INSIDE THE PROFESSION INSIDE THE PROFESSION

His License Plate Says someoneʼs meal.”

Buffett strongly be-
lieves that his ability
to allocate capital and
manage valuable busi-
nesses would be worth-
less in another country at a
society where we have equal human rights, educational opportu-
nities, and the invaluable chance to make it big.

Business Advice

What would our visit with the worldʼs best businessman be

without business advice? He did not offer us any stock picks, but
My quest to learn from America’s different time. As he likes
to say, we won the “ovar-
I we left with great great advice.
Buffett told us to invest “within our circle of competence.”

billionaire investment hero, ian lottery.” According to

Buffett, his odds of be-
The idea is simple, but makes a lot of sense. Many entrepreneurs
and investors will invest in unfamiliar industries. Warren be-

Warren Buffett
ing born in the United lieves that the inherent risk in investing comes from not knowing
States in 1930 were 50 what you are doing, not the volatility of the stock price.
to 1. Buffett explained Buffet tries to reduce this risk by staying within his circle of
that when we were competence. As Buffett says, “Itʼs not important how big your
born, we pulled quite circle is or how many industries you are familiar with but that
By George Giannukos, Texas A&M University a valuable lottery you dene and know where the perimeter is.”

W
ticket: We live in a
hat do Fidel Castro and Warren Buffett, from the Berkshire Hathaway
the worldʼs second richest man, have in com- companies, Nebraska Fur-
mon? Probably nothing, but if it were not for Fi- niture Mart and Borsheimʼs
(the largest single-store inde- Q: What do you stay away from when valuing a company? Buffett: The question is, who are your heroes when you are 15?
del Castro I would have never have had the idea
pendent jeweler in the nation). This is a strong indicator of future success. Katharine Grahamʼs
of setting up a trip for 33 students to meet with Warren Buffett,
One of the biggest themes we were Buffett: What I donʼt understand. Get a x on your own limita- autobiography is very honest and very interesting. She ran The
Chairman of Berkshire Hathaway Corporation.
inundated with was the critical essence of integrity tions of knowledge. Ted Williams [the only Major League Base- Washington Post. She had a strong will…and felt it was impor-
Prior to spring break one year, my cousin proposed the idea
and how important it is to the culture of Berkshire Hathaway. As ball player to hit .400, or a 40% success rate, over an entire sea- tant to succeed.
that we visit Cuba, one of the last remaining Communist coun-
Susan Jacques of Borsheimʼs told us, “It takes 37 years to build son] divided the strike zone into 77 areas. You only swing at the
tries in the Western Hemisphere. He asked something that piqued
your reputation, and you can lose it in 37 seconds.” She said she pitches you can hit with an average of .400. Q: What other books do you recommend?
my interest: “Why donʼt we try to meet with Fidel Castro?”
thinks about this every time she is about to make an important Also, I donʼt want to know the price of a stock as I value it.
Meeting a dictator? Interesting, but I replied that I rather meet
decision. Knowing the price anchors your thoughts. Buffett: “The Intelligent Investor,” chapters 8 and 20 provide the
someone like, well, Warren E. Buffett.
While we students were eating lunch with Buffett that day framework. Also, read about a lot of businesses. Philip Fisher is
If you are passionate about music, you would probably want
in his favorite steakhouse in Omaha, Goratʼs, he told us what he Q: What is the more valuable area of academic study, accounting another good author [ “Common Stocks and Uncommon Prots
to meet Aerosmith. If your thing were motion pictures, you
tells all of his managers: only make decisions that you wouldnʼt or nance? and Other Writings”].
would probably want to meet Steven Spielberg. My interest is
mind reading about in the newspaper the following day. He said You need to like reading annual reports and related infor-
business and, in particular, investing. The process of researching
to act as if an unbiased reporter stood next to you as you made Buffett: Accounting is the more valuable. It is the language of mation. Look for businesses you understand. You need to know
