bail out Long Term Capital Management and
Speaker 1: save the global economy. So Buffett did not like this
Speaker 1: role of savior. But at this point, Warren Buffett is
Speaker 1: sort of facing this bigger existential crisis which is as
Speaker 1: we move into the nineteen nineties, we're about to hit
Speaker 1: the age of computers and the Internet and high tech.
Speaker 1: And Warren Buffett he didn't even know how to turn
Speaker 1: on a computer.
Speaker 3: Wait a minute, Never invest in a business you cannot understand.
Speaker 1: And understand it. He did not.
Speaker 3: After the break, that's the end of the ads, We're
Speaker 3: going back to the show. It's the late nineties and
Speaker 3: the internet boom is here, and Warren Buffett doesn't know
Speaker 3: how to use a computer.
Speaker 1: Yeah, I mean he didn't want to use a computer, right.
Speaker 1: He lives in an analog world. He gets the Wall
Speaker 1: Street Journal. I was going to say every morning, but
Speaker 1: I think he had a deal to get it the
Speaker 1: night before, you know, delivered, and he would read it
Speaker 1: from beginning to end. He liked to read papers and
Speaker 1: magazines and annual reports. This is the Warren Buffett, right,
Speaker 1: And everyone kept telling him, Oh, you should really get
Speaker 1: a computer. It's the next hot thing. When I say everyone,
Speaker 1: I mean like Bill Gates. He was friends with Bill Gates,
Speaker 1: which is sort of unusual, right, an older man, younger guy.
Speaker 3: But they played bridge together, right, and they just.
Speaker 1: Love to talk about business. They really hit it off
Speaker 1: and Bill Gates is always like, well you might want
Speaker 1: to use a computer's like no, no, no, And then of course,
Speaker 1: like people would pitch him like you need to buy
Speaker 1: these dot com stocks or even Microsoft, or even Microsoft really,
Speaker 1: I mean Bill Gates came to him about this, and
Speaker 1: Buffett said, like, don't I don't understand how it works,
Speaker 1: so I really don't want to do it. He eventually
Speaker 1: got on the internet for a funny reason. He loves
Speaker 1: to play bridge, and one of the professionals he was
Speaker 1: playing bridge with was like, you know, you could play
Speaker 1: bridge anytime, day or night with people around the world.
Speaker 1: So I imagine there was a time when if you
Speaker 1: were playing bridge online, you might have been playing against
Speaker 1: I don't know, WB seven seven one two might have
Speaker 1: been Warren Buffett, right.
Speaker 3: I like that for Warren Buffett, the Internet is just
Speaker 3: basically like a bridge video game.
Speaker 1: Well, you know, it's funny. Someone had pointed out to
Speaker 1: him that like, for a lot of people, the internet
Speaker 1: is just a way to do something they really want
Speaker 1: to do, and like that is the strength of it.
Speaker 1: So hopefully at this point, like he's sort of seeing this,
Speaker 1: but he is still not going to pour money into
Speaker 1: dot com stocks or into the tech business at all
Speaker 1: in the nineteen nineties. And we know where this story
Speaker 1: is going. There is a crash coming. The stock market
Speaker 1: is going crazy. Valuations are up. I think you know,
Speaker 1: the Nasdaq went up seventy eighty percent in a year,
Speaker 1: like it was just insanity. And Warren Buffett's stock, Berkshire
Speaker 1: Hathaway is kind of like not doing so.
Speaker 3: Well, underperforming, underperforming.
Speaker 1: At least everyone else. Right, this is what's going to
Speaker 1: happen in a bubble. At one point, there is a
Speaker 1: rumor that Warren Buffett has died. The rumor was started
Speaker 1: on an internet bulletin board by on Yahoo. Someone used
Speaker 1: the moniker ZX one six seven five. That guy sounds credible, yeah,
Speaker 1: and he posted Warren in hospital critical And here's Warren
Speaker 1: Buffett hasn't even seen the internet.
