This article is the first of 6 that will come over the next few days which will recap a talk Warren Buffett gave at The University of North Carolina in 1996. This is primarily a Q&A with students at UNC.
There was also a previous series of articles that discussed an MBA talk Warren Buffett gave at the university of Florida. This series of articles can be found here.
The first video in this series starts with a clip of Buffett quoting Peter Lynch. -“Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it.” It then goes into an introduction prior to truly starting about 2 minutes in.
About 2 minutes in, the focus on Warren Buffett begins. Buffett begins with a discussion on Solomon Brothers. The focus is the 1991 Treasury Bond scandal which involved trader Paul Mozer who was caught submitting false bids to the U.S. Treasury. Salomon was fined $290 million which eventually lead to Travelers Group acquiring it. Buffett's comments are in regard to this situation. Buffett goes on to say that on August 14,1991 at 6:45 AM the top management of Solomon called Warren saying that the head of the Fed in NY (the most powerful man in finance) told Solomon that the top management was unacceptable and that they need to offer their resignation all due to this Treasury bond scandal. The Solomon execs told Buffett that there will be no one at Solomon to run the place. This was of concern to Buffett who was Solomon's largest shareholder in 1987. He was about to be directly impacted by this fiasco along with the shareholders of Berkshire Hathaway Inc.
It was of concern because there was a $150 billion balance sheet total where $4 billion was equity and the other $146 billion was owed to someone else. This was the largest amount owed by any American corporation at the time other than Citicorp. The big problem with the $146 was that it was illiquid given the time period available (a few weeks). The problems that Warren had was that Buffett needed someone to run the place and it was a complex business. Minute by minute decisions would have to be made. Buffett could not run operations since his time would be tied up with regulators and legislators. Buffett met with 12 people where he recognized 4 or 5 of them by sight. The other 6 or 7 he did not know. He had to hire someone. He did not ask their grades in business school. He didn't even look at their resume. They all had the IQ to get to the position they were in. It wasn't a question of IQ or ability. It was an issue of how their brain works. He did not want a bragger. He wanted someone with qualities that Ben Franklin would look for. Warren wanted someone who doesn't cut corners and doesn't take credit for others work. He found it in Deryck Maughan. Warren was very lucky. Warren told Deryck that he was the man and a month later Deryck Maughan never once had asked about salary or stock options yet he took the job working 18 hour days. He knew exactly what Buffett should be asked and not asked. The important thing to note is that Maughan was interested in the reward of doing a good job knowing that compensation would be fair.
Warren goes on to discuss a persons character using the Deryck Maughan story as a basis. He asks them if they had to pick one classmate to get 10% of that individuals earnings the rest of their life what would drive your decision? The smartest student wouldn't be the obvious choice nor the best looking or the one with the highest IQ. You think about qualities of character. Qualities of character are what would drive your decision. Ben Franklin (and also Ben Graham at the age of 12) made a list of qualities that people like and dislike. And each strove to have those qualities of character that others want. And all these qualities are obtainable by anyone. The sooner one begins to obtain the qualities the better. Buffett uses one of his favorite quotes by an unknown author at this point. “The chains of habit are to often light to be felt until they are to heavy to be broken.”(unknown author).
Form the proper habits as soon as possible.
Part: 1, 2, 3, 4, 5, 6