Each time when there is discomfort and squirm in the U.S. financial markets as it is now, people tend to form inconclusive opinions that fall in the realm of exaggeration. One of those exaggerations is to boast about a few people as genius because they seem to be able to weather every financial storm.
This is simply not fair. Instead of overrating our capitalist system, that contain the self-correcting mechanism, people often overrate people who make it good within the system. This is the case with statements about Warren Buffett as he is constantly being rated as a genius. This is especially true at a time when financial markets go down, along with a few other so-called geniuses, while Buffett could be seen standing solid with his avuncular smile.
As modest as Mr. Buffett is, he will tell you that he does not consider him to be a genius. He became so wealthy because Buffett is the one-eyed king in the land of the blind with abundance of wealth and unsurpassed opportunity. To give an illustration: take the most recent example of Buffett’s offer to reinsure Municipal Bonds of three major failing insurance carriers. While many others with capital sit on the sideline praising Buffett’s genius all he did was to offer to reinsure the least risky assets, perhaps in the entire world today. Those insurance underwriters are not going down because they wrote insurance on municipal bonds, but because without being satisfied with a conservative investment and a good living, they got into speculating on the latest trend called sub-prime bonds along with the rest of the blind in the society. Now Buffett steps in and says he will take over the good bonds and leave the blind with the bad ones. There is nothing genius about that move. In fact, as Buffett admits, he won’t even get a ticket to heaven for doing that.
Having extensively researched the U.S. capitalist system, to write my books, I can submit enough facts to substantiate that almost anyone with access to capital as Buffett had could have done (and still could do) exactly what he had done. The reason others couldn’t do what Buffett did could be better explained by dipping into Zen Buddhism. To better explain the reasons, since Zen is full of tales, let’s begin with a tale: a wealthy man who was feeling miserable, in spite of all his wealth, was once told that a Zen monk has the recipe for happiness. The wealthy man, having sold his business and having traveled a long way, comes to see the Zen monk only to be told that finding happiness lies in two simple words: paying attention.
Warren Buffett is living proof that anyone with some capital could make money in the USA today if he or she only pays attention and apply common sense. In that regard, here are the five tenets of Zen Buddhism one should follow to live a life of responsibility and fulfillment:
Take a look at Warren Buffett’s life and you will see how above-mentioned principles fit his lifestyle perfectly. His judgment on picking right companies to invest is impeccable. When you ask him about his ability to have Right Judgment he attributes that to common sense such as buying profitable businesses that you know about (preferably with a barrier to entry, to avoid competition) run by smart management with integrity. The point is anyone with access to capital could do what Buffett does and make money but they don’t. Instead they squander their money on speculation and consumerism. Spending on speculative activities is less painful for most professionals in the business since it is often other peoples’ money. If these professional managers actually invest their own money then they may have the chance of becoming like Buffett.
In the market today, when you give money to a broker and when he speculates and wins you both win. But when the broker loses money only you lose. Your professional money manager only shares your upside with you and avoids anything to do with the downside. So if you have the right judgment you have to make sure that your broker will not speculate with your money. Those who invest money with Buffett know that he does not speculate. The reason Buffett does not speculates is because he has paid attention and discovered that speculators lose their money sooner or later and the way to make money is to invest in good companies for the long term.
How do you distinguish speculation from investment? That perspective comes with knowledge and Buffett has gained the right knowledge by reading the right books. And that’s how you get the right judgment since no one is really born with knowledge. In that regard, practicality sets Buffett apart from Buddha the leader of Zen Buddhism. To get the right judgment (attain Nirvana) Buddha had to meditate for years (perhaps there were not enough books those days). But Buffett attained his Nirvana by reading books. The ever-practical man, Buffett, has a knack for picking the right books, and, as you will see, to pick the right teachers.