Speaker 3: Right.
Speaker 1: Berkshire Hathaway stock plunges. They have this like policy they
Speaker 1: don't comment on Warren Buffett or anything, but they had
Speaker 1: to like put out a put out a thing they said,
Speaker 1: like Warren Buffet's fine, he is alive. Right, But even
Speaker 1: after they debunk it, the stock is down like eleven
Speaker 1: percent for the week, right, and by the end of the.
Speaker 3: Down on rumors of his death. Then up, I was
Speaker 3: a little nervous. You were going to say they said
Speaker 3: he died and it went up right now, that would
Speaker 3: be really bad side.
Speaker 1: No, no, no, I mean they's still like the people who
Speaker 1: trade in Berkshire Hathaway stock need Warren Buffett. Right, at
Speaker 1: one point he looks back on a year or two
Speaker 1: and he's done worse than the S and P index, Yeah, which.
Speaker 3: Hasn't been a lot of going up a lot at
Speaker 3: this time, driven by tech stocks.
Speaker 1: So there's this legendary moment in nineteen ninety nine, right,
Speaker 1: Buffett goes to this big conference in Sun Valley, Idaho.
Speaker 1: Happens this day. It's called like the Allen and Company Conference. Right,
Speaker 1: all the CEOs pour in. There's a lot of media
Speaker 1: types high tech, right, so they.
Speaker 3: All wear vests and weirdly, like part of the Allen
Speaker 3: Sun Valley conference is it's got to be some kind
Speaker 3: of photo op because like if you see a picture
Speaker 3: of Jeff Bezos or Rupert Murdoch or whatever, like, it
Speaker 3: is usually from there. Like it's a phenomenon that I
Speaker 3: don't understand, but I have observed for years now. It's
Speaker 3: like a low key red carpet for billionaires.
Speaker 1: The heads of Microsoft, Apple, they're all there. Warren Buffett
Speaker 1: is the final speaker in this book, the Snowball. There's
Speaker 1: this love thing about you know. He can't got to
Speaker 1: set up his presentation and everything. Not a big computer guy, right, He's.
Speaker 3: Not setting up his own presentation. He's not talking to
Speaker 3: the av I know that.
Speaker 1: So he looks out and he says to the CEOs,
Speaker 1: many of which are very rich from this bubble, right,
Speaker 1: there is no new paradigm. This time is not different.
Speaker 1: This is a bubble fueled by greed and beloney. And
Speaker 1: Warren Buffett loved boloney, but he wasn't using it that way.
Speaker 1: He was saying, Look, you only have to go back
Speaker 1: to history to see what is happening today. He says,
Speaker 1: look at the car industry, right, the car industry, huge invention, right,
Speaker 1: maybe even bigger than the internet. Right. The car right
Speaker 1: changed the world. But of the two thousand auto companies started,
Speaker 1: only three survived. So he's like, look, it was great
Speaker 1: for America, great for the world, but kind of miserable
Speaker 1: for investors. There is not a guarantee that a transformative
Speaker 1: invention is going to be hugely profitable for the people
Speaker 1: who invested in it. One more example, he gives them airplanes,
Speaker 1: airline industry. Right, revolutionary, transformative travel through the air.
Speaker 3: Right. But to quote Buffet, isn't this one in our
Speaker 3: selfworst episode?
Speaker 1: Right?
Speaker 3: If a capitalist had been present at Kittyhawk, he should
Speaker 3: have shot Orville Wright. He would have saved his progeny money.
Speaker 1: His point here is, whatever you all think about the Internet,
Speaker 1: it can both be the world's best invention and companies
Speaker 1: can still go out of business and still lose money
Speaker 1: on it.
Speaker 3: This is the classic bubble story, right. Like in fact,
Speaker 3: now when people talk about the dot com boom, they
Speaker 3: talk about actually the fiber optics.
Speaker 1: Right.
