Mary Buffett - Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett the World’s Most Famous Investor

The
Previously Unexplained
Techniques
That Have Made
WARREN BUFFETT
the Worlds
Most Famous
Investor

MARY BUFFETT & DAVID CLARK

1230 Avenue of the Americas

New York, NY 10020
www.SimonandSchuster.com

Copyright 1997 by Mary Buffett and David Clark

All rights reserved including the right of reproduction in whole or in part in any form.

First Fireside Edition 1999

FIRESIDE and colophon are registered trademarks ofSimon & Schuster Inc.

Designed by Jenny Dossin

Manufactured in the United States of America

1 3 5 7 9 10 8 6 4 2

Library of Congress Cataloging-in-Publication Data is available.

ISBN 0-684-83713-7

ISBN 0-684-84821-X (Pbk)

eISBN-13: 978-0-6848-6778-6

To my children

We wish to thank first and foremost our publisher, Eleanor Rawson. She is simply the most amazing person either of us has ever worked with. Every ship has a captain, and she was ours. We will be forever grateful to her.

We wish also to thank the staff at Scribner. They have a reputation for being the best. We can tell you that they far surpass their reputation.

We owe a very special thank you to Cindy Connolly, who suffered with us through our early drafts. She is a gifted journalist, who with just the simple stroke of her pen, solved many a literary conundrum that perplexed your authors.

We also wish to say thank you to Dan Mountain for being a dear friend and a rock of support in the most trying of moments. To Erica and Nicole for their wise and learned counsel. To Sam for being patient with both of us. To James Haygood, a beloved friend and wonderful father. To Valerie Schadt for running everything, including our lives. To Patti, who thirty-five years ago sat a small child down on the desk of a stockbroker and said, You can either invest in the company where your father works or the company where Mickey Mouse works. (The child chose the mouse and the mouse paid for college.) To the late and great Benjamin Graham for being the most gifted of teachers. To the late Benjamin Franklin for teaching the Commodore about compounding sums of money. To Tim Zweiback for being a guiding light in a dark forest. To Brian Belefant for being infinitely the most creative and witty of our myriad manuscript readers. To Vincent Waldman and Alan Morelli at Manatt, Phelps & Phillips for always putting their clients interests first. To Kitty OKeefe for being a brilliant diamond in a world of junk jewelry. To our NYC research assistant, Andy Clark, who at times dug so deep into the stacks at NYU that we thought hed end up in China. To our Omaha research assistant, Monte Lefholtz, who somehow managed to get government employees to find historical records they still maintain dont exist. To Richard Oshlo for taking the time to answer carefully all our questions about banking. To the brilliant British painter Helen Brough, whose stunning pastel drawings and paintings brought relief to tired eyes. To NYC artist Terry Rosenberg, who showed us how to get up every morning and attack an empty white canvas with gusto. To Beatrice Bonner, a dear friend from beginning to end. To John Johnson, our guardian angel. To Susie, who every day unselfishly and most graciously shares her heart with the rest of the world. And last but not least, to W.B. for his generosity and genius.

This publication contains the opinions and ideas of its authors. It is not a recommendation to purchase or sell the securities of any of the companies or investments herein discussed. It is sold with the understanding that the authors and publisher are not engaged in rendering legal, accounting, investment or other professional services. Laws vary from state to state and federal laws may apply to a particular transaction, and if the reader requires expert financial or other assistance or legal advice, a competent professional should be consulted. Neither the authors nor the publisher can guarantee the accuracy of the information contained herein.

The authors and publisher specifically disclaim any responsibility for any liability, loss or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book.

This book is not another cut-and-paste of Warren Buffetts letters to Berkshire Hathaway shareholders, nor is it a biography filled with anecdotes about Buffett. It is, instead, the most comprehensive case study and detailed explanation ever written on Buffetts investment techniques.

The book is designed to teach you Buffetts extraordinarily successful system of business perspective investing, from the concepts and mathematical equations that assist him in making his investment decisions to the actual companies that have captured his interest.

Warren Buffett did not participate in the writing of this book, and I am sure he never envisioned that, of all people, his former daughter-in-law would write such a book. During the 1970s, I was a businesswoman working in the management of a music publishing company and the operation of a successful import-export business. But in 1981, after a very romantic courtship, I married Warren Buffetts son Peter and found myself a member of one of the worlds wealthiest families.

F. Scott Fitzgerald wrote that the very rich are different from you and me. He was right. But they are different in the strangest of ways, the oddest being the code of silence that they demand of family and friends. While married to Peter, I was instructed more than once not to speak to anyone outside the family about Warren and his investment operations. Writing this book simply would have been out of the question.

But in 1993 Peter and I were divorced, which shattered my heart into a thousand tears. Shortly thereafter, I was set upon by a flock of hopeful literary agents, all beckoning me to write an expos about Warren Buffett and his family. Very little had been written about Warrens personal life, and the deals I was offered, I admit, given my postdivorce state of mind, were very enticing. In the end I rejected them all.

I felt at the time, and still do, that people are really, truly interested only in learning how Warren, by investing in the stock market, turned an initial $105,000 into a $20 billion-plus fortune. I always found that aspect of Warren to be completely fascinating, which is why I wrote this book and not the other.

After deciding to undertake this project, I got in touch with David Clark, an investment analyst and longtime Buffett family friend in Omaha, whom I had met at Warrens home sixteen years ago. David once suggested to Peter that he write a book on his fathers investment methods. (I know that many people assume Warrens children have little or no understanding of what their father does. This is not true. From the time the children were born, and throughout their teenage years, Warren ran part of his investment operations out of a small study in the family home. Though his oldest son, Howard, and his middle daughter, Susie, are probably better versed than Peter, all of them have an excellent grasp of how their father works his investment magic.)