James OLoughlin - The Real Warren Buffett: Managing Capital, Leading People

Praise for
The Real Warren Buffett

James OLoughlins new book is a timely and insightful account of the career and achievements of the head of Berkshire Hathaway, Buffetts investment business.
Above all Buffett is revealed as a thoughtful long-term investor, or capital allocator as he calls it, who rejects fads and fashions, and who will not be taken in by the latest big thing. As this intelligently written and neatly set out book shows, it is a formula that has proved amazingly successful, and rewarding, for four decades.
Stefan Stern, Accounting & Business

Buffett, the second richest man in the US, is known as the worlds master stock picker, but that alone does not account for how he has grown his investment vehicle Berkshire Hathaway at a compound rate of 25 per cent a year for 37 years. OLoughlin digs into the deeper business story: how Buffett uses capital and get his managers to think like owners. He has uncovered a simple model of clever management that many companies can follow with profit. The model is based on a few unswerving principles...
Buy and hold, as a stock analyst would say.
Carol Kennedy, Director

A very fine book, nicely analyzed and extremely well written. Hersh Shefrin, Professor of Finance, Santa Clara University and author of Beyond Greed and Fear

Your insights mixed with Buffetts very quotable quotes is great stuff.
Arnold S. Wood, founding Partner, President and CEO of
Martingale Asset Management

I like it a lot its unique. Most books tell the reader how to do it. Youve got a guy whos actually doing it. Thats important because it shows it can be done.
Bob Olsen, Professor Emeritus, California State University

An excellent, thought-provoking readlots of very interesting insights and important points to ponder.
Nick Chater, Professor of Psychology at Warwick University and Institute for Applied Cognitive Research

The Real
Warren Buffett

To Sarahmy strength,
in her sickness and in her health.
And Harry and Niamhmy hope and my joy.

Managing Capital,
Leading People

James OLoughlin

This updated paperback edition first published by
Nicholas Brealey Publishing in 2004

www.nicholasbrealey.com

First published in hardback in 2002
Reprinted in 2003

James OLoughlin 2002, 2004
The right of James OLoughlin to be identified as the author of this
work have been asserted in accordance with the Copyright, Designs
and Patents Act 1988.

ISBN 978-1-47364-508-0

British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library.

LCCN 2002114498

All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording and/or
otherwise without the prior written permission of the publishers.
This book may not be lent, resold, hired out or otherwise disposed of
by way of trade in any form, binding or cover other than that in
which it is published, without the prior consent of the publishers.

Printed in Finland by WS Bookwell.

At the death of writing this book, and before settling on its final version, I handed the manuscript to a good friend of mine for one last sanity check. David Crowther, the man with the quickest brain I know, duly digested the work and downloaded his observations, one of which was the realization: My God, Jim. Buffett just knows it all.

And thats precisely why I wrote this book.

In my career as a fund manager and equity strategist, the more I read of the theory of investment and the more I progressed to learn about the challenges facing managements in the creation of valuein organizational theory, complexity theory, behavioral psychology, whateverthe more Buffetts insights into these disciplines leapt out at me from his letters to the shareholders of Berkshire Hathaway.

Whatever I was learning, he already knew. Whatever I was struggling to synthesize into a framework, he had already embedded in a model. What I was just beginning to comprehend, he had already made work.

In this respect, I realized, Warren Buffett did know it alleven though he didnt always get it right. In order to appreciate this fact, all I had to do was know where to look and then I was able to read his letters differently.

It is in the spirit of my discovery that I present this illumination of Buffetts model for managing capital and leading people. My intention is to share my experience with a wider audience. Buffett has this model because he has undergone what I argue is an explosion of cognition. Writing about it has enriched me in a similar way: I have had my own explosion and I now view the world through a different lens. If I have done my job, then by the end of this book you will too.

James OLoughlin
Birkenhead, Cheshire
August 2002

So many people have contributed to the writing of this book, it is difficult to know where to start.

Thanks must initially go to Warren Buffett for his kind permission to quote from his letters to the shareholders of Berkshire Hathaway, for his compliments on this work, and for his well wishes.

The use of further quotes from the Outstanding Investor Digest (OID), which provides, among other things, a write-up of Berkshire Hathaways annual meeting, has also improved the book enormously. My thanks go to Henry Emerson for allowing me to quote from this publication and to Clara Cabrera who facilitated the process. It was Duncan Clark, ex-managing director at Brown Brothers Harriman in London, who first alerted me to the writings of Charlie Munger, and therefore to the service provided by the OID. Both have proven invaluable. It comes as no surprise that Buffett recommends Henrys publication to investors everywhere. I only hope I can extend that readership to include a few managers.

This book would not have been possible save for the efforts of all those who have gone before me in writing about Warren Buffett. In this regard, I found the works of Andrew Kilpatrick and Roger Lowenstein particularly valuable and would commend their reading to anyone with an interest in this subject. Andrew Kilpatricks OfPermanent Value represents a vast repository of information on Buffett and Roger Lowensteins Buffett: The Making of an American Capitalist is a must for any serious student of Buffett. The writings of Robert Hagstrom, particularly The Warren Buffett Portfolio and Latticework, have also proven enlightening.

It was Mike Mauboussin, managing director and chief US investment strategist at Credit Suisse First Boston and co-author with Alfred Rappaport of Expectations Investing, who lit the spark to this fire. At a meeting in London Mike was kind enough to scribble the names of a handful of books that I should read on the back of a business card. From there, I went to the nearest bookstore and bumped into Stephen Pinkers How the Mind Works, which was not on Mikes list but is a text that I now know he would have recommended. All else followed. Thank you, Michael.