Speaker 3: These telecom companies that were laying fiber optic cables totally overbuilt,
Speaker 3: put in way too many fiber optic cables, had horrible
Speaker 3: economic returns for their investors. But we as America had
Speaker 3: all this fiber optic cable that allowed the rise of
Speaker 3: the twenty first century Internet. A similar story about railroad
Speaker 3: tracks in nineteenth century England. Same story.
Speaker 1: Yeah, and people would make money obviously off the Internet
Speaker 1: to this very day, but it would happen after the investment,
Speaker 1: after a lot of people went out of business. And
Speaker 1: of course we remember this speech in nineteen ninety nine
Speaker 1: because in the year two thousand the bubble pops, a
Speaker 1: lot of these companies do go out of business.
Speaker 3: And by the way, today this is the way people
Speaker 3: a lot of people are thinking about AI, right, like,
Speaker 3: exactly right. There's a very plausible story which is, yes,
Speaker 3: AI is an incredible transformative technology. But also a lot
Speaker 3: of these companies that are high flying today will lose
Speaker 3: a ton of money for investors, especially those who are
Speaker 3: getting in at high prices.
Speaker 1: Exactly right. So Buffett can now say he was right.
Speaker 1: He stood in front of these geniuses and he told
Speaker 1: them the way it works. Then listen to him, or
Speaker 1: even better, you know, they listen to him like, well,
Speaker 1: what are we going to do?
Speaker 3: We got to ride this up.
Speaker 1: So there's a crash and Buffett does what he did
Speaker 1: back in the nineteen seventies. He still has money, and
Speaker 1: he looks at his stock, remember, which is like a
Speaker 1: little lower than he thought it should be, and so
Speaker 1: he says publicly, I'll buy it. If you have my
Speaker 1: stock and you don't want it, I will buy it
Speaker 1: from you.
Speaker 3: So he's doing kind of the like fundamental analysis of
Speaker 3: his own company, and it's too cheap. It's a deal.
Speaker 3: All I got cash, my company is a deal.
Speaker 1: I will buy back your stock. And he doesn't really
Speaker 1: have to because when people hear this, they're like, oh.
Speaker 3: If Warren Buffett thinks it's a good deal.
Speaker 1: Stock goes up twenty four percent, right, amazing. Right, But
Speaker 1: this is also one of those moments, those buying spree
Speaker 1: moments that Warren Buffett loves. Right, So now his stare
Speaker 1: price is going up. He still has some cash, and companies,
Speaker 1: because there is a recession and there's been this bubble crash,
Speaker 1: companies are cheap. So he starts buying.
Speaker 3: I got one. Yeah, opportunities come infrequently. Ah, when it rains, gold,
Speaker 3: put out the bucket, not the thimble.
Speaker 1: Love it, And he put out the bucket. He bought
Speaker 1: Benjamin Moore paint Manufacture.
Speaker 3: Sounds like a classic buffet.
Speaker 1: Oh, oh, this one's even better. Fruit of the Loom.
Speaker 3: Sure underwear. No matter how much the stock market goes.
Speaker 1: Down, I know if you're in recession, man still sell underwear. No,
Speaker 1: not a fruit, it's a loom company, exactly right. Buffett
Speaker 1: buys carpet maker Pipeline companies. So by the end of
Speaker 1: two thousand and seven, the S and P Index has
Speaker 1: suffered sort of a lost decade. You know, if you
Speaker 1: invested and I think this doesn't count dividends and such,
Speaker 1: but if you invested at the beginning ten years before,
Speaker 1: your stock has gone nowhere over a decade. But Berkshire
Speaker 1: has gone up twelve percent a year.
Speaker 3: Lesson from first decade of the twenty first century. Courtesy
Speaker 3: of Warren Buffett. Be fearful when others are greedy, Be
Speaker 3: greedy when others are fearful. We may need that one soon.
Speaker 3: I'm going to keep that one.
Speaker 1: So during this time, Warren Buffet's also doing some clever
Speaker 1: things with the company itself, or at least unusual things.
