2007: What would Buffett look for in a money manager?
AUDIENCE MEMBER: John Stevo (PH), shareholder from Chicago. Mr. Buffett — Mr. Buffett, Mr. Munger, thank you for the great weekend.
In your annual shareholders letter, you stated that you’re looking for someone younger to possibly work at Berkshire, and I was wondering if you could expand on that, and how would I apply for that job? (Laughter)
WARREN BUFFETT: I think you just did. (Laughter)
The — we’re looking for one or more. I mean, I would — I don’t think it’s at all impossible we might even find three or four that we would decide to have run some money and to take a closer look.
We’re not looking for someone to teach. I probably didn’t make that clear enough in the annual report. We’re not — we’re not going to be mentors or teachers or anything of the sort.
We’re looking for somebody that we think knows how to do it. And there are people like that out there. We’ve heard from 6- or 700.
I did hear — I heard from one that had a four-year-old son. I thought that was quite a compliment that — I mean, I knew a caveman could do my job, but a four-year-old? (Laughter)
The — but we’re looking — and we’ve heard from a number of very intelligent people. We have heard from a number of people that have had good investment records for — in recent years, and in some cases some time.
The biggest problem we have is whether they would scale up, because it’s a different job to run a hundred billion than it is to run a hundred million.
And incidentally — and you can’t do as well running a hundred billion as a hundred million, in terms of returns. You can’t come close to doing it. That doesn’t bother us.
But we do want to find somebody that we think can run large sums of money mildly better than the general performance in securities. And I emphasize mildly.
There’s no way in the world somebody’s going to beat the S&P by 10 percentage points a year with a hundred billion dollars. It isn’t going to happen.
But we think maybe we can find somebody or some group, several of them, that can maybe be a couple percentage points better, but we really are interested in being sure that we have somebody that, under conditions that people haven’t even seen yet, will not blow it.
You know, anything times zero is zero. And I don’t care how many wonderful figures are in between.
So we are looking for somebody that’s wired in a way that they see risks that other people don’t see that haven’t occurred, and they’re plenty cognizant of the risks that have occurred.
And those people are fairly rare. Charlie and I have seen a lot of very smart people go broke, or end up with very mediocre records where, you know, 99 out of the 100 things they did were intelligent but the hundredth did them in.
So our job is to filter through these hundreds and hundreds of applications, find a couple of them that we think can do the job who are much younger, perhaps give them a chunk — two, three, five billion — have them manage it for some time, have them manage it in the kind of securities that they would scale up to a larger portfolio because — and then either one or more of them will get the job turned over to them at some point.
Charlie?
CHARLIE MUNGER: Yeah. Our situation in looking for this help reminds me of an apocryphal tail about Mozart. And a young man of 25 or so once asked to see Mozart and he said, “I’m thinking of starting to write symphonies, and I’d like to get your advice.”
And Mozart said, “Well, you’re too young to write symphonies.” And the guy says, “But you were writing them when you were ten-years-old.” And Mozart says, “Yes, but I wasn’t asking anybody else for advice how to do it.” (Laughter.)
CHARLIE MUNGER: And so if you remind yourself of young Mozart, why, you’re the man for us.
WARREN BUFFETT: We will come up with, probably, a couple of people. And, you know, it’s — I’ve known people over the years.
I’ve been in the job before. I mean, in 1969 I wound up my partnership, and I had a lot of people that trusted me, and I wasn’t going to just mail the money back to them and, you know, say good-bye, because they would have been sort of adrift, most of them.
And so I had the job of finding somebody to replace me. And there were three absolutely stand-out candidates. Any one of the three would have been a great choice.
Charlie was one of them. Sandy Gottesman was one of them. And Bill Ruane was one of them.
Charlie wasn’t interested in having more partners.
Sandy was interested in individual accounts and took on the accounts of some of my partners and they were very, very happy and they’re still happy that he did it.
And Bill Ruane set up a separate mutual fund called Sequoia Fund to take care of all of the partners, whether they had small amounts or not. And he did a sensational job.
So I really identified three people in 1969 that were not only superior money managers, but that were also the kind that could never get you a terrible result and that were terrific stewards of capital.
Now, they were about my age at the time so it was a universe that I was familiar with, and now I have the problem that at — the people I know that are even close to my age, we don’t want anyway, and besides, most of them are already rich. They don’t care about having a job.
So I have to look into an age cohort where I don’t really know lots of people, but it can be done.
And like I say, we did it successfully with three people in 1969. And it was done successfully in 1979 with Lou Simpson for GEICO.
And I never knew Lou Simpson before I met him down at the airport here, and I spent a few hours with him, and it was clear that he was a steward of capital. He was going to get an above-average result, and there was no chance he was going to get a bad result.
And he’s been managing money for GEICO now for 28 years, roughly.
So it’s doable. It’s a little more work than I like to do. I’ve been kind of spoiled. But I’ll — I’ve got a job to do on it, and I’ll do it.