To scrutinize Right Speech, have you read some of Buffett’s speech? He never seems to say anything unnecessary. He has a reputation for liking to talk too much, and in most cases those who talk too much seem to bungle and put their foot in their mouth; Buffett seems to be able to even avoid that. I guess it comes from having the right judgment and discipline to follow that judgment. Most people lie because they lose control of their thought and speech. This discipline of being able to control his thoughts must account for Buffett’s ability to be truthful.
Warren Buffett’s lifelong business partner is Charles Munger. If you read Munger’s writing you will recognize him as an exceptionally smart person, you are likely to come across in life. Was it just a coincident that they both were born and raised in the Mid West? In fact they both were born in the same neighborhood and as a kid Munger worked in Buffett’s grand father’s store. Generalization is often considered not appropriate but these two people seem to substantiate the inborn integrity and ethics of the people from the Mid West in America. Most probably they had something to do with making America Great!
The partnership between Buffett and Munger illustrates the third principle, the Right Company. Luck may have played a part in this too. Buffett inherited his characteristics from his dad. If you wonder why Buffett’s dad having the same characteristics did not become the richest man on earth, there is a good reason for that. Buffett’s dad was a Congressman and as we know there is no money in being a Congressman unless you work for the lobbyists (even then the money is not that substantial and not worth the aggravation). Buffett’s father anyway wouldn’t succumb to making money that way and in addition in good-old days there were not too many lobbyists.
Well Buffett’s dad also had a stock brokerage in the later stage of his life and that goes to show that he got the right judgment later in life. But those days the US stock market rose only gradually—as it should be in a free market with no government interference—as the true value of the companies listed on the public markets increase its share of sales and profits proportionately. So those in the ownership society became wealthy gradually and moderately with wealth being spread evenly in the society. But the became an entirely different society right after Buffett invested his money in the market. The US stock market rose so rapidly even the town crier could have become very wealthy by investing in the general market and staying home. Just to give you an idea the Dow Jones began the 1980s around 830 and in the next few years went on to become over 12,500 making Buffett the richest man on earth. So that’s where luck played another major part in his life and no wonder people call Buffett the Forest Gump of Wall Street.
Buffett was the best student of legendary Benjamin Graham who is considered the best investment teacher ever lived. Graham wrote the book Security Analysis that still people consider the bible of investment. Anyone who had a teacher like Graham and followed his advice couldn’t fail in life. For that matter all of Graham’s loyal students are quite wealthy in the country today. Buffett had read Graham’s book as a teenager, and made a wish to learn under the master. Finally when Harvard University rejected Buffett as a student (reflect on the judgement of Harvard to pick so many bad apples including the future CEO of Enron and turn down Buffett!) Buffett got his opportunity to attend Colombia and study under Graham.
One of the rules of the book Security Analysis is to invest in companies only when the value of stocks reach below its intrinsic value keeping a margin of safety. When Buffett entered the world of investments, the stocks were still over valued and had he followed the rules in Security Analysis to its finality, he should have stayed away from the market till the market corrected itself bit more. In fact, Ben Graham, according to an account advised Buffett to stay on the sidelines a little longer since there was still more space for correction for the market to reach intrinsic value. Had he adopted that strategy then that would have cost him the opportunity to cash in on the steepest rise of stock market, associated with early years of a long bull market because a pullback to buy stock at less than intrinsic value never materialized during that period.
Then according to an account, it was Charles Munger who persuaded Buffett to invest in stocks even without a margin of safety or at above the intrinsic value. Munger’s proposition was to buy stock of excellent companies at reasonable prices (even in a bit overvalued market) and then to keep on buying more of the same stock, if prices continued down. So at this point Buffett had the right judgment not to follow what the Bible of investment laid down, but to go along with the trends in the society as pointed out by his company. Perhaps both Munger and Buffett watched the political and economic trends and saw what’s in the offing in the coming decade.
