Ode To Warren (the ultimate fat pitch)

Yesterday I read Warren Buffett’s last letter to shareholders. It was a Thanksgiving letter. But this one marked an inflection point. The last letter to shareholders written by Warren. This is the end of an era.

I learned so many things from him and Charlie Munger that this essay most probably won’t be up to the task to truly thank them. Still, I would try to make the effort.

It seems like yesterday when in 2014 I landed on a website called Farnam Street, simply just by randomness. I was using an extension for Firefox called StumbleUpon, where I selected some themes that I liked, and then, similar to the “I’m feeling lucky” button, by clicking on it, the extension would redirect to a random website.

Lady Fortuna was on my side that night when I got to know about Charlie, Berkshire, and, of course, Warren. Instantly I tried to devour everything about them:

• The letters (from his partnership and Berkshire)
• The books (Snowball, Seeking Wisdom, Poor Charlie’s Almanack, and many more )
• The talks (interviews and the shareholders meetings).

I was building my own company with my partners during that time, and something clicked with me when I read the Buffett’s quote:

I am a better investor because I am a businessman and a better businessman because I am an investor

I was a software engineer leveling up in order to design a product and trying to think about the business, but somehow, that quote made me think that learning about investing would make me a better entrepreneur.

Why? Because compounding interest, capital allocation, risk-taking, and making mispriced bets with a margin of safety are key ideas in order to make better decisions in a business (and even in life in general).

Now, I am building my second tech company and keep thinking about how to build software products with the minimum invested capital needed or how it can be reduced.

Something the tech industry, the institutional imperative (as Warren would say), likes to forget.

Warren was obsessed with being an investor; the fact that he decided to retire at 95 truly reflects that, and having read Snowball, I keep thinking about what he traded off in order to be the successful investor we all know.

Paraphrasing what I read in a Morgan Housel book (I think he got it from Naval):

Remember that in order to be like someone, you have to take the complete package; you can’t get just some part of the combo.

And let me tell you, that smiling little fragile old guy was a shark. A big one. And with very (very) sharp teeth.

There is an anecdote that when Long Term Capital Management was asking for a bailout, he made a proposal to buy the portfolio without the management; he didn’t want the company. And before the offer was presented, he called Meriwether, the founder, and specifically said, “John you are going to get a bid for the portfolio with my name on it. I just want you to know that it is me”. Meriwether didn’t accept it. The bid was insanely cheap.

The other side of the story, the one that doesn’t make Warren look bad, was that this was the second time he would offer to fix something that Meriwether incorrectly managed. The first one was Solomon, and that gave him a lot of headaches. Still, he wanted to tell John that he was taking huge advantage of him.

This event has some reminiscence of the other (sad) story with his friend Rick Guerin. Rick was another member of the Graham and Dodsville superinvestor’s club Warren founded, and his friend. Rick was taking too much leverage on his bets, and he got margin called.

Warren offered to buy Rick’s stakes in Berkshire at market price so Rick could cover his debt. At the time, Berkshire was trading way below fair value, and Warren not only probably knew that, but he also knew that Berkshire would continue growing at high returns.

He could have helped his friend and made him learn the lesson of not leveraging his bets without taking Rick the opportunity of continuing to grow his wealth with him and Berkshire. Somehow (and we don’t know why) he didn’t.

This is the lesson: that in order to be extraordinary, you have to do things that are very, very out of the ordinary and what is normal (and expected) for us mere mortals. Those traits come together.

In Warren’s life, business and capital returns were first. And he achieved what he wanted, what no one did before:

He is the best investor of all time. Period.

He had a compounded annual return of 19.9% since 1965. None compounded at those high returns for so many years and it just feels incredible to think that he bought his first stock when he was 11 (84 years ago).

Of course, I would never be like Warren, but going back to Morgan’s quote, I would never want to trade seats with him. Spending time with family and having other pursuits (cooking, literature, writing, and programming for me) is, in my opinion, what enriches your own life.

I would, however, be very truly grateful if I could have, at least, a very tiny percentage of his huge investment wisdom and his remarkable endurance.

That is why I will continue rereading and trying to learn more about him and the way he made his business and investing decisions.

Sadly, now, all his insights will be from past material. But his ideas will keep resonating with me, and I will find new applications for them.

Those that come fast to my mind (without looking at my books and notes):

• Margin of Safety
• Value is what you get; price is what you pay.
• Circle of Competence
• Be a Learning Machine
• Inner scorecard instead of outer scorecard
• Be fearful when everyone is greedy and greedy when everyone is fearful
• First rule about investing: never lose money. Second rule: don’t forget rule 1.
• In order to win money, you first have to survive.

Thank you very much for having shared your ideas, Warren.

You were truly extraordinary. The one and only. The ultimate Fat Pitch.