Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2012

A Book Review

 

Carol Loomis’ book “Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2012” is a collection of Fortune magazine articles about Warren Buffett with commentary by Loomis. This book presents a fascinating look at Buffett’s career thus far and covers an important part of recent business history. Loomis, who has been a close friend of Buffett’s for more than 40 years, is the chief writer about Buffett at Fortune and has edited Buffett’s annual letter to shareholders since 1977. In a Question & Answer following, Carol Loomis shares her thoughts on several of the important themes in her book, including Buffett as teacher and the key to the quality of Buffet’s annual letter to shareholders.

 

Tap Dancing to Work: A Few of the Steps

 

Since first mentioning Buffett in an article about hedge fund pioneer Alfred Winslow Jones in 1966, Loomis and her colleagues at Fortune have written a number of articles about Buffett and Berkshire Hathaway. This book contains the best of those articles and includes a dozen pieces written by Buffett himself. Commentary by Loomis provides context and perspective. While much has been written about Buffett, this book contains considerable fresh insight on an always fascinating subject.

 

While it is not possible to fit Warren Buffett’s observations on “practically everything” into this short book review, I would like to touch upon several of the important themes in this excellent and enjoyable book. Before I start, I would like to make the following disclosure: I was born and raised in Nebraska. I started reading about Warren Buffett and Berkshire Hathaway when I was a teenager. I am a fan.

 

Warren Buffett the Teacher

 

Much has been written about Warren Buffett the investor and Warren Buffett the business manager. But Warren Buffett the teacher has been less commented upon.

 

In the article “Gates on Buffett,” written by Bill Gates, Gates describes the first time he met Buffett:

 

He asked good questions and told educational stories. There’s nothing I like so much as learning, and I had never met anyone who thought about business in such a clear way.

 

Buffett’s teaching and his clarity of thinking are probably most widely appreciated through his annual letters to shareholders of Berkshire Hathaway. Buffett began writing the chairman’s letter in the annual report in 1966. His annual letters have developed and evolved over the years. His letters are now among the most widely read and closely analyzed and commented upon pieces of writing coming out of corporate America annually.

 

Buffett’s annual letters deal with a variety of topics. In addition to describing typical corporate fare such as Berkshire Hathaway’s operating results and major acquisitions for the past year, Buffett’s annual letters also address a number of broader themes, including accounting, valuation, stock options, board responsibilities, shareholder rights and Berkshire Hathaway’s acquisition philosophy.

 

Buffett’s writing is original, thoughtful, pithy, oftentimes entertaining and always educational. Reading his annual letters provides an education not only on business issues, but also on human nature and common sense.

 

In his 1987 annual letter, Buffett writes about value investing:

 

We really don’t see many fundamental differences between the purchase of a controlled business and the purchase of marketable holdings. In each case we try to buy into businesses with favorable long-term economics. Our goal is to find an outstanding business at a sensible price, not a mediocre business at a bargain price.

 

In addition to investing in outstanding businesses at a sensible price, Buffett also emphasizes investing in businesses managed by quality people. In his 1989 annual letter he writes:

 

… I learned to go into business only with people whom I like, trust and admire … an owner—or investor—can accomplish wonders if he manages to associate himself with such people in businesses that possess decent economic characteristics.

 

Reading Buffett’s annual letter, one gets a good understanding of how Berkshire Hathaway performed the past year. But Buffett’s annual letters are about much more than just prescribed corporate disclosure. Reading a series of Buffett’s annual letters, one gains significant insight into how a highly intelligent, creative and disciplined person approaches running a highly complex, successful company. The reader sees that Buffett’s investment and management decisions are informed by clearly defined business priorities, performance criteria and acquisition criteria. Readers also appreciate how his decisions are informed by a nuanced understanding of the legal and regulatory environment. With such clear thinking about fundamental issues, perhaps it is not surprising Buffett is so successful.

 

In addition to writing a highly educational annual letter, Buffett teaches and mentors in a variety of other ways. He talks regularly, sometimes daily, with a number of his CEOs and senior executives. Along with Berkshire Hathaway Vice Chairman Charles Munger, he answers hours of questions at the annual shareholders meeting. He writes occasional op-eds and does media interviews. And he regularly speaks with groups of business school students.

