Warren Buffett started out by identifying opportunities in undervalued companies. Later, his strategy was buying a company that would get bigger on its own. We look at that second phase of his career.
SCOTT DETROW, HOST:
Warren Buffett is officially retiring on Wednesday. He has served as the CEO of Berkshire Hathaway for 60 years. Our colleagues over at The Indicator from Planet Money, Robert Smith and Wailin Wong, take us through a turning point in Buffett’s career.
WAILIN WONG, BYLINE: Young Warren Buffett in the 1950s and ’60s would buy stocks in small, undervalued companies and hold them for a short period of time and then make quick profits. That would change under the influence of his new partner in investing, Charlie Munger.
ROBERT SMITH, BYLINE: Author Alice Schroeder says he helped push Buffett into a new investing philosophy – buy companies that sell things that people need and have growth potential.
ALICE SCHROEDER: You could buy it once, and then you wouldn’t have to do a lot of work to it.
SMITH: Buffett bought insurance businesses to generate cash. He bought newspaper companies. He bought a bank. He owned large blocks of the TV network ABC and GEICO insurance. And the idea was that each of these companies would generate money that you could essentially put into the other companies.
WONG: And we should say, by the 1970s, Warren Buffett was truly becoming famous – as an investor, yes, but also because of his personal quirks. He was a multimillionaire, but he drove an old car and lived in a regular old house in Omaha, Nebraska.
SMITH: There’s a famous moment in the mid-1980s when the investment firm Salomon Brothers is being targeted for a hostile takeover. And the CEO calls up Warren Buffett and says, essentially, help. And Alice Schroeder tells this story in her biography how Buffett made a huge profit just by publicly putting his money into Salomon Brothers.
SCHROEDER: He learned to get the value for his reputation just by putting his name on things without doing work.
WONG: It really is pretty remarkable that, as we tell this story, Buffett has remained on top of his game for, like, 60 years. But there were some dicey moments.
SMITH: Yeah. The most famous was during the dot-com bubble in the late 1990s. This was the age of high-flying internet stocks, and he certainly would not invest in the internet. But as these internet stocks are going up, everyone is saying that Buffett is out of step. They say he’s losing his mental acuity. The stock in Berkshire Hathaway is languishing. Buffett ends up doing this very brave thing. In 1999, there was this big conference of CEOs in Sun Valley, and Warren Buffett shows up and he gives this speech to the executives there. They work at hotshot tech firms like Amazon and Apple and Intel and Yahoo. And Buffett says, the internet is certainly useful, yes, but the valuations of your companies are way, way too high.
SCHROEDER: And he told them they were making a terrible mistake and they were wrong, and they made fun of him and they laughed at him.
WONG: You know what, though? He was right. It was a bubble. The internet stocks plunged the next year. Over the next couple of years, the NASDAQ index went down 77%.
SMITH: But Berkshire Hathaway, run by Warren Buffett, was up about 30% in the year 2000.
WONG: Now, Warren Buffett was not always right. He made some big investing mistakes. A recent one is that he pushed the merger of Kraft and Heinz, two big food companies. They’re now breaking up and saying the merger never worked.
SMITH: But it is notable that the fame of Warren Buffett meant that people didn’t dwell on his errors. And now that he’s retiring, people are looking back and acknowledging that 60 years of success is an unprecedented run in the up-today, down-tomorrow world of investing.
WONG: And as for Berkshire Hathaway, it will go on even without Warren Buffett at the helm. Wailin Wong.
SMITH: Robert Smith, NPR News.
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