CNBC: A Birthday Message from Warren Buffett on Being Lucky

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Aug 302016

I am quoted in this CNBC article:

A birthday message from Warren Buffett on being lucky

Today is Berkshire Hathaway chairman and CEO Warren Buffett‘s birthday. He is 86, but the best birthday present he ever received came long ago, before he made his first penny — before he was even born. It didn’t come wrapped; it doesn’t even take a physical form.

Of course Buffett’s made a lot of money, almost $2 million per day, but luck, or winning the “ovarian lottery,” as Buffett called it, has been as instrumental as any factor in building his billionaire fortune.

Warren Buffett

Lacy O’ Toole | CNBC
Warren Buffett

Luck doesn’t get the recognition it deserves as a success factor. Analysis of the traits of billionaires and the effort to uncover their secret to success tend to go granular: Do they awake at 4 a.m.? Do they write handwritten notes from their CEO desk to everyone, even the little people? Or does success tend to circle around some new (and not necessarily improved) versions of habits already covered by the likes of Stephen Covey?

Some American billionaires and captains of industry attempt to encapsulate business brilliance with their own pen, such as Koch Industries’ Charles Koch, who shared his market-based management approach in his book “The Science of Success.”

But luck matters.

“Having the good luck to win the ‘ovarian lottery’ is a major determinant in success in life in general — and in business in particular,” Professor David Kass told CNBC. The clinical professor of finance for the Robert H. Smith School of Business at the University of Maryland was the first to publish Buffett’s “ovarian lottery” comments, based on notes he took at a 2013 graduate student event where Buffett spoke.

Warren Buffett

Warren Buffett: How to fix boardrooms across the US Thursday, 21 Jul 2016 | 8:05 AM ET | 01:27

Luck may seem like the least tangible, least controllable success factor. After all, what can one do about luck? But there’s a perfect example from Buffett’s business history that Kass shared with CNBC, showing how those who believe in luck are also on the lookout for luck when it delivers an opportunity into their lap:

When Buffett was a 20-year-old MBA student at Columbia University, he learned that his hero, Professor Benjamin Graham, was the Chairman of the Board of GEICO. Since Buffett was interested in anything that Graham was interested in, he took a train to Washington from New York (1950), arriving on a Saturday morning. Without calling or writing ahead of time, Buffett was very lucky that one employee was there, Lorimar Davidson, who spent four hours explaining both insurance and GEICO to Buffett. Buffett immediately grasped that GEICO would have an enduring competitive advantage. (Davidson subsequently became CEO of GEICO.) Insurance later became the primary business and building block of Berkshire Hathaway.

“Warren Buffett has stressed the importance of luck in his life, focusing not only on where he was born but also when. His primary skill of allocation of capital has worked well for him in the United States and in his lifetime,” Kass said.

Michael Mauboussin, a managing director and head of global financial strategies at Credit Suisse and author of “The Success Equation,” which looks at the role of skill and luck, said Buffett’s example reveals something fundamental about business greatness: Positive outliers, including Buffett, “are the product of lots of skill and lots of luck … in business dealings.”

You set the rules

Buffett’s view of luck is also important to how a business culture is built, as reflected in this key section from Professor Kass’ notes:

“Just imagine that it is 24 hours before you are born. A genie comes and says to you in the womb, ‘You look like an extraordinarily responsible, intelligent, potential human being. [You’re] going to emerge in 24 hours and it is an enormous responsibility I am going to assign to you — determination of the political, economic and social system into which you are going to emerge. You set the rules, any political system, democracy, parliamentary, anything you wish — you can set the economic structure, communistic, capitalistic, set anything in motion, and I guarantee you that when you emerge, this world will exist for you, your children and grandchildren. What’s the catch? One catch — just before you emerge, you have to go through a huge bucket with 7 billion slips, one for each human. Dip your hand in and that is what you get …”

Lawrence A. Cunningham, Henry St. George Tucker III Research Professor of Law at George Washington University and author of several books about Buffett, including “Berkshire Beyond Buffett,” said Buffett borrowed this idea from Harvard philosopher John Rawls and his canonical work, “A Theory of Justice.” A just society is based on principles everyone would agree to if impartial and if starting from an original position behind a “veil of ignorance” — not knowing who they would be or which side of an argument they would be on.

Rawls’ philosophical treatise on how to create a just society includes a much simpler message for those building a business on their own: “Treat everyone on your team — whether employee, customer, supplier, financier — the way you would want to be treated if you were them. … The golden rule, in a nutshell,” Cunningham said.

Kass added, “For entrepreneurs who hope to have as much luck for as long as Buffett has had it, be humble about your own contributions and the contributions from others upon which you depend. Appreciating the contributions of the teachers we have had and the people before us who have assisted us is a critical attribute of luck and lasting business success.”

