Buffett on the Spot

Article excerpt

Byline: Roger Lowenstein

What were you thinking, Warren? At his shareholders' meeting, the oracle will have to answer for his biggest management bungle.

America has a way of elevating its heroes beyond the realm of mere mortals. This has not been an issue on Wall Street, where heroes do not exist. Warren Buffett has been the glaring exception. An Omahan who was not of Wall Street so much as above it and who spoke in cracker-barrel English derived more from Twain than from J. P. Morgan, he fulfilled (I once wrote) America's secular myth. He was the man from the Plains whose virtue offered an antidote to the corrupt Northeast and to Wall Street in particular. It is a measure of his reputation that a radio interviewer asked me whether Buffett had, until late, behaved in a "near perfect" manner. No flesh and blood, examined up close, can meet such a standard. As the saying goes, "No man is a hero to his valet." The David Sokol affair, in which an executive of Buffett's Berkshire Hathaway was caught in a serious ethical trespass, and in which Buffett failed to deliver a rebuke, has shown us a bit of the great man's undergarments. The question for the 40,000 shareholders converging on Omaha for Saturday's annual meeting (a.k.a. Buffett's "capitalist Woodstock") is whether the Sokol business tells us anything new, and perhaps dispiriting, about Buffett.

When I was writing a biography on Buffett, in the early '90s, the trait that most distinguished him was his searing independence. Buffett was a brilliant, socially responsible investor, who engaged with the world only on his terms. He refused to be co-opted or recruited, whether with regard to stocks, philanthropy, or politics. His aloofness often caused associates to suffer disappointment. He zealously protected his time and his money; even his children suffered from the billionaire's reserve. In a not atypical incident, he could barely lower his newspaper to listen to his teenage daughter's tearful rendition of how she crashed his car. Friends described how Warren had rebuffed their requests for even small donations, and to causes with which the liberal billionaire sympathized. More fundamentally, associates yearned for a closer emotional connection.

Buffett's detachment, of course, was a secret of his success. In 1969, after a fabulous run as a hedge-fund manager, he decided that Wall Street was barren of opportunities and returned his investors' money. This was unselfish as well as prescient. The market crashed. Then, in the mid-'70s, when the market was mired in a virtual depression, Buffett leapt back into the game, now using Berkshire as his vehicle. America had abandoned stocks, but to Buffett, popular sentiment was irrelevant. Traders looked at trends, volume charts, and moving averages; Buffett peered beneath the stock certificate to the underlying business. By focusing on the long-term business prospects, he reclaimed the economic values that were obscured by Wall Street sophistry.

Over 46 years, his investments elevated Berkshire from $18 a share to $122,000 today. Meanwhile, he eschewed the greed that typifies Wall Street. Buffett never took a stock option; his salary maxed out at $100,000. And here is a more startling fact: he never sold a share of Berkshire. Ordinary shareholders have seen their lives enriched--their children educated at private colleges, their kitchens refinished in granite--as they peeled off shares. For Buffett, the rewards were largely intangible. Berkshire was his financial masterpiece--his "canvas."

It is tempting to idealize such a figure, and Buffett is partly to blame, at times glossing up his image as a prairie sage. When he feels threatened, he is not above a little dissembling. This is a minor flaw, but a flaw all the same.

Buffett controls his agenda and habits more than anyone I know. He sticks to his same favorite foods (T-bones and hash browns) and same pals. From an early age, he showed an extreme desire to be wealthy, and an equally extreme aversion to compromise. …