A Devotee on Three Elements of Buffett’s Success
When I was a very young lawyer, Chuck Rickershauser (the law firm’s name was then Munger, Tolles, Hills & Rickershauser, now Munger, Tolles & Olson—and yes, the Munger is Charlie) explained Warren Buffett to me. “They say,” he said, “that when Mozart looked at the score for a symphony, he could actually hear the music, and hear each of the different instruments working together. That’s the way Warren is with a financial statement. He can look at it and visualize the widgets coming off the assembly line, the sales force generating leads, inventories building up and being depleted and all the other activities involved in running the business—including the financial consequences of it all.”
It seems to me that Warren Buffett’s remarkable accomplishments, and this is true of many people who have achieved truly extraordinary success, are the result of a coalescing of at least three factors. The first is being born into circumstances that are conducive to that success. This is what Buffett has often referred to as winning the Ovarian lottery. If Mozart had been born in a remote village in China, instead of Salzburg, we might never have heard of him.
Alternatively, if Warren Buffett had been born in Salzburg instead of Omaha, his success might have been in a field other than investing. (Having heard his efforts on a Ukulele, with all due respect, I’m not convinced he would have been a musical success, even in Salzburg, but I’m quite confident he would have been successful.) Quite a large number of people “win” the Ovarian lottery, but it is a necessary element of success—and even more, unfortunately, don’t win it. (Before we rush to the assumption that winning that lottery for financial success requires being born in the United States, it’s good to remember that the current leader in the “world’s richest” race was born and has always lived in Mexico.)
The second factor is natural aptitude, and the third is the application of dedicated, focused effort over a long period of time. (Of course, these two factors also have elements of the genetic lottery at work, but that’s not what the “Ovarian lottery” references are about.) To achieve financial success at a Buffettonian level probably requires a 10 on a scale of 1 to 10 for each of these factors, but considerable success might well be achieved with scores of 6 on one and 7 on the other. One with 5% of the wealth of Warren Buffett is still very, very rich.
I would speculate that of the two last factors—aptitude and dedication—the latter is the more important. Very few people seem to have the willingness, or perhaps capacity, to focus in on the goal, with laser-like intensity, over a sustained period of time, to the exclusion of much of anything else. In her Buffett biography The Snowball, Alice Schroeder notes that aspect of his success, and compares it with a similar dedication on the part of Bill Gates. It can also be easily discerned in Walter Isaacson’s biography, Steve Jobs.
It’s not so much that they forced themselves hermit-like to work on the one thing, whether it be investing or software or design, as it is that they enjoy immersing themselves in it completely. It’s in their DNA. Given a favorable environment and the necessary quantum of natural ability (the more the better) it seems likely that it is dedication and single-minded pursuit, over a lengthy period of time, that makes the difference.
The coalescence of those factors in the person who is Warren Buffett, in any event, has led to the phenomenal investment success story that is Berkshire Hathaway, and it is a worthy object of study. Larry Cunningham’s assembly and reordering of the contents of the annual letters to Berkshire’s stockholders to create The Essays of Warren Buffett provides us with a very useful picture of the world of business as Buffett sees it. To some relatively slight degree, it may be a misleading picture—in dismantling and then reconstructing the annual letters, there is inevitably some loss of the sense of evolution, and Buffett acknowledges that his views have evolved over time. That is more than compensated by the fullness of the picture presented by the reconstruction.
(As an aside, it may be noted that the Essays, like Berkshire, are not purely the work of Warren Buffett—a few are taken from Charlie Munger’s letters to the stockholders of Wesco Financial Corporation, a majority-owned subsidiary until Berkshire absorbed it completely in 2011. The style of Charlie’s letters is quite distinct from that of Warren; the substance is indistinguishable. I shall nonetheless refer to the book as an amalgam of Buffett’s letters, as does the book’s own title.)
It might be argued that Buffett’s annual letters, read by many (including me) religiously (and I mean that in almost every possible way it can be interpreted), and therefore the Essays, do a disservice to the broader investing community. It may be that the folksy charm with which they are written, their down-to-earth style and their clarity and lucidity, all carefully preserved in the reconstruction that is the Essays, make the whole process of investing seem too easy. Too many of the acolytes may believe that they, too (if only . . .) are capable of matching Buffett’s results. By and large, we aren’t. Perhaps there should be a warning label on the volume: “Caution: Professionals on a closed course; do not attempt at home.” Buffett, of course, has not done it on a closed course. He’s driven on the same streets as the rest of us.
But rejecting the Essays, or the letters themselves, on that basis would be absurd. And in truth, Larry’s construction in the Essays, both in design and in execution, makes clear that the discussions are more about the mores of business itself than about the business of investing. This is consistent with the Buffett view, following from Graham and Dodd, that the buyer of a share of stock should view that purchase for what it is—the acquisition of a piece of an underlying business. Taking that view, analysis of the business (and the price at which it is available) is the only important element in an investment decision, so it is entirely reasonable that what is probably the best investment mind in history would be the best business analyst as well.
So viewed, the Essays derived from the letters are enormously valuable. They are insightful, informative and entertaining. As Larry notes in his Introduction, “The letters distill in plain words all the basic principles of sound business practices.” Not only have I read them for some thirty-five plus years, I have regularly commended them to my adult children as they have embarked on business careers.
I like to flatter myself that I have absorbed some of the letters’ wisdom over the years, but it has been something of an osmotic process. With the Essays, one who has not looked forward each Spring to the release of the letter can find an ordered approach to the entirety of the letters, organized by subject matter. As well, one who has carefully read each of the annual letters, but may not remember the year in which a given topic was covered, now has a resource to turn to with which to look by topic rather than by year, and that is of unquestionable value to me.
Simon M. Lorne is vice chairman and chief legal officer of Millennium Management, co-director of Stanford Law School’s Directors’ College, Adjunct Professor at NYU’s Law and Business Schools and Visiting Scholar at Oxford University’s Said School of Business. He was a partner of Munger, Tolles & Olson (1972-1993 & 1999-2004); general counsel of the U.S. Securities and Exchange Commission (1993-1996); the global head of internal audit at Salomon Brothers (now a unit of Citigroup) (1996-1998); and the global head of Compliance at Citigroup (1998-1999). He previously served on the faculties at Penn and USC Law Schools and has published extensively. He is a director of Teledyne Technologies, Inc., and a member of the Advisory Counsel of the Public Company Accounting Oversight Board.