Robert Smith (2:06)

I feel like Calvin and Hobbes was based off of Warren Buffett.

Waylon Wong (2:10)

Well, because Calvin subscribes to Chewing Magazine, which is a magazine for chewing gum enthusiasts. And I feel like chewing technology would have been part of that, which is so funny.

Robert Smith (2:21)

You know, lots of people try to imitate the investing style of Warren Buffett, but there is a small problem with that. At a certain point, Buffett started to do deals so big, so audacious, that only Warren Buffett could pull it off.

Waylon Wong (2:36)

This is the indicator from Planet Money. I'm Waylon Wong here with Robert Smith, who's hosting a new podcast called Business.

Robert Smith (2:42)

History, a show about the history of business. And we're doing a big series on famous investors. And of course, Mr. Buffett is front and center.

Waylon Wong (2:51)

On yesterday's show, we talked about the investing tricks of Warren Buffett when he was young and unknown. Today we talk about how he became famous and used that fame as a new superpower to make even more money.

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Waylon Wong (3:59)

Young Warren Buffett in the 1950s and 60s would buy stocks in small, undervalued companies and hold them for a short period of time and then make quick profits. That would change under the influence of his new partner in investing, Charlie Munger.

Robert Smith (4:14)

Munger was a lawyer who had also grown up in Omaha, lived in California, and author Alice Schroeder says he helped push Buffett into a new investing philosophy. Buy companies that sell things that people need and have growth potential.

Alice Schroeder (4:28)

Charlie Munger knew one big thing, which is if he could find a business that would roll like a snowball, that it would get more powerful and more successful each year due to its innate qualities. You could buy it once and then you wouldn't have to do a lot of work to it. You just would watch it as it grew.

Robert Smith (4:51)

Alice Schroeder wrote a biography of Warren Buffett called the Snowball for just this reason.

Waylon Wong (4:55)

Buffett had impulsively bought a textile manufacturer in the 1960s called Berkshire Hathaway, and with Munger's urging, Buffett started to use that company to buy other companies.

Robert Smith (5:05)

Buffett bought insurance businesses to generate cash. He bought classic American companies like See's Candy.

Waylon Wong (5:12)

Oh yeah, they make those boxes of fancy chocolates. Half of them are really good and then half of them have fillings that you absolutely don't want to eat at all. Like, I don't like the raspberry ones.

Robert Smith (5:20)

They do sell the candy boxes at the investor meetings. Warren Buffett bought newspaper companies. He bought a bank. He owned large blocks of the TV network abc and Geico Insurance, Fruit of the Loom underwear. He bought that. And the idea was that each of these companies would generate money that you could essentially put into the other companies. It was the big snowball, and we.

Waylon Wong (5:41)

Should say by the 1970s, Warren Buffett was truly becoming famous as an investor, yes, but also because of his personal quirks. He was a multimillionaire, but he drove an old car and lived in a regular old house in Omaha, Nebraska.

Robert Smith (5:55)

He famously had the diet of a picky child. Hamburgers, French fries, cherry Coke. So much cherry Coke. It was at this point that Warren Buffett, always looking for advantages. Most must have realized that this attention he was getting could be good for business. There's a famous moment in the mid-1980s when the investment firm Salomon Brothers is being targeted for a hostile takeover. And the CEO calls up Warren Buffett and says, essentially, help. I need a white knight to invest in my firm. And Alice Schroeder tells this story in her biography, how Buffett made a huge profit just by publicly putting his money into Solomon Brothers.

Alice Schroeder (6:32)

He learned to get the value for his reputation just by putting his name on things without doing work.

Robert Smith (6:38)

It would end up being more work than he bargained for. There was a scandal at the company. The CEO had to resign, and Warren Buffett ended up running the whole investment firm. This Omaha nice guy was the boss of these ruthless Wall street finance bros.

Alice Schroeder (6:52)

He had to fix the troubled company. And the diagnosis of what was wrong was all the things he hated about Wall Street. The perverse incentives to make money at the expense of your client. The childishness that went on among the traders.

