As the “Empire State of Mind” beat filled the packed CenturyLink Arena in Omaha, the chorus slid in: “At Berkshire, financial strength is what dreams are made of, there’s nothing you can’t dooooo….” The white, middle-aged crowd of investors jammed. Is this is the humble setting from which champions arise?
In this current age of populist unrest, anti-Wall Street fervor, and mainstream flirtations with socialism, the American system of capitalism needs a hero. Not a plastic hero or a public relations sop designed to distract us long enough to forget about what’s wrong; a real hero. A man who eschews the typical Wall Street practice of soaking customers for fees and offering little but wild guesses in return. A man who views investing as a solemn commitment in a strong, productive business, not just a chance for a quick buck. A man who gains wealth only as fast as all the rest of his investors do. A man who worked hard, didn’t look for handouts, started small, and built a fortune using only his wits, intelligence, and commitment to intellectual principles. A man who plays by the rules, who pays his taxes, and who pledges to give his fortune to charity. A man who could build a skyscraper but who instead lives in the same house that he bought in 1958 for $31,500.
That man is Warren Buffett. His company is Berkshire Hathaway. Together, they are the single greatest argument for capitalism. Is that argument good enough?
In the excellent biography Buffett, Roger Lowenstein notes that Warren Buffett gained control of Berkshire—then little more than a fading textile company—for around $32 per share. That company grew in a direct line into Berkshire Hathaway, which today is valued at about $220,000 per share. The entire company is worth more than $360 billion. For the past 50 years, Berkshire has averaged an annual growth of nearly 20%, almost double that of the stock market as a whole. As you can imagine, for many decades now, investing in Berkshire Hathaway has made many people very, very rich.
The virtually unparalleled success of Buffett as an investor, along with his unparalleled lack of pretense and penchant for folksy sayings, has made him a cult figure among Berkshire Hathaway investors. Every public company has an annual meeting which is nominally open to all shareholders; usually, almost none attend, except for the big shots representing the huge money managers. At Berkshire, though, the annual meeting is an event. Buffett loves to spout wisdom in public, and his eager investors love to lap it up. Berkshire’s annual meeting is often called “the Woodstock of capitalism,” but it is more akin to the Hajj of capitalism: acolytes from around the world trek to Omaha, Nebraska to pay homage to the prophet of investing. Like all religious ceremonies, it is an extremely weird experience if you come to it from outside the faith.
Berkshire Hathaway is distinguished from most huge conglomerates in that its collection of companies have nothing in common except the fact that they have been deemed good investments by Warren Buffett. They are not clustered in any single industry or geographic area; the only coherent theme is that they produce a decent cash flow and are managed efficiently and were available for purchase at an attractive price. Though we may think it foolish, it is at least possible to see how people can become active fans of certain large corporations: they think that Nike is cool, or they like Ford’s cars, or they are in love with airplanes and follow Boeing. What makes the acolytes of Berkshire so bizarre is that they possess the scary enthusiasm of, say, a biker who worships Harley-Davidson, but direct it at a company with absolutely no brand identity other than raw, efficient cash flow. It is balance sheet as celebrity.
Normal companies might treat shareholders who had traveled across the country to a few free gifts. T-shirts. Water bottles. That sort of thing. At Berkshire Hathaway it is the opposite: its fans are given only the right to spend more money. This is in keeping with Warren Buffett’s reputation as a world-class miser, so they can’t really get mad about it. Thousands upon thousands of these wide-eyed true believers crowded into Omaha’s convention center last Friday not to receive, but to give more money to Berkshire at its big shopping day. Inside the huge space, dozens of Berkshire-owned companies had set up display areas, and most of them were offering crap for sale. It was like the world’s most random Costco, lacking all order or theme. Applied Underwriters and Geico would write you insurance policies on the spot. HH Brown shoes set up a shoe store, as did Justin Brands boots, complete with green alligator Berkshire Hathaway 2016 Shareholder Meeting Commemorative Boots in a revolving glass display case, available for $750. There were Fruit of the Loom “Berky Bras” and $775 white old “BRK” pendants from Borsheims Jewelry. (“People are buying them,” said the peppy attendant. “I’d buy one!”) There were Forest River RVs, and Brooks running shoes, and those little white stuffed bears from Coca-Cola. You could buy floors from Shaw Flooring and work gloves from Wells Lamont and bamboo spoon sets from The Pampered Chef and Garanimals from Garanimals. Dozens of people lined up to purchase packs of Starburst from Wrigley, or Dilly Bars from Dairy Queen, or baskets of fudge and peanut brittle from See’s Candy.
