The Master Gives It Back
For the next six months, Mulcahy did just that as she toured the country, rallying support for changes required to restore the company. Xerox stock continued to decline, but she was unfazed. Ultimately, Buffett's advice proved fortuitous as Mulcahy warded off bankruptcy, paid back $10 billion in debt, and continued to invest for the long term. Xerox stock tripled in value.
Now 76, Buffett made his first investment in the stock market when he was just 11 years old. After graduating from the University of Nebraska, he studied economics at Columbia University, where he met his mentor, Benjamin Graham, the influential value investor. There he developed the investment theories and practices that have been the hallmarks of Berkshire since he founded it in his mid-30s. Among them: the principle of "intrinsic business value" as the measure of a business's true worth, independent of its stock price.
Notably, Buffett goes beyond his mentor in two ways: He focuses on companies with a sustainable competitive advantage and believes the quality of their leadership is integral to their value. Unlike the vast majority of acquirers, Buffett retains the management. A master evaluator of people, he asks them, "Do you love the business, or do you love the money?"
For all Buffett's success in parlaying a $100 investment into a $40 billion net worth, Wall Street continues to pursue the opposite path, much to Buffett's dismay. Buffett invests in only a few companies, minimizes his management costs, and hangs on. "Our favorite holding period is forever," he says. That wisdom has been proved with the huge gains of companies like American Express and Coca-Cola. If you'd put $1 in Berkshire Hathaway in 1965, it would be worth $7,000 today-compared with $60 if you'd bought the S&P 500.
During the 1990s technology boom, Buffett patiently outlasted his critics by avoiding the Internet stampede. At the 1999 Microsoft CEO Summit, I listened as he patiently explained to a leading Internet CEO that there was no amount of growth that could make his stock worth 100 times earnings. True to his prediction, the stock collapsed within the year.
While Wall Street pressures boards to fire CEOs who do not produce short-term results, Buffett has an unblemished record of retaining the leaders of his companies. The funds fight to keep their investors and their investments confidential, but Buffett's philosophy is full transparency. Nowhere is that openness more evident than in his famous shareholder letters, where he not only delivers the bad news along with the good but painstakingly points out his mistakes, often with self-effacing humor. Once, when his firm's results fell far short of its traditionally high returns, Buffett candidly commented, "Even Inspector Clouseau could find last year's guilty party: your chairman."
Every March, more than 20,000 people trek to Omaha for Berkshire Hathaway's annual meeting. At "Woodstock for Capitalists," as it is known, Buffett and longtime partner Charlie Munger answer questions for more than four hours. What a contrast to companies like Home Depot, which cut off their meetings in less than 30 minutes, refusing to let shareholders ask any questions.
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