With due respect to Ben Graham, let me add that technically he was not wrong about waiting for a further correction because his strategy and contribution was to make money in a free and a transparent society operating under rule of law. So Graham couldn’t have imagined what is to come. In fact, I doubt even Buffett and Munger team thought the stock market would rise that high considering that it took Dow Jones close to 200 years to get to 830. I doubt not only Graham but even Buffett, Munger team anticipated that in the ensuing decades, the US government would be capable of borrowing so much money to turn the greatest creditor nation to the biggest debtor facilitating most of such borrowed money to end up in the stock market. Also I bet that none of these intelligent investors had any clue as to the chutzpah of the Federal Reserve Board, not to be outdone by the treasury, to print so much money and pump into the market. The historian the Graham was, with the memory of Germany (out of control hyperinflation caused by indiscriminate printing of money and perhaps contributing to inflame the world in a major war) fresh in mind, thought that smart people would not be capable of repeating any part of that bitter history. Nevertheless Buffett was a major beneficiary of that recklessness. His 4 billion invested in the market in the 1970s ballooned to over 20 billion dollars by the 1990s.
What could have made Buffett/Munger team insightful at that time in history? Perhaps they witnessed the end of the Gold Standard and saw the beginning of unfettered monetarism, and being the practical men they were, made no objection to any of it (perhaps sensing the futility in that) but rode the trend to their benefit. Also witnessing the Japanese experience with monetarism that ran the Japanese stock index also over 1500 percent may have added to a vision of some remote possibility of the USA going in the same direction.
On the point of Right Vision, Buffett’s expectations are quite simple. He wants to be happy doing what he likes to do. I doubt he has any goals of changing the world or helping out the victims in the society, although he has the capacity to do so. Many eastern philosophers in history have pointed out that trying to help all the victims in the world as an impossible task. Thus they have spread their wisdom teaching people to take life for what it is and be happy within those constrains. Buffett in that regard, in contrast to another similarly smart and wealthy man George Soros—who spends his time and money performing active and constructive charitable deeds—do not actively involve himself in charitable activities.
On the point of Right Action, Buffett lives a simple, uncomplicated life and that is right if you believe the purpose of life is to be happy. Trying to accumulate material goods and compete with others and be in a rush to make money is the root cause of unhappiness. Living a humble life with people you love to be with is the way to ultimate happiness. Buffett does not buy expensive cars or shop at expensive places or eat at expensive restaurants. He is reputed to visit McDonalds so often that they have given him a platinum card so he can eat at any McDonalds for free; it definitely pays to be rich.
The price of Berkshire Hathaway (his company) stock began at $5.00 per share and now stands at $139,000 per share and often moving up or down $2,000 a day. It is the most expensive stock in the world. As you may know all those who invested with Buffett in the early days are now worth lots of money. However, let’s not forget although Buffett does not live an extravagant life with money he makes, as the stock of his company appreciates, the others who own the stock live very flashy and extravagant lives. He has nothing against anybody being happy doing what they want to do.
Getting back to the tale that we brought up before, the wealthy man who went to see the Zen Monk to find happiness, having heard the simple rules to being happy, asked the monk if being happy is that simple why not everyone is equally happy. The Zen master replied it is because most people do not like to find simple answers but for some unexplainable reason complicate all matters.
This is the same answer Warren Buffett gives to those who ask him, if making money is that simple (as he often claims) then why not everyone is wealthy as he is: because most people have a pervasion to complicate simple things in life. In that regard, let me hastening to correct myself for calling him the One-Eyed King, instead say that Warren Buffett is as close to a Buddha on Wall Street; a task quite simple to do since it is all in one’s mind.
As the Zen philosophy advocates anyone could become Buddha by following above-mentioned five tenets. Similarly anyone can become wealthy in America by paying attention and following the simple rules followed by Buffett. Don’t take my word for it; ask Warren Buffett. He may say that the opportunity to cash in the most money comes when the blind followers in the market panic and run scared and when the baby is thrown out with the bath water. Your goal should be to let the blind buy the bath water (they will buy the bath water since they knew it was once hot) while you look for the baby.