Warren Buffett And The Genie

Warren Buffett And The Genie by John, Vintage Value Investing

Beyond being a great investor, Warren Buffett is often considered a great philosopher.

And it’s true – Buffett’s speeches, Q&A sessions, and quotes are full of lessons on how to live a long and happy life.

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In The Snowball: Warren Buffett and the Business of Life, Alice Shroeder describes Buffett’s habit of “pontificating on any and all subjects” and one particular fable involving a genie and a car:

Buffett was always wary of falling into what Munger called the Shoe Button Complex, pontificating on any and all subjects merely because he was an expert on business. But by the mid-1990s, both he and Munger were starting to receive – and answer – more and more questions about the business of life. He often treated the athletes and college students to whom he periodically spoke to the fable of the Genie.

[Buffett]

“When I was sixteen, I had just two things on my mind – girls and cars,” Buffett would say, taking a little poetic license here by leaving out the part about the money. “I wasn’t very good with girls. So I thought about cars. I thought about girls, too, but I had more luck with cars.

“Let’s say that when I turned sixteen, a genie had appeared to me. And that genie said, ‘Warren, I’m going to give you the car of your choice. It’ll be here tomorrow morning with a big bow tied on it. Brand-new. And it’s all yours.’

“Having heard all the genie stories, I would say, ‘What’s the catch?’ And the genie would answer, ‘There’s only one catch. This is the last car you’re ever going to get in your life. So it’s got to last a lifetime.’

“If that had happened I would have picked out that car. But, can you imagine knowing it had to last a lifetime, what I would do with it?

“I would read the manual about five times. I would always keep it garaged. If there was the least little dent or scratch, I’d have it fixed right away because I wouldn’t want it rusting. I would baby that car, because it would have to last a lifetime.

That’s exactly the position you are in concerning your mind and body. You only get one mind and one body. And it’s got to last a lifetime. Now, it’s very easy to let them ride for many years. But if you don’t take care of that mind and that body, they’ll be a wreck forty years later, just like the car would be.

It’s what you do right now, today, that determines how your mind and body will operate ten, twenty, and thirty years from now.

These are great word to live by. And apparently they are words that Buffett has adhered to all his life since, at age 85, his mind is still as sharp as a tack and he seems to be in good physical health, too.

I have to laugh though, since Buffett is often described as having awful eating habits. In The Snowball, Buffett says: “Broccoli, asparagus, and Brussels sprouts look to me like Chinese food crawling around on a plate. Cauliflower almost makes me sick. I eat carrots reluctantly. I don’t like sweet potatoes. I don’t even want to be close to a rhubarb, it makes me retch.” And both Buffett and Munger famously go through an entire box of See’s Candy during every Berkshire Hathaway Shareholder Meeting.

But here’s CNBC clearing up this matter:

Buffett says his “bad” eating habits aren’t as absolutely awful as everyone thinks.

The Omaha World-Herald relates Buffett’s response to a New Jersey nutritional dentist who had written a letter encouraging him to eat more healthy food and take nutritional supplements:

“My diet, though far from standard, is somewhat better than usually portrayed. I have a wonderful doctor who nudges me in your direction every time I see him. All in all, I’ve enjoyed remarkably good health — largely because of genes, of course — but also, I think, because I enjoy life so much every day.”

He’s also been exercising more in recent years.

Back in 2007, Buffett told CNBC that his doctor had given him a choice two years before: “Either you eat better or you exercise.” Buffett said he chose exercise, the “lesser of two evils.”

Want to learn more about Warren Buffett? Check out The Snowball: Warren Buffett and the Business of Life, which is by far the best biography on Warren Buffett out there.

Warren Buffett

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Ben Graham, the father of value investing, wasn’t born in this century. Nor was he born in the last century. Benjamin Graham – born Benjamin Grossbaum – was born in London, England in 1894. He published the value investing bible Security Analysis in 1934, which was followed by the value investing New Testament The Intelligent Investor in 1949. Warren Buffett, the value investing messiah and Graham’s most famous and successful disciple, was born in 1930 and attended Graham’s classes at Columbia in 1950-51. And the not-so-prodigal son Charlie Munger even has Warren beat by six years – he was born in 1924. I’m not trying to give a history lesson here, but I find these dates very interesting. Value investing is an old strategy. It’s been around for a long time, long before the Capital Asset Pricing Model, long before the Black-Scholes Model, long before CLO’s, long before the founders of today’s hottest high-tech IPOs were even born. And yet people have very short term memories. Once a bull market gets some legs in it, the quest to get “the most money as quickly as possible” causes prices to get bid up. Human nature kicks in and dollar signs start appearing in people’s eyes. New methodologies are touted and fundamental principles are left in the rear view mirror. “Today is always the dawning of a new age. Things are different than they were yesterday. The world is changing and we must adapt.” Yes, all very true statements but the new and “fool-proof” methods and strategies and overleveraging and excess risk-taking only work when the economic environmental conditions allow them to work. Using the latest “fool-proof” investment strategy is like running around a thunderstorm with a lightning rod in your hand: if you’re unharmed after a while then it might seem like you’ve developed a method to avoid getting struck by lightning – but sooner or later you will get hit. And yet value investors are for the most part immune to the thunder and lightning. This isn’t at all to say that value investors never lose money, go bust, or suffer during recessions. However, by sticking to fundamentals and avoiding excessive risk-taking (i.e. dumb decisions), the collective value investor class seems to have much fewer examples of the spectacular crash-and-burn cases that often are found with investors’ who employ different strategies. As a result, value investors have historically outperformed other types of investors over the long term. And there is plenty of empirical evidence to back this up. Check this and this and this and this out. In fact, since 1926 value stocks have outperformed growth stocks by an average of four percentage points annually, according to the authoritative index compiled by finance professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College. So, the value investing philosophy has endured for over 80 years and is the most consistently successful strategy that can be applied. And while hot stocks, over-leveraged portfolios, and the newest complicated financial strategies will come and go, making many wishful investors rich very quick and poor even quicker, value investing will quietly continue to help its adherents fatten their wallets. It will always endure and will always remain classically in fashion. In other words, value investing is vintage. Which explains half of this website’s name. As for the value part? The intention of this site is to explain, discuss, ask, learn, teach, and debate those topics and questions that I’ve always been most interested in, and hopefully that you’re most curious about, too. This includes: What is value investing? Value investing strategies Stock picks Company reviews Basic financial concepts Investor profiles Investment ideas Current events Economics Behavioral finance And, ultimately, ways to become a better investor I want to note the importance of the way I use value here. It’s not the simplistic definition of “low P/E” stocks that some financial services lazily use to classify investors, which the word “value” has recently morphed into meaning. To me, value investing equates to the term “Intelligent Investing,” as described by Ben Graham. Intelligent investing involves analyzing a company’s fundamentals and can be characterized by an intense focus on a stock’s price, it’s intrinsic value, and the very important ratio between the two. This is value investing as the term was originally meant to be used decades ago, and is the only way it should be used today. So without much further ado, it’s my very good honor to meet you and you may call me…