There was no free candy.
Even more baffling were the displays from Berkshire companies that could make no claim to producing anything of interest to any consumer wandering the hall. A man dressed as a giant foam brick wandered around representing Acme Brick Co. A model train chugged along on behalf of BNSF railroad. Precision Castparts showed off a jet engine. You could look through sample books of Benjamin Moore paint. At the Johns Manville booth, you could “See the benefits of continuous insulation”; Marmon Engineered Components boasted of “Tubing, Fitting, and Wire Products”; Precision Brand assured passersby that it is “Much More Than Shim Stock.”
One effect of a company built to embody only financial value is the total eradication of taste. Aesthetic taste is not financial value, and it therefore is not represented within the Berkshire Hathaway universe. To do so would be antithetical to the philosophy of Warren Buffett, a man who famously sees wasting money on the outward accoutrements of beauty as a sin—a man whose only real art is producing profits. Likewise, Berskhire shareholders as a group are almost totally devoid of flash, tending towards khakis and fleeces rather than designer suits. It is definitely a crowd heavy on “Mr. Money Mustache” fans. There is no better tangible embodiment of the ideology of the Berkshire Hathaway shareholder than the Berkshire Hathaway-branded tote bags for sale from Russell Athletic, the most cut-rate manufacturer of crappy athletic gear in the world. It is an item that says, “I have money, and I am not spending a dime of it.”
In the center of the display floor was the store of Verus Art, “a new dimension in fine art recreations”—a company that sells exact painted replicas of Van Goghs and Monets and whatnot. Why spend hundreds of millions of dollars on Van Gogh’s “Irises” when you can own the Verus Art version for only $3,500? Next to that, a company sold framed artworks that were strictly priced by size: “Large Art,” $200, “Medium Art,” $125. This was the Buffett aesthetic at work. Decorate cheap and invest the balance in stocks. Money is the prettiest good of all.
The most controversial Berkshire company of late has been Clayton Homes, America’s largest manufactured-home company and a Buffett favorite. Late last year, a series of investigative stories alleged that Clayton used a systematic “pattern of deception” to prey on low-income and mostly minority customers by selling them homes financed with loans they couldn’t afford. One of the few black faces in the Berkshire Hathaway display hall last week was a Clayton Homes salesman. He was smiling and talking to customers outside of a full Clayton Homes house that was erected in the convention center. It had two bedrooms, a granite kitchen countertop, and siding that clicked when you drummed your fingers on it, because it was made of plastic. As were the front steps and the back deck. Painted boldly on the outside in white block letters was the price: “$78,900.” By New York City standards, it was a palace.
At five A.M. on Saturday morning, I awoke to the sound of every shower in my shareholder-filled hotel going on simultaneously. At six A.M. on Saturday morning, in a downpour, thousands of people wearing rain ponchos stood in line outside the CenturyLink Center, waiting for the doors to open. When they did, the first people in ran towards the front floor seats with the stiff-legged gait of those trying to maintain the fiction that they are not actually running. The thousands of chairs on the raw cement floor of the arena filled up in a matter of minutes. By 7:30, people were filing into the top rows of the upper deck. All of the Berkshire-branded fleece wearers were in the house. It was an unpretentious yet prosperous crowd, like the Rotary Club with the rowdies filtered out. These were not the carousers; these were the people who would awaken at five A.M. to attend a shareholder meeting in Omaha, Nebraska.
