Book Review: Secrets in Plain Sight: Business & Investing Secrets of WARREN BUFFETT

I consider myself a lesser light compared to many following Warren Buffett.  Yes, I am a value investor and an actuary, so I guess I have some punch in attempting to analyze the actions of one far greater than me.

The book is organized around two main trips that the author made to the Annual Meeting of Berkshire Hathaway, with some notes from the the 2011 tacked on.

This book tries to distill the ideas of Buffett into simple concepts, and largely succeeds.  It also alleges weaknesses  in Buffett’s reasoning.  Why not consolidate similar, less profitable businesses?  Why not invest a little more in existing businesses? I partially agree: I used to call Berkshire Hathaway “a grab bag of undermanaged businesses.”  But I’ve changed my mind, mostly.

The cost of doing the first of those could be considerable.  Buffett gets certain deals because the seller knows that he will leave the business alone.  The unique culture, friendships, family relationships will be maintained.  The seller doesn’t get top dollar, but he gets the satisfaction that he was true to those he worked with and served him.  Getting these businesses cheaply is a competitive advantage for Berkshire Hathaway, even if it means a certain amount of inefficiency.  Personally, I expect the next CEO or two will centralize the company, and turn it into a normal company.

As for investing more in existing businesses, all the manager has to do is put forth the case to his boss, Buffett.  Buffett will give him a quick decision.

But the author is right, in general, Buffett has not focused on organic growth.  He has acquired all of the businesses that the owns, aside from the reinsurance business.

This book has many strengths:

  • It recognizes that there is a cult following around Buffett.  He’s a bright guy, no doubt, but few questions get asked him by shareholders about his main duty, that of being CEO of Berkshire Hathaway.
  • It points out the significance of Charlie Munger, who got Buffett to think more broadly about value, served as a “Dr. No” to Buffett’s more optimistic demeanor.
  • It doesn’t spend a lot of time on Buffett as an investor in public equities, which has contributed much less to the growth of Berkshire than the acquisition of whole companies.
  • The demographics of Berkshire’s Annual Meeting are older and white, and in general, are the patient shareholders that Buffett likes.
  • Omaha is an unusual place for such a large company, but the isolation is a plus if you are trying to do something different.
  • Understands the basic safety rules of Buffett’s investing: margin of safety, patience, think like a businessman, simplicity, read a lot, be a good judge of character, think independently, get the big ideas right, the value of cash, don’t risk the firm, etc.
  • Notes the value of ethics at Berkshire, even when significant mistakes are made, like the handling of the David Sokol incident.  Reputation matters; you only get one reputation, and it affects all aspects of your business.

Quibbles

  • Berkshire is primarily an insurance company.  I would have spent more time on that.
  • I would have spent less time on non-business ethical issues, like abortion, religion, etc.  Buffett is no good guide there; he is merely justifying his past actions.
  • The bit about the Hoopa Indians was interesting, but when Buffett said, “I agree that we will not exercise decisions except those ministerial in nature,” he was being very clear and simple.  Buffett is not a Christian, but he was raised in a Presbyterian household.  A minister is one who does things on behalf of another.  The issue is that there are 4 California hydroelectric plants that are old.  If the Federal government destroys them, it may help in salmon production, or farmers might like the extra water for their own use.  Buffett will simply do what the authorities want done if they are willing to pay to do it.  It is not his call in a regulated industry.
  • Buffett’s hypocrisy on taxation is not addressed.  He backs high estate taxes and high personal income taxes, but he doesn’t pay those.  The increase in his wealth though Berkshire, which does not pay a dividend is sheltered from tax, because he never sells a share.

Who would benefit from this book: Anyone who wants to invest better could benefit from it. At five bucks, it’s cheap. A Kindle application for my laptop was free with the purchase.  If you want to, you can buy it here: Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett, 2011 Edition (eBooks on Investing Series).

Full disclosure: I bought the e-book with my own money.

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