 

As described in Nicholas Varchaver’s “What Warren Thinks …,” the student question and answer sessions are wide-ranging. They cover topics ranging from starting new companies and how Buffett gets his ideas (“I read all day”) to habits and character. During the 2011-2012 school year, 1,450 students took part.

 

A common question students ask is how Buffett defines personal happiness and success. I especially appreciate Buffett’s observations, from “The Bill and Warren Show,” edited by Brent Schlender, on this topic:

 

… when you go out to work, work for an organization of people you admire,

because it will turn you on.

 

I have turned down business deals that were otherwise decent deals because I

didn’t like the people I would have to work with. I didn’t see any sense in pretending. To get involved with people who cause your stomach to churn—I say it’s a lot like marrying for money. It’s probably a bad idea under any circumstances …

 

Asking good questions and telling educational stories are an important part of teaching and learning. CEOs and senior managers are well advised to pursue teaching and mentoring practices like Buffett’s. Oftentimes, the teacher learns as much as the student.

 

Buffett’s annual letters are available at the Berkshire Hathaway website. I highly recommend reading them.

 

Warren Buffett the Philanthropist

 

Philanthropy is an area where big thinking can have big results. In recent years, Buffett and Bill and Melinda Gates have worked together on two highly thoughtful examples of big thinking: Buffett’s gift to the Bill & Melinda Gates Foundation and the Giving Pledge.

 

Buffett’s huge gift of Berkshire Hathaway stock to the Gates Foundation is pure Buffett. “… rational, original, breaking the mold of how extremely rich people donate money” is how Loomis describes it in “Warren Buffett Gives It Away.” Buffett said he decided to make the gift to the Gates Foundation when he “came to realize that there was a terrific foundation that was already scaled-up—that wouldn’t have to go through the real grind of getting to a megasize like the Buffett Foundation would—and that could productively use my money now.” Buffett also attributed his decision to getting to know Bill and Melinda Gates well and growing to admire what they were doing with their foundation.

 

Buffett has pledged to gradually donate 85% of his Berkshire Hathaway stock to five foundations. Five-sixths of the shares will go to the Gates Foundation. The Gates Foundation is recognized for its pioneering work relating to improving world health, reducing extreme poverty and, in the United States, expanding educational opportunities and access to information technology.

 

Like Buffett’s gift to the Bill & Melinda Gates Foundation, the Giving Pledge is an excellent example of big thinking because of its potential to expand the thinking of billionaires about how much of their wealth to give to charity. Under the Giving Pledge, the wealthiest people are encouraged to pledge at least 50% of their net worth to charity during their lifetimes or at death. In “The $600 Billion Challenge,” Loomis describes the Giving Pledge as having “the potential to dramatically change the philanthropic behavior of Americans.”

 

Loomis notes that as of September 2012, there were 92 signers of the Giving Pledge. The success of the Giving Pledge demonstrates the power of a big idea acted upon.

 

There are many opportunities to apply original thinking to philanthropy and other worthwhile pursuits. The Giving Pledge and Buffett’s gift of Berkshire Hathaway stock to the Bill & Melinda Gates Foundation are two excellent examples of big, original thinking. In the spirit of the Giving Pledge, I would like to challenge readers of this Newsletter to volunteer time during the coming year applying their unique personal talents to an important charitable cause or issue. Knowing the talents of many of this Newsletter’s readers, such a gesture could have significance.

 

Warren Buffett on the Importance of a Well Chosen Circle of Friends

 

It is said that we are shaped by the company we keep. One theme that appears repeatedly in Loomis’ book is the number and the quality of the friendships Buffett has. Throughout the book we read about Buffett meeting someone and becoming good friends.

 

The way Buffett thinks about investing has been strongly influenced by his mentor Benjamin Graham. In addition to Graham, Buffett has learned from and been influenced by a number of thoughtful, insightful, highly successful people, including, among many others, Tom Murphy, Louis Simpson, Ajit Jain, Don Graham, William Ruane, Walter Scott and Bill Gates. The breadth and depth of Buffett’s relationships and his people skills are an important, perhaps under-appreciated aspect of his management skill and overall success. “He is the best judge of human talent there is,” says Rich Santulli in Andy Serwer’s article “The Oracle of Everything.”