Speaker 1: I should say. One is he never lets the stock
Speaker 1: price split. Now, to explain this, oftentimes when a stock
Speaker 1: goes up to two hundred, three hundred, four hundred dollars,
Speaker 1: they'll say, oh, we are basically giving you two shares
Speaker 1: for every one share, So now instead of one four
Speaker 1: hundred dollars stock, you have two hundred dollars stocks.
Speaker 3: Basically just because it makes it easier for people to
Speaker 3: buy shares in the company, simple.
Speaker 1: As here, absolutely. It doesn't mean anything economically, really warm
Speaker 1: buff It's like, no, I'm not going to do that.
Speaker 3: Right.
Speaker 1: The Berkshire stock, which I guess if you go all
Speaker 1: the way back, started at seven dollars and fifty cents
Speaker 1: a share, right, kind of a normal share price. Yeah,
Speaker 1: as of this taping, the Class A shares of Berkshire
Speaker 1: Hathaway are above seven hundred and fifteen thousand dollars.
Speaker 3: Per share for one share, one share or.
Speaker 1: A house, Like that's that's your choice.
Speaker 3: Why, Like it seems kind of counter to the like
Speaker 3: folks see normal guy, rational guy, Like why does he
Speaker 3: do this?
Speaker 1: When he is asked, he says that a low share
Speaker 1: price encourages short term investors, and he doesn't want people
Speaker 1: going in and out of his stock. He wants to
Speaker 1: kind of almost keep it as a club. And at
Speaker 1: that point it is sort of like a club of
Speaker 1: people who are investing in the company and don't want.
Speaker 3: To sell it.
Speaker 1: But I think it's also just like a weird ego
Speaker 1: thing that as he looks bet it's up on his
Speaker 1: computer now he uses computers. His share price every day
Speaker 1: is a symbol of like everything that's happened over the
Speaker 1: last fifty years in one number.
Speaker 3: Yeah. I mean in the last episode you were talking
Speaker 3: about how he kept the name Berkshire Hathaway even though
Speaker 3: it was one of his worst investments, as like a
Speaker 3: way to be humble. This is sort of the opposite
Speaker 3: of that, Like, if he's feeling too up, he just
Speaker 3: looks at the Berkshire share prices like, oh, I'm doing
Speaker 3: all right, you're like this.
Speaker 1: When the share price started to get so big, a
Speaker 1: number of enterprising investment companies were like, well, wait a minute, here,
Speaker 1: what if we just imitate the shareholdings of Berkshire Hathaway,
Speaker 1: do everything that Warren Buffett does, but offer shares at
Speaker 1: like a cheap price, you know, essentially a more manageable price,
Speaker 1: I should say. And people were doing this, and Warren
Speaker 1: Buffett was like, oh, they're making fees and all this
Speaker 1: sort of stuff off of my investment ideas. So he
Speaker 1: creates the B class of shares and these are the
Speaker 1: democratic shares that anyone could buy. In fact, he said
Speaker 1: he would print as many as people want because he
Speaker 1: didn't want like their scarcity to go up.
Speaker 3: That's the way normal stock works, Yeah, Like they split
Speaker 3: the stock if the number gets high.
Speaker 1: Yeah, so these people can then go to hear him
Speaker 1: talk at the Berkshire hath right right, right. And it
Speaker 1: was enormously successful because it was like, first of all
Speaker 1: symbolic of this you know, American democratic company that everyone
Speaker 1: should be a part of. And also it allowed dabblers
Speaker 1: to buy some Berkshire be a stock.
Speaker 3: Sure, dabblers are just ordinary investors, like Berkshire b is
Speaker 3: just a normal stock. The weird one is the seven
Speaker 3: hundred thousand dollars one, I mean presumably the seven hundred
Speaker 3: thousand dollars one. Not only is it good for his ego,
Speaker 3: it's good for his brand, right, this whole thing of
Speaker 3: like he's profitable because he is. We're in buffet that
Speaker 3: a single share trades for seven hundred thousand dollars burnishes
Speaker 3: that brand.
