On Warren Buffett

Over the weekend, I eagerly consumed the latest biography of Warren Buffett, The Snowball: Warren Buffett and the Business of Life. It was an interesting read and Buffett is an interesting man. At 976 pages, this book is a thorough look into the life of the Oracle of Omaha, and the author had virtually untrammeled access to Buffett, his partners and his family. A couple of thoughts on Buffett are appropriate.

First, he truly is a genius in business and finance. He's had a set of principles to which he has stuck for over fifty years, and his record is simply unmatched. He was widely criticized in the late 90's for sitting out the technology boom, and hailed as a sage when it went bust. He's been criticizing derivatives (especially mortgage backed versions) since 2002, and he very much predicted the mess we're in now.

He's pretty blunt about how the rest of us ought to go about making money in the market--invest in a diverse set of passively managed index funds and make regular contributions through thick and thin. He sees this as a micro-version of the way Berkshire Hathaway invests. Since 8 of 10 fund managers do worse than the market, this seems a pretty sound way to invest. It is, indecently, the basis for the best personal investing book I've read, Unconventional Success by Richard Swenson. Swenson manages the Yale Endowment, and preaches a similar line to Buffett. Both Swenson and Buffett advocate diminishing the proportion of one's portfolio devoted to equities the closer one comes to retiring (or needing the money, whichever is the trigger event).

Buffett is a fairly flat out, redistributionist liberal when it comes to economic and social policy. He's made quite a flutter about leaving his money to the Bill and Melinda Gates Foundation, all the while leaving the world with the sense that he's cutting his kids and (second) wife off. Nothing could be further from the truth. His children have done nicely by their Berkshire stock (little if any purchased), their father's generosity, and their father's name.

Of particular interest to me though, was the view inside the personal life of Warren Buffett. Like a recent bio of Einstein I read, it revealed a great man with an outwardly humanitarian demeanor, whose own family was ignored and mistreated. Buffett's deceased first wife (Susie) seemed nothing but a mother-caretaker figure (for Buffett), and his children seem to have received little if any attention until they were old enough to sit on boards of companies (presumably Buffett's genius being passed down). Additionally, it revealed Buffett as a virtual incompetent in most life skills, wholly reliant on the women in his life for the very basic functions that distinguish human beings....dressing, eating, etc.

Perhaps most galling to me is the once again repeated canard attributed to Buffett of the inequity of a tax system in which his secretary pays a higher effective tax rate than Buffett does. Since Buffett pays his secretary a salary (i.e earned income--and probably pays her well), she is taxed at a higher rate than the disbursements from capital gains that make up Buffett's annual income. Buffett pays himself a minimal salary (cited as $100,000 in the book), but quite obviously rakes in considerable income from the businesses and stocks he buys and sells. My answer to Buffett is, that if he paid himself a salary commensurate with his position of CEO of a $70B company, he'd solve the whole tax rate inequity thing in a heartbeat. As long as he chooses to compensate himself through passive gain, he's using a tool designed to encourage the rest of us to save and invest for his own personal hobby horse.

Buffett is an interesting guy, and this is a must read. But while my view of Buffett the business-man is enhanced, my view of Buffett the human being is greatly diminished.