a business and learning what makes it better than its competitors
your decisions. He guaranteed that we would avoid most of business… A number of CEOs donʼt understand accounting. enough about the business to be a good scorekeeper.
— and in the process, making a couple of dollars as the stock
the problems that plagued todayʼs white-collar criminals if we Some people have an intuitive grasp, [but] some people will try
price increases — is something which is fascinating.
thought like this. He sure does! to cheat you and lie to you. Q: What is your denition of a capitalist?
After a few e-mails to Buffettʼs staff, I was amazed to nd
myself standing in his lobby in Omaha, Nebraska, waiting for
Thankfulness Q: Explain your business evaluation criteria. Buffett: A capitalist lives off of prots, not labor. If I was born in
him to see us. I looked to my cousin and said, “What do we say?”
Bangladesh or 200 years ago, I wouldnʼt have been successful.
Being helpful, he responded, “This is your thing.” But before
Graphic: YiDing Yu for Harvard College Investment Magazine Buffett: Where is this business going to be in 5 to 10 years? What Imagine yourself 24 hours before your birth. A genie comes to
I could react, Warren Buffett popped out and said, “Aww…the Itʼs funny. Buffett, with his loads of wealth, was able to make
a bunch of cash-strapped college students feel just as wealthy as is the moat? What protects it? you and says, “John or Joan, you will be bright and fair-minded.
Aggie invasion.” We all laughed that Buffett knew Texas A&Mʼs
him; albeit, in a different kind of way. With Coca-Cola, the moat is the brand name in the mind. I will let you design the world into which you will be born — the
students are known as the Aggies; but more importantly this took
As we were walking out of Goratʼs, Buffett said he real- Seeʼs Candies [a Berkshire Hathaway company] owns the boxed economic and social conditions for you and your descendents.”
a little of the nervousness out of the air – on our part at least.
ly wanted to show us his car. Immediately, the students began chocolates business in California and has been there since 1921. John or Joan replies, “So, whatʼs the catch?”
After that initial meeting, who would have thought he would
thinking: What kind of car does Warren Buffett drive? The new- A boy buys a box of chocolates, and she kisses him: We own The genie then states, “From the jar pick a ticket. There
invite us back, along with 30 of our fellow students? That No-
est Hummer or a limo waiting to pick him up? Not exactly. Buf- him. Other examples of moats: Microsoft operating systems; are six billion possible tickets.” The tickets have information on
vember, we headed to Omaha for a whirlwind 24-hour trip that
fett drives a simple Lincoln Town Car. What he wanted to show and Meg Whitman [CEO of pioneering online auction company them such as male or female, U.S. or Bangladesh, physically t
opened my eyes to the world of a humble, thankful man whose
us was his license plate, with the word “THRIFTY” emphasizing eBay Inc., who] has all of the buyers and sellers. or crippled, nurturing parents or abusive parents.
license plate reads “THRIFTY” — the same man whose invest-
his philosophy. Businesses with moats are easy to value. How do you knock Your lottery ticket matters.
ment strategies have made him the second wealthiest man in the
It is quite amazing that someone with his wealth and power off Wrigley? — the Internet doesnʼt change the way people chew Take the example of the sport of boxing. In the 1930ʼs, Madi-
world.
realizes just how lucky we, as Americans, are. You might think gum. son Square Garden held 30,000 seats. Now, due to cable TV, 190
that someone of his social stature is careless with his material million people can watch the boxing match. The boxers benet
Integrity
possessions and nancial status. Not Buffett. As he said, “If Q: What biography would you recommend? due to the size of the audience — i.e. [the lottery of] when they
I were born in Bangladesh 200 years ago, I would have been were born.
Not only did we meet with Buffett, we also met with people
36 SUMMER 2006 • HARVARD COLLEGE INVESTMENT MAGAZINE HARVARD COLLEGE INVESTMENT MAGAZINE • SUMMER 2006 37
INSIDE THE PROFESSION INSIDE THE PROFESSION

