Author Robert Miles possesses unique insights into what makes Warren Buffett tick. His books are among the few personally endorsed by the Oracle of Omaha, and over the past two decades Miles has researched ever deeper into the genius of the world’s greatest investor. In this interview with fellow Buffett fan Alec Hogg of Biznews.com, Miles looks back on the recent letter to Berkshire shareholders, ahead to next month’s AGM – and explains why he has been accumulating more Berkshire shares.
When it comes to people who know Warren Buffett, few are better qualified than Bob Miles. His book, ‘The Warren Buffett CEO’ is one of the best read of all the books written about Buffett. Bob joins us now on the line from the US. Before you went ahead with this book, did you have any idea that Warren Buffett himself was going to give it the glowing endorsement that we duly saw?
He gave me the idea when he said, enough writing about him, that the real story of Berkshire Hathaway is all the managers that make up the company and the subsidiaries, so that wasn’t a total surprise to me because the genesis of the book came from him to begin with.
How many copies has it sold?
It’s by now, in hard cover over 50 000 copies and then in paperback, I’m guessing over a 100 000 copies but I’m not sure what the latest count is.
It’s certainly one of the classics on Warren Buffett and it teaches one a whole lot about it. The letter itself no doubt, given your understanding of Berkshire Hathaway, you look forward to this with some interest.
Yes I do and I thought it was a good letter, although some of the jokes he used in the letter, he’s used before, but record earnings, records for Berkshire Hathaway as well as for the energy company as well as the railroad company. The book value is up but the price is down which is not uncommon about ten times throughout its 51-year history. The book value has indeed gone up although the price has gone down but over time, the price will reflect the turnings.
You say he’s been repeating some of the jokes. It’s unusual to get jokes in the first place in an annual general meeting but that’s part of the whole charm isn’t it?
Yes it is. It’s kind of the mid-western folk-ism that Buffett is known for to kind of warm you up with a zinger and then drive home his real point that he’s trying to make. I look forward to those. I was a little disappointed on the jokes but certainly not disappointed on the overall tone of the letter, which basically was good news for a long-term shareholder.
Bob, I’d like to explore something that was written about Phil Fisher, one of the major influences on Buffett’s life. His son wrote and there have been others who have said as well that Fisher started losing it when he got into his eighties. Do you know that Buffett is now in his eighties as well? Is there any fear of that?
He’s asked his children, he has three children, their responsibility is to come to him as a group and to say, dad you’ve lost it, and it’s time for you to step down. He jokingly says that if one of them comes to him then they’re out of the will but if they all come together, he will honour them and step down. His children are charged with the responsibility to making sure that his mental faculties are top notch but I think that if you come to the annual meeting or this year your listeners will be able to tune in online and listen to him. I think your listeners will be able to make up their own minds as to whether or not Warren is at the top of his game at 85 as he was when he first took over manager Berkshire Hathaway at the age of 35.
That webinar or the webcast is a first. Up until now, you weren’t even allowed to record anything that went on in the meetings. Do you think it’s going to have an impact on the attendance?
Yes, I do. I was a little bit surprised actually because I felt as though he didn’t allow recordings or broadcasting from the annual meeting because he wanted his shareholders to come and buy the products of Berkshire Hathaway from See’s Chocolate to Fruit of the Loom Underwear. I do think attendance will be down but they were busting at the seams as you’ve seen over the many years that you’ve attended the annual AGM that they’re stretching in hotel capacity and Renault Car capacity and bursting at the seams. Mostly it’s a good thing. I’m sure it is otherwise he wouldn’t have done it.
More people could get exposed to his wisdom but he also has gone on a few times in the last few years in the annual letters about the profiteering of local hoteliers and the airline companies and so on. Hopefully this is going to tone that down a little or do you think it’s not really going to have that impact.
I don’t think it’s going to have that big of an impact. He has suggested in the past that shareholders fly into a nearby city where rates are cheaper. He’s also promoted an Airbnb, where people have been able to list their own homes to rent during the Berkshire weekend, which is, I think the second largest event in Omaha Nebraska, second only to the US College Worlds Series of Baseball but it’s a fun weekend. I look forward to it every year.
