Tuesday, November 27, 2007

Buffet: Portrait of an American Capitalist by Roger Lowenstein

I am not a big fan of biographies. They tend to be either praiseworthy to the point of idolatry, or else the written equivalent of a bucket of venom dumped on the subject’s head from a great height.

In Buffet: the Making of an American Capitalist, Lowenstein errs on the side of idolatry, but that’s forgivable since Buffet has become such a idol to independent investors everywhere. His achievements speak for themselves, but what of the man behind the investment genius?

Here Lowenstein’s research clashes with his wish to praise his subject. Buffet’s flaws are mentioned only in their excusing. The picture that emerges is not one radically difference from what might be considered the ‘average’ view of Buffet, but it is considerably fuller.

Buffet’s achievements cannot be overstated. He has consistently and over a period of decades outperformed not only the markets, but more crucially the investment houses, stockbrokers, fund mangers and others whose job it should be to do this, but who barely manage to keep pace with the market. Buffet has made his money by ignoring every fad to pass through Wall Street and focus on the fundamentals.

Buffet’s achievements are routinely ignored not only by Wall St but also by the economics professors whose theoretical models purport to show how the market works. Buffet has shown them all to be wrong, again and again, simply by focusing on the fundamentals. Are earnings growing? Are dividend payments increasing? Does the company have a competitive edge over its rivals, or better yet, no rivals? Simple questions, asked again and again.

All of this is the known quantity, the background to the fuller picture this biography provides. Lowenstein manages to give us a good picture of the man himself. Buffet is not an enigma. He likes his home comforts, he doesn’t like change. He makes connections with people slowly, and breaks them only with great reluctance and sorrow.

The source of Buffet’s wealth is perhaps the greatest determinant of his behaviour. He doesn’t spend a lot of money, nor lavish expensive gifts on others. His knowledge is his and his alone, he discusses his thoughts with few. His legendary letters to shareholders are self-deprecating past the point of fault.

His family feel estranged from him, he has managed to isolate himself through his immersion in his work. His children received no advice from him in matters financial; not even the basics. Buffet’s son notes that while his father gifted him Berkshire Hathaway stock, he did not tell his son that he would be better to borrow against the value of his shares rather than sell them.

Buffet spends little on himself, or on his wife and partner. It seems Buffet cannot bring himself to part with money, looking not at the one thousand dollars he is spending, but at the one million dollars he would have in twenty-five years if he invested that one thousand instead. The result is that one of the world’s wealthiest men can spend little on himself, and less on his family.

While Buffet has a great talent for investing and making money, he has no talent for spending money or for maintaining basic human relationships. All the family Lowenstein talks to, while generally praising Buffet, at one point or another each express their exasperation with him.

If there is a point to his investment successes, other than the accumulation of wealth and the pleasure of outperforming the ‘experts’ it escapes Lowenstein. I suspect it escapes Buffet too.

The portrait emerges of a man who is good with money but not with people, especially not with those closest to him. The relationship between shareholder and manager is one he understands; the relationship between parent and child less so.

Readers hoping for a glimpse of some magic wealth-building formula will be disappointed. The answer is the kind of common-sense truism your grandparents would have bored you with, if you ever listened.

What emerges instead is a poignant glimpse of a man who in spite of all his achievements remains somewhat estranged from basic human relationships.

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