We won the ovarian lottery. In 1930, the odds were 50 to 1

against being born in the U.S. I was also born to parents who
cared about me, given good health and a good mind.
Q: What is your view on social responsibility?
One way to lead is to work harder than anyone else. A good
rule is that the ofcers eat last, and the enlisted eat rst. Air Force
General Curtis LeMay said, “I will y the lead plane, and I will
court martial anyone who wonʼt y.” The leader takes the biggest
Bilimoria: The Entrepreneurial Einstein
The story of Cobra Beer as told at the Said Business School, Oxford.
risk but demands compliance. By Devina Shah, Oxford University

T
Buffett: In 1790, there were 3.9 million people in the United
States, 100 million in Europe and 190 million in China. We suc- Q: How will business fare in the stock market over the long he link between academia and successful entre- could not contain him and his desire for learning propelled him
ceeded because we had a better system, not because we have term? preneurship has notoriously been an insubstantial one. to return to full time education and to read law at Cambridge.
better morals or are smarter. Indeed, most of the worldʼs most thriving businessmen After graduating as a lawyer, Bilimoria decided that despite his
The talent prole of the population does not t the job re-Buffett: Four to six percent is the typical range for corporate prof- have come from the lower echelons of society attaining intelligence and highly-regarded qualications which all seemed
quirement prole. People in the right place should take care of its as a percentage of GDP. This is unlikely to change. Over the very mediocre school grades. Yet, these men have ended up com- to be pointing to a professional career in law or banking, he was
people who canʼt succeed. last four or ve years, the market has returned six or seven per- manding international billion dollar enterprises. We only have to going pursue his longtime ambition of running his own busi-
cent. Over the last 35 years, it has returned ten percent annually. look at the case of Sir Alan Sugar who left school at the age of ness.
Q: Explain your take on tax fairness. Seven to thirteen percent is pretty much sixteen and started out selling products such as cigarette lighters, He returned to India to spend some time with his family, and
the expected range. The market returned intercoms, and TV aerials. Now Sugar is the owner of Amstrad, after some unsuccessful attempts at importing and exporting ran-
one of the biggest providers of consumer electronics which at dom non-beer-related items, Karan founded Cobra
Buffett: I spend $2.2 billion on the federal Leaders should between seven and thirteen percent ex-
Beer Ltd in 1990. To this day, Bilimoria stresses
government [annually]. What should tax actly one year over the last 35 years. [I] its peak achieved a stock market valuation of £1.2 billion and is
policy be? The “haves” should pay the lionʼs have a passion conclude that investors are much more now the famous face of the hit-UK show version of ʻThe Appren- the importance of passion in a successful
share. volatile than businesses. tice.ʼ Yes, the case for non-academic aspirations grows stronger, business but then again, it does not really
for their yet fear not my fellow soon-to-be poor college grad pseudo-Ein- seem that difcult to be passionate about any
I have the same tax rate as my receptionist
steins. There does exist a man who has managed to get the best kind of alcohol. What fueled Bilimoriaʼs
when you include social security. I am wired business... Q: Whatʼs your view on the capital asset
desire to produce a new
a certain way and I get benets. I do not agree pricing model (CAPM)? of both worlds…
with [President] Bush at all. We [the wealthy] That people are Recently, Oxford Uni- Bilimoria’s Tempranillo wine kind of beer was his rec-
donʼt need any more favors. Bill Gates also Buffett: CAPM is still taught in schools. versityʼs Oxford Entrepre- isat awarded the Silver Medal
the prestigious Monde
ognition of an increase in
willing to follow neurs (OE) brought one Selection 2005, Brussels a new kind of food: curry.
agrees with me. The weakness is that it assumes efcient
of their founding patrons, Curry houses and Indian
I prefer liquor store robbers with hun- a leader implies markets. The popularity is fading, but it
restaurants alike (although
gry kids to companies that locate offshore to still persists — priesthoods are like this. Karan Bilimoria, the
avoid U.S. taxes. that the leader is It was very acceptable in the 1960ʼs: Founder & CEO of Cobra they really are not alike),
