I had the briefest of interactions with Warren Buffett — and he nailed it.
When an authorized biography of him was published in 2008, I wrote a very favorable review for the Wall Street Journal. This was just weeks after my own book, "Billion Dollar Lessons," had come out, and I took the liberty of mailing Buffett a copy, along with the WSJ's rave review of B$L.
Buffett had a cameo in my book (written with Chunka Mui) on lessons to be learned from business failures because he once invested in USAir while it was in the midst of doing a bunch of dumb things. I figured that connection, plus my having written a review he surely liked, might merit at least a glance. Who knows? Maybe he'd even read parts of the book and say something nice while Chunka and I were out hyping it.
Exactly one week after I mailed the book, I received a return letter from Buffett. He thanked me for the book, adding:
"Yes, that investment in USAir was the worst I ever made. I expect to make a worse one soon."
Buffett has said a lot of folksy, smart things to a lot of people over the decades, and I've been reading as much as I could for more than four of those decades, so I thought I'd mark his retirement announcement with some of his greatest hits, especially ones that apply to insurance. I'll start with my favorite:
"It's when the tide goes out that you see who's been swimming naked."
I've always liked this line because of its sense of accountability. For decades, I've watched companies try to blame troubles on anything they could lay their hands on — an earthquake in Japan, storms in Europe, sure, whatever, whether or not they did much business in the affected area. But the best companies just kept their heads down and worked their way through the problems, making sure they kept their swimsuits on even as the tide went out.
Look at Geico. After Berkshire Hathaway acknowledged in 2021 that it had fallen behind on telematics, Geico worked and worked and caught up — as Matteo Carbone described for us last summer. Even as supply chain problems and bad driving habits left over from COVID caused many auto insurers to try to raise rates in a panic, GEICO had a combined ratio in the first quarter that started with a 7. (It's not just GEICO. Progressive, which pioneered the use of telematics to price risk, never had a blip and recently announced plans to hire 12,000 people.)
(If you're interested in learning more about Buffett's pioneering work in insurance, I recommend this piece by Adrian Jones.)
Here's another great one:
“If you start fooling your shareholders, you will soon believe your own baloney and be fooling yourself, as well.”
My favorite study of all time is one by BCG that Chunka and I cited in B$L. It found that 80% of executives thought they had the best product in the market — and that 8% of their customers agreed. Surely influenced by that, in a cynical moment Chunka and I wrote in our book that "marketing is when you lie to your customers; market research is when you lie to yourself."
Companies, including insurers, would be so much better off if they could take a brutal look at themselves.
(That quote comes from this article in the Washington Post, which includes a number of other worthy lines.)
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently."
'Nuf said. Insurers know this all too well.
"Someone is sitting in the shade today because someone planted a tree a long time ago."
While sitting in London's Hyde Park once, I marveled at the grace and beauty of a section enclosed by trees that had been espaliered — the leaves and branches formed what you could think of as a very broad, perfectly manicured box hedge extending from maybe 40 to 50 feet off the ground. I realized that those trees had to have been planted many decades before to grow to that height and be trained so well. So whoever planted those trees surely didn't expect to experience the serenity I was being allowed to appreciate.
I dearly wish that more long-term thinking could exist in business, including insurance. Insurers do a better-than-average job of thinking about the long term, but we still get buffeted by tariffs and storms and so on and need to focus on that next quarter. I'd love to see more companies taking out a clean sheet of paper, designing the perfect version of themselves 10 or more years out and driving toward that vision.
My old friend and WSJ colleague Roger Lowenstein notes that as recently as this weekend, Buffett responded to a shareholder question by saying, “We don’t do anything based on its impact on quarterly and annual earnings. What counts is where we are five or 10 or 20 years from now.”
How great would it be if the rest of us could adopt that attitude?
Well, Roger provides some numbers in an op-ed in the New York Times:
"Since [Buffett] took the helm of Berkshire — on May 10, 1965 — General Motors, then the largest American corporation, has greeted 11 new chief executives. Sears, Roebuck, the biggest retailer, has vanished from the scene. Eleven U.S. presidents have come and gone (two of them having survived impeachment and one forced to resign), and Coca-Cola changed its formula, but Mr. Buffett didn’t change his....
"Berkshire’s stock that day in May closed at $18 a share. When he delivered the news [of his impending retirement[, it was above $809,000 — almost 45,000 times as high. Over the same span, the Dow Jones industrial average is up just under 45 times."
Words to live by.
Cheers,
Paul
P.S. It's not clear that Buffett ever did make a worse investment than the one in USAir, at least by his telling. He once wrote of airlines: "A durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”