Speaker 1: As we look back in sort of recent years, warm Off,
Speaker 1: it just keeps. He keeps finding these companies that you
Speaker 1: didn't even think of, but they're just everywhere in your life.
Speaker 1: Brooks running shoes, which I'm a big fan of shoe.
Speaker 3: Yeah.
Speaker 1: Absolutely. In fact, a postal worker stopped me the other
Speaker 1: day and said, one of those shoes, and I'm like,
Speaker 1: is that a compliment?
Speaker 3: Yes? That's in New York. That's a person who walks
Speaker 3: for a living.
Speaker 1: Exactly right. He buys Hines of course of ketchup fame
Speaker 1: and craft of macaroni and cheese fame, encourages them to merge,
Speaker 1: and that doesn't work out well and I think they're
Speaker 1: breaking apart. Now buys Durasel like the battery company, and eventually,
Speaker 1: very famously, he hops into a tech stock. He hops
Speaker 1: into Apple, huge investment Apples recently sold some of that,
Speaker 1: recently sold a lot of it.
Speaker 3: But Apple Like. He buys Apple like relatively late in
Speaker 3: the life of the company, and it actually makes sense
Speaker 3: as a buffet stock, even though it's a tech company, right,
Speaker 3: clear Moat, that brand is a clear moat. Right, you
Speaker 3: can have whatever, a Dell laptop or an Android phone,
Speaker 3: but Apple can sell its products at a premium price
Speaker 3: year after year like that is the buffet thing.
Speaker 1: And and Apple iPhone is just the thing that everyone has, yeah,
Speaker 1: like the running shoes or dairy queen, that sort of thing.
Speaker 1: And even the story of Warren Buffett as White Knight
Speaker 1: that also keeps happening. In two thousand and eight, during
Speaker 1: the financial crisis, it gets a call from Goldman Sacks.
Speaker 1: At the time, everyone is panicked about everyone. I won't
Speaker 1: say there was any particular problem with Goldman Sacks compared
Speaker 1: to the other investment companies. But Warren Buffett invests five
Speaker 1: billion dollars. You know, they hang a big poster of
Speaker 1: Warren Buffett up on the building, not really but kind
Speaker 1: of metaphorically that says, oh, you think Goldman Sachs is
Speaker 1: one of those slimy Wall Street investment firm zone No, no, no, no, no,
Speaker 1: we have Warren Buffett.
Speaker 3: By the way, a striking thing to me in the
Speaker 3: financial crisis was that Uncle Warren, mister squeaky clean, had
Speaker 3: also owned a huge share of Moody's, the ratings company
Speaker 3: that was you know, I would say implicated, like not criminally,
Speaker 3: but you know, they were one of the key people
Speaker 3: who put these triple A ratings on bad mortgage bonds.
Speaker 3: And Buffett was there too, and yet never sort of
Speaker 3: got tarred with that.
Speaker 1: It's interesting, right, So he makes three billion dollars from
Speaker 1: the Golden Sax deal. There's the Moody's thing. He has
Speaker 1: made missteps, many missteps, But I don't know if it's
Speaker 1: just his demeanor or the amount of successes he's had,
Speaker 1: but like the press kind of gives him a pass
Speaker 1: on just about everything. And I mean the amount of
Speaker 1: money he's made for his investors over the years. I
Speaker 1: guess it makes sense you're willing to forgive a few mistaps.
Speaker 3: And I don't think it's just the money, right, Like,
Speaker 3: he hasn't used a crazy metal leverage. He never like
Speaker 3: blew up. He never needed to be bailed out. He
Speaker 3: invested for the long term in you know, things that
Speaker 3: people find useful. I have an iPhone. It's a good company,
Speaker 3: you know what I mean. Lots of people drink Coca Cola.