Allocate capital, what is the most at- Beer to the Said Business were fast becoming the
competent. School to talk about his most frequented places
Q: Who should have stock options? tractive thing to put our money in? If
the smartest thing isnʼt that smart, then journey as an entrepreneur. to eat out in England.
Buffett: Charlie Munger [vice chairman of we donʼt play. We donʼt want to give up On that fateful day, upon Bilimoria possessed
Berkshire Hathaway and close associate of Buffettʼs since the cash exibility. Good businesses offer offensive decisions; bad entering the Said Business the ingenuity to rec-
1970s] and I are the only employees who should work for stock businesses offer defensive decisions. Switch to offensive busi- School, a large, intimidat- ognize that there
options. No one else has control over the company strategy. nesses for a signicant edge. ing building, there was a was an opening
large crowd of smartly- in the market of
Q: What qualities do you look for in business partners and co- Q: Any advice for students entering the workforce? dressed students and smat- a country where
workers? terings of conversation people loved both
Buffett: What train are you getting on: U.S. Steel or Microsoft? which mainly consisted beer and curry but
Buffett: I misjudge them sometimes, but rarely. It is easy to rec- Donʼt work for somebody whoʼs crummy. of ʻDo you think weʼll get did not digest them
ognize the extremes; I can tell the outright crooks. You want to free beer afterwards?ʼ We all entered the lecture theatre where together.
develop the qualities you like in other people. Consider which of Q: Who are the right heroes? Bilimoria was to give a talk on the inspiring and life-changing The result was a vision of an
your classmates would you choose to go long on [buy] ten per- work he was doing with beer. After the President of Oxford En- Indian lager that would not only
cent of their earnings? The one with the best grades? — Probably Buffett: My heroes are: My dad — parents are everything in the trepreneurs, Rajeeb Dey, made an introductory speech and wel- complement Indian cuisine but
not. You will probably pick the person who is the most generous formative years; Melinda and Bill Gates; in raising three kids, comed Mr. Bilimoria to take the oor, we got our rst glimpse also due to its unique chemis-
and the most honest. Conversely, think of who you choose to go my wife; Tom Murphy, who ran Capital Cities ABC [Murphy of Mr. Bilimoria. When you rst catch sight of Karan Bilimoria, try, appeal to ale drinkers. When
short [sell] ten percent of their earnings. purchased ABC in 1985 with Buffettʼs backing]; Ben Graham you may not immediately conclude that he is a man who has Karanʼs par- ents discovered
[co-author, “The Intelligent Investor”]; somebody who makes achieved the apparently impossible feat of conquering both the that their son was going to quit
Q: How does someone become a good leader? you behave better. academic and business worlds, but rest assured, he has. the profes- sion of law before
Mr. Bilimoria was born in Hyderabad, India in 1961 as the son he had even started, they were
George Giannukos ʻ06 is an Accounting major at Texas A&M of a Lieutenant in the Indian Army. He attained his rst degree inevitably shocked. Yet, he
Buffett: Leaders should have a passion for their business; they
University. He started investing at the age of sixteen. He aspires in business before the age of nineteen and then immigrated to pursued his vi- sion. Bilimoria de-
need to be able to energize people to march with you because
to build an empire and told Warren Buffett that he hopes to have the United Kingdom to try his luck and improve his fortunes. scribed the strenuous rst few years of his business as involving
they believe in you. I like Arnold Schwarzenegger as a leader.
a mini-Berkshire Hathaway some day. With a greater interest in He obtained a diploma in accounting from London Metropolitan him physically transporting crates of Cobra Beer and attempt-
Berkshire Hathaway has a strong and unusual culture… That
making beans (than counting them), he hopes to break into the University and then joined Ernst & Young as a trainee chartered ing to sell it to various Indian restaurants in Birmingham and
people are willing to follow a leader implies that the leader is
nance industry after he graduates. accountant in 1986. Not surprisingly, the tax and audit ofce London where Asian communities were particularly populous.
competent.
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