At 8:30, I am sad to say, came the introductory “funny” Berkshire-themed film, full of celebrities like Stephen Colbert and Arnold Schwarzenegger and the Geico Gecko performing not-funny comedy sketches with Warren Buffett and his dour sidekick and managing partner, Charlie Munger. I am sorry to report that this period also included the excruciating “Empire State of Mind” knockoff (with lyrics shouting out “Charlie Munger at a Huskers Game,” along with an endless, rhyming roll call of Berkshire businesses) as well as, quite unfortunately, an elaborate video for “Sergeant Pepper’s Berkshire Hathaway Band,” which featured a parade of headshots of suited white guys as the singer crooned, “We’re Berkshire Hathaway’s All Star Managers, we hope you visit our trade show!”
Ann unpleasant scene, but perfectly in keeping with the “taste is overpriced” dictate.
Warren Buffett is not just a good money manager. He is the best money manager of the past 50 years. But even that does not account for the cult of personality filling this auditorium in Omaha on a Saturday morning, applauding wildly as Buffett (85 years old) and Munger (92 years old) took their seats on the stage. Cans of Coke and a box of See’s Peanut Brittle sat on the table before them. They looked like two unprepossessing old men. Their combined net worth is more than $63 billion. People flock to Warren Buffett because they see him as living proof that vast sums of money can be made without cheating or ripping off your customers or engaging in the frantic and impenetrable financial chicanery that makes “Wall Street” as a whole a dirty word. Beyond even that, however: Warren Buffett is funny.
“My great grandchild is here today,” Buffett said as the meeting began. “If he breaks out crying, don’t let it bother you. It’s just his mother explaining my views on inherited wealth.”
At another point, a questioner from the audience began, “This meeting reminds me of the magical world of Hogwarts,” and launched into a minutes-long disquisition on the parallels between Berkshire and the Harry Potter universe, before concluding with the non-sequitur, “How should children view stocks?” Buffett paused a beat and then said, “Would you mind repeating the whole thing?”
Another questioner asked if it was wise to invest in cattle. “I know some people who’ve done well in it,” Buffett mused, “but usually they own a bank on the side or something. We wish you luck!”
Warren Buffett is consistent. For decades, he has preached the virtues of investing in solid businesses, staying with them, and not trying to predict the unpredictable short-term moves of the financial markets. And when an analyst asked him if Berkshire was betting on the direction of the oil market, he responded, “No.” After he finished answering each question, he’d turn to Munger and say, “Charlie?” They were a tag team of consistent wisdom.
“I’m even more ignorant than you are,” Munger said.
“You don’t need [high] IQ in the investment business… but you do need emotional control,” Buffett said.
“There are a lot of people making a lot of money and everybody hates them,” Munger said.
“I’ve got all the money I could possibly need and much more. And I’m gonna give it all away so I know my final position will be zero,” Buffett said.
“We want people to think of us as having won fairly and used wisely,” Munger said.
Warren Buffett, whose father was an ultra-right wing Congressman who railed against government expenditures, has ended up as a liberal, at least by billionaire standards. Even as he praised American capitalism for the feat of multiplying per capita GDP six times over in his lifetime—meaning the average American today has six times more wealth than one did at the time he was born, which certainly is a credible feat of prosperity—he added, “in terms of distributing that output it can fall well short, in my view.” In Berkshire’s annual report this year, Buffett advocated a strong social safety net to take care of those whose jobs are displaced by shifts in the global economy: “The solution… is a variety of safety nets aimed at providing a decent life for those who are willing to work but find their specific talents judged of small value because of market forces… The price of achieving ever-increasing prosperity for the great majority of Americans should not be penury for the unfortunate.”
Buffett’s lifelong commitment to the wonders of capitalist growth is leavened, unlike many of his peers, by a streak of personal humility. He has lived in the same expansive, but not gaudy, brown home in central Omaha neighborhood for more than half a century. (When I drove by the weekend of the shareholder meeting, it was ringed by a few strands of yellow “Caution” tape to ward off intruders, but there was no evidence of snipers.) Even as he became America’s second wealthiest man, he has pursued relatively few of the trappings of luxury. When he finally bought himself a nice private jet in 1989, he named it the Indefensible.