 

One friendship of particular note is Buffett’s relationship with Charles Munger. Buffett met Munger, an attorney also originally from Omaha, when both men were relatively early in their careers. Their business relationship grew over the years. As Loomis notes in “The Inside Story on Warren Buffett,” Munger helped Buffett’s value-orientated investment philosophy evolve. He “nudged, prodded and shoved” Buffett toward appreciating that he should pay reasonable, fair prices for good businesses, and did not have to buy only underpriced businesses. In addition to Munger, a number of other people with ties to Nebraska also contribute to the success of Berkshire Hathaway.

 

Questions and Answers with Carol Loomis

 

Carol Loomis, the distinguished editor and reporter for Fortune, has graciously agreed to discuss her book and provide additional insight on Warren Buffett and Berkshire Hathaway. Loomis is a close friend of Buffett’s and has written a number of articles about him. It is rare that an author knows the person about whom she writes so well.

 

Q: In the preface to the article “What Warren Thinks …” you write that Warren Buffett the teacher is “the role for which he has said he would most like to be remembered.” Please tell us more about this.

 

A: Ben Graham, Warren Buffett’s mentor, also wished to be remembered as a teacher (and certainly Warren remembers him that way). Warren has taught with his writing and speeches in several ways: in his annual letter to shareholders (and in the Berkshire owners’ manual), in which he has often branched out into essays, about such matters as derivatives and transaction costs; in Fortune articles he has written—e.g., the 1977 piece about inflation—and in his rare speeches, two of which Fortune turned into articles; in op-ed pieces, including the one about taxes that ran in the NYT last week; in his sessions with business students, as described in the very article you mention (“What Warren Thinks …”) and, for example, in “The Bill and Warren Show.” Tap Dancing to Work is loaded with examples of his teaching.

 

Q: Berkshire Hathaway’s annual chairman’s letter, which you have been editing since 1977, is one of the most eagerly anticipated pieces of corporate writing every year. What would you like to see more CEOs and corporations do with their annual letters?

 

A: The key to the quality of Warren’s letter—and a very few others, such as Jamie Dimon’s and Bob Wilmers’ (he’s the chairman of MTB)—is that they sit down and write their letters themselves, trying to give an honest picture of how their corporations fared during the past year. Most CEOs turn this job over to their public relations or investor relations people and what comes through is a weak, uninteresting missive. Now, I don’t mean that what the CEO writes cannot be edited—writers always need editing. It’s just that what needs to emerge from the process is the CEO’s thinking, not the watered-down opinions of someone else.

 

Q: You include in your book a memorable article on Warren Buffett entitled “The Best Advice I Ever Got.” What is the best advice you ever got?

 

A: I’ll mention two points: First, if you get a job offer from a company you like and respect, take it—without any thought about your pay. Any company you respect is apt to be a meritocracy, and if you’re good you will do well in a meritocracy. Second, find out what time your boss gets in and get in earlier.

 

Q: What is it like to play bridge with Warren Buffett?

 

A: He’s a little better than I am, so I’m always trying to raise my game when I’m playing with him. He is capable of making a mistake now and then, and he berates himself when he does.

 

Thank you Carol.

 

The Asset Warren Buffet Values Most

 

Perhaps it is fitting that one of the last articles in Loomis’ excellent book is about the asset Warren Buffett values most. In a book that focuses primarily on investment and business success, the asset most valued, interestingly, is not what one might expect.

 

In an article written by Buffett, “My Philanthropic Pledge,” Buffett describes his motivation for committing to gradually give away all of his Berkshire Hathaway stock to philanthropic foundations. Buffett writes that his reaction to his “extraordinary good fortune” is not one of guilt, but rather of gratitude. While his charitable giving will be among the largest ever, he observes that many people make important contributions every single day in terms of their time and talent. Thus, Buffett concludes, reality sets “an obvious course” for his philosophy toward philanthropy. “Keep all we can conceivably need and distribute the rest to society, for its needs.”

 

And the asset Buffett values most?

 

“The asset I most value, aside from health, is interesting, diverse, and long-standing friends.”