Dan Sweet

Buffett used to run a hedge fund? (6 of 12)

This is the sixth in a series of twelve posts. The introduction to the series is here.
By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

You’ve been critical of hedge funds in the past.  Didn’t you run a fund with a similar structure before?

There was no base 2% fee.  I had all of my own money in.  I took 25% on returns over 6%.  I’d support it now days with a zero base as well.  Have proposed a $1 million bet that Nathan Myrvold can’t pick five funds of funds that can beat the S&P over 10 years.  Myrvold, former CTO of Microsoft, is still thinking about it.

No question in my mind that hedge funds and private equity will underperform the S&P.  The frictional costs are just too high.

In a speech I gave at Columbia 20 years ago I identified people who will beat the market with no risk. (reference to The Superinvestors of Graham-and-Doddsville)

Pension funds are run by people who respond to sales efforts.

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Warren Buffett on Aesop, hiring girls to slap people, and premium over book. (5 of 12)

This is the fifth in a series of twelve posts. The introduction to the series is here. By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

How do you decide on an appropriate premium over book?

We don’t use book at all.  It is future cash flows and our certainty of them.

See’s Candies – enduring competitive advantage.  Mirror, Mirror, on the wall, how much should I raise the price of candy this fall?  We’re hiring girls to slap guys who buy them Russell Stovers.  We’ve grown $4 million pretax profits to $80 million pretax profits.  The business is going nowhere on volume.

Coke – loses money at Olympics and Disneyworld but people all have a favorable image of Coke in their mind.  You can’t get that share of mind through advertising.

Ask what is it going to produce over time in terms of cash?

If a business depends on capital it’s a bad business.

Real investment equation from 600 B.C.  Aesop – a bird in the hand is worth two in the bush.  Got to be sure they really are in the bush.


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Warren Buffett on due diligence, evaluating management, and buy and hold: (4 of 12)

This is the fourth in a series of twelve posts. The introduction to the series is here. By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

How do you perform due diligence?

Just look for durable competitive advantage.
Iscar – they sent me a letter – guy came to visit – we bought it.
The real key is how much cash are you going to get over the years.
Dexter shoe was a disaster.  It wasn’t the leases or clauses, I was just wrong about the shoe business.  (gave them 2% of Berkshire)

What do you look for in management?

We look for management that loves to work and has passion.
I like doing what I’m doing.
I get to paint my painting on the ceiling – it’ll never be finished, but I do it my way.
I’m looking for people who love the business, not the money.  Employment contracts mean nothing.
My job is to judge whether or not they have the passion in them.
I set all the compensation in ten minutes a year.

What questions do you find most useful when meeting with companies?

Always ask at the end—if you could only buy stock in one of your competitors before going to a desert island for ten years, who would it be?  Who would you short?
Andy Grove—Only the Paranoid Survive
Silver bullet to take out competition.  Who would you take out?  I want the answer to that from the top ten players in the industry

Is it true that Berkshire will never sell a good company?

True.
Not true for our marketable securities.
I have three kids and some days some look more promising than others but I’ve never thought of putting one in a foster home.
I want to own something I feel good about.

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2009 Goals


LIFE

  1. Adjust to sleeping in 2-3 hour stretches.
  2. Get the baby sleeping through the night.
  3. Make time to play with the baby every day.
  4. Lock down the diet and exercise again.
  5. Get the broken ankle to finally heal properly.
  6. Figure out the babysitter / going out with the wife logistics.
  7. Make a buy/rent decision that both makes financial sense and is livable.
  8. Find a good church when we move.

FRIENDS

  1. Thank Facebook peeps for all the new baby congrats.
  2. Stay connected with old friends via phone / Skype.
  3. Figure out what roles I want Twitter, blogging, and Facebook to fill.
  4. Continue to “unfriend” people who are barely acquaintances.
  5. Enjoy last semester with MBA peeps.
  6. Find cool friends when we move.

CAREER / PRODUCTIVITY

  1. Get caught up on 700+ unread posts in Google Reader.
  2. Do something about the 4000 emails in my Gmail inbox.
  3. End each day with an empty inbox.
  4. Get a Linux install up and running on the laptop.
  5. Learn some perl and SQL.
  6. Blog more consistently.
  7. Kick ass in my new finance manager role.
  8. Find a  solid mentor.