Of course, Warren Buffett is not perfect. He is a wealthy 85-year-old white man from Omaha, Nebraska, and he can be a bit set in his ways. Besides the excruciating Jay-Z knockoff corporate intro song, one way to gauge Buffett’s insularity is to turn to page 31 in his annual report, which shows Christmas photos of the Berkshire Hathaway home office staff from last year and this year. The photos show the exact same 25 white people. They were inserted in order to display both the bare-bones nature of the company’s staffing and its continuity, but it is impossible (if you are not an 85 year-old man from Nebraska) to miss the racial subtext. The company’s board, which was seated up front, is also all white. And in fact, an audience member asked Buffett and Munger about the topic of diversity at the meeting. “We’ve got the best board we could have,” Buffett replied while extolling their virtues. “I’m hoping when we take the Christmas picture this year they’ll be exactly the same 25 people,” he added. He did not sound defensive so much as he sounded like he failed to grasp the import of the issue even a tiny bit. Charlie Munger followed up with a joke with the punchline, “I didn’t look around for the leading Catholic surgeon!”—the implied message of which was that seeking out diversity for diversity’s sake would be absurd. This drew claps from the audience.
Buffett’s belief in the greatness of great companies can blinker him to broader social context. Early in the meeting, he received a question about Berkshire’s $18 billion stake in Coca-Cola: with the growing scientific evidence of sugar’s detrimental health effects and the widespread knowledge that soda companies contribute greatly to the world’s obesity crisis, “Why should we be proud to own Coke?” The questioner, Andrew Ross Sorkin, begged Buffett not to answer by referring to his own well-documented lifelong cola habit. Buffett proceeded to answer by referring to his own well-documented lifelong cola habit. “I’m about one quarter Coca-Cola!” he said brightly, a Coke can on the table in front of him. He averred that happiness was the key to a long life, and drinking Coke has made him happy, and he is alive. It was a total evasion of a legitimate question, which is not supposed to be Buffett’s style. Munger, the more combative of the two, went even further, asserting that the question was “immature and stupid” because it ignored the positive effects of Coke—namely, the fact that people need water to survive, and Coke is tasty water, so it helps people to survive.
In 1983, Warren Buffett bought an Omaha furniture store called Nebraska Furniture Mart for $55 million. It was the biggest furniture store in the United States, and his biggest purchase at the time. Today, NFM’s Dallas location is the largest furniture store in the United States, and the Omaha location is second. Nebraska Furniture Mart has taken on totemic status among Berkshire shareholders as a classic, definitive Buffett investment, one that embodies not just his financial savvy, but his soul. Each year, shareholders flock to the Omaha store over the weekend of the annual meeting to use their discounts and to bask in the sheer, overwhelming sense of value-mania, in the same way that evangelical Christians flock to Holy sites.
The Omaha Nebraska Furniture Mart is the size of an entire shopping mall. Its white warehouse-style building bends around a gargantuan parking lot in an L shape, next to a separate “Flooring Warehouse” that stretches past the horizon. NFM is what you would get if you combined a Best Buy, a Sears, a Wal-Mart, and an Ikea that was suburban rather than Swedish-themed. Here, Warren Buffett’s feverish belief in sales and value and cash flow wrapped up in a bow of Americana reaches its apogee.
Inside, men in Titleist caps and women in Under Armour sweatshirts and crew-cut kids in camo mill about, squeezing the arms of overstuffed recliners. There are living room sets and dining room sets, many topped with faux-antique ceramic chickens of one sort or another, a nod to the farmland; there is a forest of lamps, and home safes, and massage chairs; acres of rug samples and flooring samples and oriental area rugs at $3500 a pop; a whole section of glassware and knick-knacks and table toppings of questionable utility; a vast appliance section, with washing machines and dryers and combination washer-dryers; refrigerators and upright freezers; microwaves and fitness trackers; pool tables and treadmills; cookware and cell phones; dish sets and corkscrews; pots and pans; razors and hair dryers; computers and headphones; toys and dart boards; video cameras and binoculars; backpacks and Bluetooth speakers; CDs and DVDs; and a long wall of flatscreen TVs of all sizes and price points and resolutions. There was a See’s Candy outlet on one side, and a Subway sandwich location on the other. One could eat lunch, furnish a house, and have dessert, all without leaving the Mart. The Mart was all.