Speaker 3: Like he is sort of the opposite of the caricature
Speaker 3: finance villain who is just playing weird games and not
Speaker 3: doing anything for the real economy.
Speaker 1: Like I think that is valid. And this brings up
Speaker 1: the question what happens now. At his last giant meeting,
Speaker 1: I think forty thousand people came to Omaha for the
Speaker 1: Berkshire Hathaway Annual Meeting, he announces that he's stepping out
Speaker 1: a CEO. He'll still stay on as chairman, but his
Speaker 1: last day is December thirty first, twenty twenty five. And
Speaker 1: it's a really interesting time for him to leave. Right,
Speaker 1: We're seeing another perhaps bubble in tech stocks. Right. He
Speaker 1: has sold a lot of Apple and other companies. So
Speaker 1: Brookshire Hathaway has a big pile of studying. Seemed like
Speaker 1: the nineteen seventies and the two thousands all over again.
Speaker 1: They are poised, perhaps something bad happens in the stock
Speaker 1: market to go in and make like these huge acquisitions,
Speaker 1: Like he'll be able to do pennies on the dollar
Speaker 1: for a data center. Let's just say maybe maybe not right,
Speaker 1: and he's not there to do it. So the question
Speaker 1: is without Warren Buffett there does the philosophy of Berkshire
Speaker 1: Hathaway and all their natural advantages. Does it succeed? They'll
Speaker 1: have the money to deploy, they have the ideas, they
Speaker 1: have a thousand quotes from Warren Buffett about how to
Speaker 1: do it, but they don't have the man himself. And
Speaker 1: we'll be able to see, like what does that mean?
Speaker 1: Remember Warren Buffett is getting personal phone calls when good
Speaker 1: companies are for sale or when bad companies need help.
Speaker 1: That's a one on one phone call. They're not calling
Speaker 1: the company, they're calling Warren Buffett. We said, how the
Speaker 1: press gives Warren Buffett a pass regulators kind of too,
Speaker 1: like he just has a lot of goodwill, right, And
Speaker 1: then there's this like interesting sense that like Warren Buffett
Speaker 1: was there as this like symbol during difficult times when
Speaker 1: you have lost money on tech or some bubble or
Speaker 1: something like, you kind of want to go into the
Speaker 1: warm embrace, you know, of a cushy Warren Buffett being
Speaker 1: like here have have have a dairy queen treat in
Speaker 1: some Coca Cola, like everything will be okay. And now
Speaker 1: we're gonna see, right, we'll see how much we miss
Speaker 1: Warren Buffett.
Speaker 3: I mean, you're doing the time will tell ending. But
Speaker 3: the thesis of this show, as I hear it, is
Speaker 3: like this whole last several decades, all second half of
Speaker 3: Buffett's career was trading on Buffett the man, Buffett the persona.
Speaker 3: Let's say he's ninety five, He's stepping down a CEO.
Speaker 3: He's not gonna live forever. Like if I as I
Speaker 3: read this show, as I listened to it, you're arguing,
Speaker 3: like Berkshire Hathaway isn't going to be able to keep
Speaker 3: making those moves after Buffett. That seems to be the
Speaker 3: argument this show is making.
Speaker 1: I don't know. I mean, it's good to have a
Speaker 1: lot of cash, and it's good they have very smart people,
Speaker 1: and he's put very smart people in charge. And I
Speaker 1: will say there was a tiny little note that I
Speaker 1: saw somewhere which was although he's no longer CEO, he
Speaker 1: is still chairman of the board, and he might still
Speaker 1: be a little involved in times of great opportunity.
Speaker 3: He's ninety five. Those times better come soon.
Speaker 1: Our producer is Gabriel Hunter Chang, our engineer is Sarah Bruguier,
Speaker 1: and our showrunner is Ryan Dilly. I'm Jacob Goldstein and
Speaker 1: I'm Robert Smith. We'll be back next week with another
Speaker 1: episode of Business
Speaker 3: History, a show about the history, wait for it, of
Speaker 3: business