College News

So, when I was chatting with Warren Buffett the other day...

You might think it would be intimidating to sit down for a couple of hours with Warren Buffett. Sure, he tells a funny story, but he’s also the second richest man in America, an investing legend. Last year alone, his company, Berkshire Hathaway, netted investors $16.9 billion, a none-too-shabby 18.4 percent return.

So like the 43 members of the Notre Dame MBA finance club who flew out to Omaha in November to meet him for a briefing and lunch, you’d prepare your questions carefully. Wear your best suit. Take detailed notes. Be alert for the secrets of his success:

“Look for sustainable investments.” Check.

“Stay within your circle of competence.” Check.

“Marry someone with low expectations.” Huh????!

Buffett gives the students this last piece of advice a few minutes before leaving for his favorite restaurant, Piccolo’s, an unassuming place in an older part of town that serves steak and cocktails and three kinds of egg sandwiches. He’s got room in his car and invites four students to ride along with him—including second-year MBA student Jake Wagner, who he’ll later swap wallets with as they pose for a picture, mugging for the camera.

And that’s when you realize, perhaps as finance club president Barry Kessler did, that maybe the most phenomenal thing about this guy is that he can have “this absolute investment brilliance, this charisma . . . and still be so lighthearted and not take himself too seriously.”

Or at least that’s what Professor Jerry Langley is hoping the students will take away from the meeting. “That here is a wealthy man, who doesn’t look wealthy . . . that you can be down to earth and successful,” he says.

Well, perhaps there’s a little bit more. Like Buffett’s back-to-basics investment philosophy that seems so in contrast to that of the typical New York hedge fund manager. How he looks beyond flash and immediate rewards for investments that will continue growing and making money over time, and considers it critical to keep current management in place. “He talks about how he’s never lost a manager to the competition,” says Aldo Arcieri, a second-year MBA who’s worked on Wall Street, yet is struck by how quickly and simply Buffett puts his deals together.

In today’s world of souped-up securities, it’s refreshing to be reminded that there are investors who are wary of things they don’t understand and disdain the herd mentality, says Accounting Professor Ram Ramanan. “In the classroom, we’re always stressing the importance of looking past the glitter and obfuscation in evaluating financial documents. To hear a successful practitioner like Warren Buffett say he distrusts complicated disclosures and wonders what the company is hiding—that is a great thing.”

For several years now, Buffett has said the only groups he will speak to are students, such as the ones who visited from Notre Dame, and their counterparts from Stanford University who joined them. Buffett is 77, and even if he’s still as sharp and productive as ever, his career is winding down.

But now he’s standing at a podium decorated with a blue and gold banner that reads: “Invest Like a Champion Today.” It was given to him on a visit to Notre Dame, a place he says he feels connected to because of family members who went there. He fields the students’ questions and starts taking on some familiar targets—high paid executives, hedge fund managers, derivatives and structural imbalances in the U.S. economy.

Then, before you know it, the two-hour Q and A is over. You’ve had lunch, and Buffett has posed for countless photos. It’s time for the billionaire investor to leave. And so he does, reluctantly, of course, in the way you’d expect he would—by getting into his own car, and driving himself back to the office.

On investing:

“Comparing yourself to your idiot neighbor who is getting rich, drives momentum and bubbles,” Buffett says. “I would never buy based on momentum. (You should buy) based on how businesses behave, not people. You need to ask, ‘What is it going to produce in terms of cash?’”

“We look for companies like See’s Candies that have an enduring competitive advantage,” he says. “Valentine’s Day never goes out of style, and the price of candy goes up every year for 26 years. It doesn’t help you in the romance department to buy the cheapest candy.”

On mistakes he's made:

Buffett sold PetroChina and thinks he left a little money on the table. The stock Berkshire purchased in 2003 cost a little less than $500 million and sold for $4 billion in 2007.

Purchasing Dexter Shoe was a disaster. Buffett’s mistake wasn’t the deal that was made. “I was just wrong about the shoe business,” he says.

On emerging markets:

“ China stocks aren’t cheap. They have A shares and B shares. Interest is high. It’s complicated. You have to ask: ‘Is this a place where I want to put all my chips on the table?’ You have to stay in your circle of competence.”

That said, Buffett says that he thinks the potential for insurers—such as State Farm and Geico—will be in China.

On derivatives:

“They offer an opportunity to me, but a lot of people can get hurt,” says Buffett. “We have a lot in derivatives, but I will know every position.”

On the subprime mess:

“The Federal Reserve can’t solve everything. (They’re) in a difficult position right now because we have a lot of structural imbalances. Dropping rates a lot is less of an option with the dollar situation. What was kind of a normal decline has turned into a precipitous one. Bernanke’s hands are somewhat tied.”

On the best opportunities for young investors now:

“Liquidity should not suck you in. You need to ask yourself: ‘Would I be happy with this purchase if they closed the market tomorrow for two years?’ What you need is the right business, run at the right price, by the right people.”

“The market is there to serve you, not instruct you. Don’t let the market tell you what’s going on. Wait for the imperfection—(something) mis-priced—and then you can make money.”

—Kathy Murray Lynch (’82) is a Virginia-based business writer. She has written for the New York Times, Washington Post and Time, among other publications.

-Event photos courtesy of Daniel Sweet (MBA Class of 2009)