That’s a practical philosophy worth practicing every day of the year.

You can read Buffett’s full quote on the nature of luck at Professor Kass’ blog.


 Posted by at 9:08 am

Happy 86th Birthday, Warren Buffett!

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Aug 302016

Today, August 30, 2016, is Warren Buffett’s 86th Birthday.  Happy Birthday, Mr. Buffett!

Today is also the 6th Anniversary of the launching of this “Warren Buffett” blog  (on the occasion of Mr. Buffett’s 80th Birthday).

I hope the 215 blog posts relating to Warren Buffett and/or Berkshire Hathaway have been of interest to all who have visited this blog.



 Posted by at 8:34 am

Berkshire Adds to its $6 Billion Stake in Phillips 66

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Aug 252016

In an SEC Form 4 filing after the market closed on August 24, Berkshire Hathaway reported that it added $55 million to its stake in Phillips 66 (NYSE: PSX) on August 22, 23, and 24 at $77.04 – $78.16 per share.  Berkshire Hathaway now owns 79.5 million shares of PSX, representing 15.1% of its outstanding shares.  Berkshire’s PSX investment is valued at $6.2 billion at the August 24 closing price on the New York Stock Exchange of $77.68. Berkshire recently added $250 million to its stake in PSX from May 19 – June 13, 2016.  Previously, Warren Buffett had disclosed that PSX was his investment and not that of his portfolio managers Todd Combs and Ted Weschler.

 Posted by at 12:27 am

KCBS Radio (San Francisco) Interview on EpiPen 400% Price Increase

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Aug 232016

I was interviewed on KCBS on August 23, 2016 on Mylan’s 400% price increase of anti-allergy drug EpiPen.

Note:  Last fall, Charlie Munger, Berkshire Hathaway’s vice chairman, described Valeant Pharmaceutical’s similar behavior of substantially increasing the prices of drugs that it had purchased from other pharmaceutical companies as “deeply immoral”.


 Posted by at 11:06 pm

Berkshire Adds $500 Million to Apple Stake and Subtracts $1 Billion from Wal-Mart Holding

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Aug 152016

In a SEC 13F filing after the market closed on August 15, Berkshire Hathaway reported a 55% increase (about $500 million) in its Apple (AAPL) stake and a 27% reduction (about $1 billion) in its Wal-Mart (WMT) holding.   The Apple investment was likely made by Warren Buffett’s portfolio managers, Todd Combs or Ted Weschler.  Wal-Mart has been an investment of Warren Buffett since 2005.

There was also a $200 million reduction (26%) in Suncor Energy (SU) and a $100 million addition (18%) in Liberty Global Class A (LBTYA).  These are investments of Todd Combs or Ted Weschler.

I am quoted in a Bloomberg article on these portfolio changes:

“Apple’s stock came down substantially in the second quarter,” David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business who has taken students to meet Buffett, said in a phone interview. “Value investors always like the price to go down because it gives them an opportunity to buy more.”


It’s a little bit of fine tuning,” said University of Maryland’s Kass. Buffett and his deputies “do not make many changes to their portfolio.”


 Posted by at 4:57 pm

Berkshire Hathaway’s Operating Earnings Increase 18% in Second Quarter

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Aug 062016

After the market closed on August 5, Berkshire Hathaway reported its financial results for the second quarter of 2016.

Operating earnings (Warren Buffett’s preferred measure of profits) rose by 18% during the second quarter as compared to the corresponding period last year.  This represents a turnaround from the first quarter when operating profits declined by 12%.  This increase was helped out by an improved performance at Geico, where premiums written rose by 11% resulting from growth in new policies and rate increases.  There were also positive contributions in manufacturing from the recent acquisitions of Precision Castparts and Duracell.  However, net earnings declined by 20% at Burlington Northern Santa Fe Railroad, as unit volume dropped by 7.5%.  Profits also declined by 4% at Berkshire Hathaway Energy.

Overall, net income rose by 25%.  However, this result which includes investment and derivative gains/losses, is largely ignored by Buffett “because the amounts of these in any given quarter or year are usually meaningless“.

Berkshire’s cash totaled $73 billion as of June 30, which included an $8 billion addition resulting from the redemption of the preferred shares of Kraft Heinz.  Since Buffett sets aside $20 billion in cash at all times, approximately $50 billion is available for one or more large acquisitions.

Berkshire’s book value rose to $160,000 on June 30.  At Berkshire’s closing price of 218,000 on August 5, its shares are now valued at 1.36 times book value.  Buffett has previously announced his intention to buy back shares when the price to book value drops below 1.2.

ValueWalk and have published this blog post.



 Posted by at 10:53 am