Waylon Wong (7:09)

It's funny. Buffett went from hunting down companies to invest in to having companies basically throw themselves at his feet.

Robert Smith (7:16)

That folksy reputation Warren Buffett was getting from his shareholder meetings meant that people trusted him. And when a company is in trouble, you really want to put out a press release that says, oh, Warren Buffett believes in us.

Waylon Wong (7:28)

It really is pretty remarkable that as we tell this story, Buffett has remained on top of his game for like 60 years. It's quite the track record. But there were some dicey moments.

Robert Smith (7:39)

Yeah, the most famous was during the dot com bubble in the late 1990s. This was the age of high flying Internet stocks. And Warren Buffett had famously not owned a computer until just a few years before. And he certainly would not invest in the Internet.

Waylon Wong (7:53)

Yeah, he's eating his See's candies And reading financial documents at night on paper.

Robert Smith (7:58)

Yeah. And he's playing bridge. He loves playing bridge. But as these Internet stocks are going up, the. Everyone is saying that Buffett is out of step. They say he's losing his mental acuity. The stock in Berkshire Hathaway is languishing. There's a rumor at this point. Yeah. On the new Internet. Right. That Buffett is sick and in the hospital, and the company has to officially deny it. Alice Schroeder, his biographer, says everyone was trying to kick Buffett off of his pedestal.

Alice Schroeder (8:24)

He told me in a conversation that that was the worst experience of his career, was the feeling of being told that he was just wrong and that his thought process had broken down and was obsolete.

Robert Smith (8:40)

Buffett ends up doing this very brave thing. In 1999, there was this big conference of CEOs in Sun Valley, and Warren Buffett shows up, and he gives this speech to the executives there. They work at hotshot tech firms like Amazon and Apple and intel and Yahoo. And Buffett says the Internet is certainly useful. Yes, but the valuations of your companies are way, way too high.

Alice Schroeder (9:02)

And he told them they were making a terrible mistake and they were wrong. And they made fun of him, and they laughed at him. And he did that because he felt like he needed to say it. And it was the first time that I remember in his adult life, after he became famous, that he put his reputation at risk by giving advice about the market.

Waylon Wong (9:26)

You know what, though? He was right. It was a bubble. The Internet stocks plunged the next year. Over the next couple of years, the NASDAQ index went down 77%.

Robert Smith (9:36)

But Berkshire Hathaway, run by Warren Buffett, was up about 30% in the year 2000.

Waylon Wong (9:42)

Now, Warren Buffett was not always right. He made some big investing mistakes. A recent one is that he pushed the merger of Kraft and Heinz, two big food companies. They were now breaking up and saying the merger never worked.

Robert Smith (9:55)

But it is notable that the fame of Warren Buffett meant that people didn't dwell on his errors. And now that he's retiring and giving away most of his money to charity, people are looking back and acknowledging that 60 years of success is an unprecedented run in the up today, down tomorrow world of investing.

Waylon Wong (10:12)

And as for Berkshire Hathaway, it will go on even without Warren Buffett at the helm.

Robert Smith (10:17)

Alice Schroeder, Buffett's biographer, says it will be interesting to see how the company works under the new leadership.

Alice Schroeder (10:23)

I think Warren's been honest for a long time that it will be sturdy and robust It's a business designed to be resilient when bad things happen. But if you're trying to make a lot of money or beat the market, Berkshire Hathaway is not going to be that.

Robert Smith (10:39)

Buffett often said about companies that they can't beat the market forever. Trees don't grow to the sky, was his quote. But you have to admit, Whalen, this one did get pretty big.

Waylon Wong (10:50)

Robert's new podcast is called Business History. Thanks for bringing us these stories, Robert.

Robert Smith (10:54)

My pleasure, Waylon and I'll be back in the new year. This episode was produced by Cooper Katzpakim and engineered by Jimmy Keeley. It was fact checked by Ciara Juarez. Kate Concannon is our editor. The indicator is a production of NPR.

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