Warren Buffett UNC talk – Part 3 of 6
It is highly recommended that the reader start with part 1 of this series.
Part: 1, 2, 3, 4, 5, 6
Question 3: You invest in companies with managers that you like, you trust and admire. Who do you trust in politics and business today (1996)?
Buffett only responds with examples from business but doesn't get much into his reasoning.
The examples start with Thomas Murphy who is the former chairman and CEO of Capital Cities Communications. Buffett says that Thomas Murphy is the person he admires most. Which requires an expansion about who this is exactly.
From www.museum.tv the following information can be found:
“Thomas S. Murphy was chair and chief executive officer of Capital Cities/ABC, Inc. until 1996 when Disney (ticker: DIS) bought the company and Murphy retired. Murphy built Capital Cities/ABC, Inc. into a multibillion dollar international media conglomerate. In addition to leading Capital Cities from its days as a small television holding company to its present position as a media empire, Murphy distinguished himself as a responsible corporate citizen by emphasizing public service.” - source
Dan Burke was Thomas Murphey's partner. Together, they acted as a combination that Buffett liked.
Roberto Críspulo Goizueta and Donald Keough of The Coca-Cola Company. They took the market value of Coke from $5 billion to what is now $60 billion in a matter of 11 or 12 years. They are one of the great 1, 2 punches in business.
Bill Gates of Microsoft Corporation is also highly admired. He states that he knows nothing of Microsoft's business but he knows Gates personally and thinks he is “incredible in business”.
Mid-response, Buffett starts talking about how to approach personal life as an employee. Buffett believes in only working with people he likes. He thinks it is crazy to work with people that cause your stomach churn or stay up all night. If you have a job like that, find a new one. Working with people in business that you don't like is like marrying for money.
Buffett works with people he likes and he tap dances to work every day.
He continues to talk a bout a Harvard student that asked who he should work with and Buffett told him to work with whomever he admires the most. Later, the dean called and asked what he told these kids. They are all becoming self employed.
Question 4: Have you considered splitting Berkshire Hathaway?
Answer: The philosophy of shareholders is this. If you are a public company. Anyone can become your partner. But if you start a small private company, you would do so with maybe 10 or 12 partners. You would be selective with who your partners are. All 12 would have to agree to select the other 11. In a private business, you should have a good relationship with all the owners. But with a public company, anyone can buy or sell. Anyone can be a partner. The only qualification is money. At Berkshire Hathaway, Warren Buffett wants partners (shareholders) with the same expectations, time horizons, methods of measurement that Buffett has. It's crazy to go into business with people that don't share the same expectations. The only way he can effect this is through communications and policies. He will try to follow policies and communicate them with his partners or would be partners. This way, he tries to have shareholders that are happy and unhappy for the same reasons as himself. The only way Buffet has to state what kind of business Berkshire is, is through communications and policies.
Splitting a stock is a relatively minor policy but he would rather have people that expect to own Berkshire the rest of their lives as partners. Not really, they might not stay forever, but that is the idea he wants a shareholder to have going in. The idea that shareholders are entering into a partnership. Some people buy stocks because they think earnings might be up next quarter or the stock will be split or something like that. It's not that it's a bad thing, but those people are not buying to be long term partners. By not splitting, Berkshire has eliminated some of the people that are interested in trading stocks frequently. Some people he might want may get eliminated that you want (those lacking capital), but it keeps some traders away. To measure validity of this policy, Buffett points out that Berkshire has far less turnover relative to market cap than any other company on the exchange.
The reason he does not split stocks is shockingly simple. He wants shareholders that feel as though they are entering a partnership. A policy of no stock splits is simply one mechanism for attracting the right partners.
Question 5: This starts on this video, but is answered mostly as part of the next video. Therefore, question 5 will be included with the next part of this series.
Part: 1, 2, 3, 4, 5, 6