It’s always fun to see old faces and to network and to see long-term shareholders from year to year and to see Warren in action. This year we have the Buffett family, Susie and Peter coming to a preconference to talk about their philanthropy and the challenges of giving money away. Warren’s initial thought was to build it up and then have his wife, their mother give it away but she pre-deceased him and now it’s the children’s responsibility and they’ve had their challenges in giving away money. It hasn’t been as easy as one might think.
What about Howard? He’s the one of the three, the one that people know best. He is in fact a permanent resident of this country, a farmer here. He doesn’t spend as much time here as he does at home in the United States. Is he also having difficulty in giving away the money that is in his foundation?
Howard is a question mark in terms of his participation because he’s on the board and he is the likely successor to his father of Berkshire Hathaway but his interest of course is farming and helping with clean water and agriculture throughout the world, particularly in Africa. I don’t know that he’s had the same challenges as Susie and Peter whose focus seems to be more on helping out young women, empowering them, and helping them throughout the United States as well as the world.
Bob, you know the family well. Why the fascination? Where did it all start? When did you begin as a Berkshire shareholder and then the interest developing from there?
I first read Roger Lowenstein’s excellent biography, ‘Buffett: The Making of an American Capitalist’ and it rang true to me, a common sense approach, a businessman’s approach to owning a business long-term and I went out to the AGM and in 1995, about 20 years ago and it made sense to me. I saw long-term shareholders who were happy and smiling and I saw common sense products and services and it rang true to me and it felt like home.
Is that when you started investing in 1995?
I did. It’s when the A shares were split into one thirtieth to the B shares, sometimes known as Baby B’s. The A shares then were $30,000.00 and the B shares were first issued as $1000.00. The B shares have since been split another 50 times. The B shares are one fifteenth hundredth the A shares. It entitles an owner all the same rights as an A shareholder. It’s just your voting is diluted a little bit more but you can still attend the AGM, you can still bring three friends and earlier this year the B shares were trading near the point where Warren would purchase them and the board has authorised us to repurchase them at about 120 percent of its book value. Approximately $100.00 per B share would be book value at your end and they were trading earlier at about $124.00 to $125.00. Very close to when Warren would purchase the stock himself, which I suggest is always a good time to buy the stock, is when Warren’s buying it.
Indeed, but it’s not much above $135.00 at the moment, round about that level. It seems as though there’s a good floor if you say that round $125.00, the company itself would be coming in to buy back its shares. Are you accumulating more or if not yourself, suggesting to others they do so?
Yes, I have recently purchased Berkshire Hathaway and I do also think that the Kraft, Heinz ownership is not properly reflected in its balance sheet because of unique accounting rules. It’s listed on the books for about $16bn but actually has a market value of $24bn, so there’s about $8bn just in the Kraft, Heinz deal that is not accurately reflected on the balance sheet of Berkshire Hathaway because of some inexplicable accounting rule as per how it has to be listed that’s why I do, excellent value.
In the past year, the biggest deal ever in Berkshire’s history was done with Precision Parts. Are you expecting that Warren is going to focus a lot of attention on this and explain to shareholders why he did this deal at the AGM?
Yes, I’m sure he will be asked about it. He said in this year’s letter that he would explain that deal further because it closed early this year as did his takeover of Duracell Battery, which is the largest battery manufacturer and distributor in the world. I’m sure he’ll talk about that as well.
At the time of the gathering of Berkshire Hathaway Pilgrims to Omaha, a couple of days beforehand, you’ve been running a value investor conference. Where did that idea come from because and when did you start it?
I started it 13 years ago as a way to entertain and educate international shareholders, many from South Africa. I think South Africa represents our largest representatives outside the US along with Australia and New Zealand. Something about the Southern Hemisphere seems to get Berkshire Hathaway more than the Northern Hemisphere. Wesco Financial used to host its annual meeting in Los Angeles with Charlie Munger as its chairman, now wholly owned subsidiary of Berkshire Hathaway on the Wednesday following the Berkshire meeting.