For the pilgrims who had come to the shareholder meeting from around the world, the final event of the weekend was… they shut down a mall. Berkshire Hathaway had security fencing erected around an entire shopping mall, with guards and metal detectors at the entrance and a shareholder credential necessary to enter. It was a rather unremarkable shopping mall, but it was home to Borsheims, the discount jeweler owned by Warren Buffett and, like NFM, legendary for its Buffett symbolism. “Even diamonds should be bought as cheaply as possible,” I guess is the symbolism. Inside the mall, an irrationally long line of shareholders formed to get at some free cantaloupe and roast beef. In the spacious interior area, framed by Borsheims, Pottery Barn, and Williams-Sonoma, a ping-pong table was set up, with risers around it on three sides. Hundreds of people crowded around for the main event: a young table tennis Olympian was there to play ping-pong with Warren Buffett and Bill Gates. As many as a few dozen spectators could see the action, and several hundred more could see the backs of the heads of those in front of them. As the stars of the show filed in, I struggled to divine the significance of the moment. The best I could come up with was that if there were 500 of us in the room right then, we had an average net worth of nearly $300 million each. It also occurred me that if the roof above us collapsed, it would wipe out more net worth than any previous roof collapse in history. At least I would go out in noteworthy fashion. When I glanced up, though, there was nothing but a steady roof and the click of ping-pong balls.
The worshipful devotees of Berkshire Hathaway did not require a lot of freebies. If they owned a single class A share, they were worth at least $220,000 and rising. That was gift enough for them to make their annual pilgrimage to Omaha, which is not America’s most popular tourist destination. While other titans of finance have used dirty means to build grand civic institutions and monuments of marble, Warren Buffett has used honest means to build Nebraska Furniture Mart, cut-rate jewelry stores, and Dairy Queen outlets. To each his own.
What if everyone practiced capitalism like Warren Buffett? It would certainly eliminate the top layer of problems that capitalism seems to produce. The hedge funders taking billion-dollar fees and the investment banks gambling public money on exotic derivatives in search of big bonuses and the CEOs raping their companies for huge salaries even as their stock price plunges would all go away. So, for that matter, would vacation-home mega-mansions and $150,000 Bulgari wristwatches and $1.7 million Bugatti Veyrons. The Warren Buffett model of capitalism has no need for hustles, ripoffs, or outrageous conspicuous consumption. In this sense, it would be a meaningful improvement on the American model of capitalism.
The reason that Berkshire Hathaway attracts believers rather than mere investors is that it offers the tantalizing promise of guilt-free financial success. Not the usual mitigation of cutthroat greed via desperate acts of public charity, but a true chance to win by playing by the rules. Warren Buffett’s life work is to pull off that Holy Grail of capitalist morality: the alignment of profits with what is deserved. In his world, wealth flows not from rent-seeking or ripoffs, but from intelligent decision making and wise management. The profits represent productivity gains that ultimately benefit us all. As long as you accept the legitimacy of the overall economic framework, the wealth of investors is their fair due. This is the promise of the free market that we hear so much about yet rarely see in the wild.
Unfortunately, everyone in capitalism cannot be Warren Buffett. For every savvy trade that he pulls off, there must always be a sucker on the other side. These losers are just as much a part of the system as the winners at Berkshire Hathaway are.
Even as the very best argument for capitalism—even with the probity, and the honesty, and the scrupulous care for shareholder dollars, and the relentless increase of productivity and earning power—the Warren Buffett model does not produce a world of brothers and sisters living in equality, drinking milk and honey and contemplating universal beauty. It produces one man with a $66 billion fortune, drinking Coca-Cola, shopping in Nebraska Furniture Mart, and buying reproduced art by the square foot.