Friday, May 16, 2008

Berkshire's No. 2 man helps from the background

They organized Berkshire Hathaway so they wouldn't ever have much to do besides sit around and think. And that's still how they run the company today, even though it has grown to include roughly 250,000 employees and more than 70 subsidiaries.

"Neither Warren nor I is smart enough to make the decisions with no time to think," Munger said. "We make actual decisions very rapidly, but that's because we've spent so much time preparing ourselves by quietly sitting and reading and thinking."

The real key to Berkshire's success, Munger said, is that he and Buffett like learning and have improved over time. But Munger gives Buffett most of the credit.

"Mr. Buffett is by far the most important person," Munger said in an interview. "And to a huge degree why Berkshire Hathaway is the length and shadow of Warren Buffett."

Munger compares his role at Berkshire to that of Albert Einstein's professional colleagues.

"Practically everybody works better when not in extreme isolation," Munger said. "If Einstein had worked in total isolation, he would not have been as productive as he was. He didn't need a great deal of contact with other colleagues, but he needed some."

But Buffett credits Munger with pushing him beyond value investing.

"Charlie has taught me a lot about valuing businesses and about human nature," Buffett said.

Buffett's early successes were based on what he learned from former Columbia University professor Ben Graham. He would buy stock in companies that were selling for less than their assets were worth, and then, when the market price improved, sell the shares.

"Charlie says, 'You know, let's give this up, and really buy into some fine businesses,'" Buffett said.

Berkshire now prefers to buy and hold businesses for the long term, if not forever.

"Charlie got me started in the right direction on that, and he's had to nudge me back to that periodically," Buffett said while sitting next to Munger at a recent news conference.

Munger deflected Buffett's praise.

"Warren transformed my life way more than I transformed his," Munger said. "He talked me into giving up the law."

Munger has always been modest about his role at Berkshire, and has been willing to avoid most of the limelight, said Andy Kilpatrick, the stockbroker-author of "Of Permanent Value, the Story of Warren Buffett."

"It's not easy to get two superegos to run something and one of them take the front seat totally and the other take the back seat," Kilpatrick said. "I think he's probably been a huge input all along and hasn't tried to claim it."

But Buffett and Munger found a way to run Berkshire without a clash of egos.

"It's a real privilege to be associated with a place like Berkshire," Munger said. "I think we have more fun doing what we do than practically anybody."



The Snowball: Warren Buffett and the Business of Life

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