Many South Africans would fly to Nebraska to attend Berkshire’s AGM and then on Monday would fly to Los Angeles to attend the AGM in Los Angeles of Wesco Financial in order to hear Charlie outside the shadow of Warren Buffett, who would wax and share his thoughts without the screen of Warren Buffett and the conference was born by occupying those two or three days in between the Berkshire annual meeting and the Wesco Financial meeting. Then when Wesco Financial was acquired in its entirety by Berkshire, we moved the conference from Los Angeles to Omaha.
You do get a very good turnout on the conference. How long in advance do you start planning and whom do you have this year?
We plan more than a year in advance. We’re already lining up speakers for next year, which will be our 14th year. We have four events for the whole week leading up to Berkshire Hathaway starting with a ‘one of a kind’ course. It’s The Genius of Warren Buffett, where I teach 24 hours’ worth of Buffett from his investment methods to his management techniques to his corporate governance and many subsidiary managers come in and talk to the participants of the course about their subsidiaries. Whether it be insurance or the furniture store, even Susie Buffett comes in and talks about charity and answers any question asked of her in terms of growing up Buffett and the unique and funny stories she tells about her father. From there we do a summit and then we do the Industria Conference and then we also do a dinner, the Thursday night before the AGM.
The fascination doesn’t end. People still want to come to The Genius of Warren Buffett. They still want to find out about him. Why?
Because of his record I would think. He’s beaten the S&P500 over the past 51 years by 144 times on a cumulative basis. He lives in the same house that he purchased when he was 28 years old. He has 360 000 employees but only 25 at headquarters. He drives his own car, he doesn’t have a wall around his modest home, he lives a pretty simple life, and he pays himself $100,000.00 per year. He doesn’t believe in stock options, he eats at McDonalds, he drinks Coca-Cola and a Cherry Coke, and he’s just a relatable billionaire next door I guess.
You talk about the high walls or the absence there of any walls around his house, that’s something very foreign in South Africa but the fascination continues and even when he goes, even when he’s gone Berkshire Hathaway will still have an annual general meeting but I presume that at that point in time Omaha won’t be quite as full.
Yes, I’ve speculated as to what would happen. Some believe that it will continue on. There will be a fascination. Certainly the following year after Warren retires, which he defines as five years after his death, is when he plans to retire. There will be a fascination for the new managers taking over and then it may trickle off, I guess to be determined but it’s certainly a worldwide phenomenon, continues to amaze me every year over the past 20 year. When I first went, I think there were 7000 or 8000 people in attendance. Every year it has grown but this year we have the webcast, so we’ll have to see what the AGM looks like but registrations for all our events are on pace to sell out. I assume Berkshire Hathaway’s attendance will be at the same levels as last year even with the webcast.
If you had owned Berkshire Hathaway shares for any period of time or in the length of period of time, a webcast is not going to deviate you and certainly not going to worry you too much as far as the finances are concerned. Bob, to close off with, you did mention that once Warren Buffett has gone, his son Howard is due to take over as chairman. How do you think the company will change with a different Buffett in the chair?
I don’t think it will change. I asked Warren why somebody else hasn’t created another Berkshire Hathaway and he said that the culture is in place, and if you dropped him at the age of 35 into IBM (his example); the culture was so entrenched that he would not be able to change it. Even at the age of 35, even with his skillset of capital allocation and hands-off management.
I believe his son, as a non-executive chairman’s total responsibility is to make sure the culture that his father has lovingly put together stays in place, that the subsidiaries will not be sold and that all the excess capital will be sent to Omaha for the succeeding investment, cheap investment officers to re-allocate in part to common shares in the stock market and in whole in the purchase of wholly owned subsidiaries and to leave those managers alone. I’m very confident as a long-term shareholder that, that culture will stay in place because there will be people who are currently CEO’s. If they’re suddenly micro-managed, they’re going to hand the keys to the successor, and say, I’m retiring, I’m worth $100m on average. Some are billionaires, go ahead and you run the business. I don’t think it’s going to happen but certainly there are a lot of naysayers out there.
Well a wonderful legacy for Warren E Buffett and we were talking to Robert Miles, one of the experts on Buffettology. He also runs the Value Investor Conference in Omaha in the week ahead of the Annual General Meeting.