Warren the Impulsive?

buffettIn the summer of 1983, Warren Buffett sauntered into Nebraska Furniture Mart, then Omaha’s privately-owned, market-trouncing behemoth run by Rose Blumkin and her family. After a look around, Buffett asked “Mrs. B” to sell him the place. Mrs. B said sure, for sixty million. Buffett shook her hand, and the deal was sealed.

A familiar story for Buffetteers it is. And told so, it affirms the mystique associated with Buffett’s decisiveness. As he himself has relayed in his annual letters, business owners looking to sell can usually receive an answer from Buffett within five minutes.

Yet, as with most good yarns, the real history rarely runs that way. In the case of Nebraska Furniture Mart, Buffett had been stalking the furniture giant for quite some time, having even made an offer much earlier in his career, which Mrs. B deemed “too cheap.” As Roger Lowenstein recounts in his Buffett: The Making of an American Capitalist (Random House: 1995), Warren had expressed his lust for the Mart to business writer “Adam Smith” in the early seventies, spouting off its operating statistics—volume, floor space, turnover, etc. And this for a private company.

Before that happy day in 1983 (Buffett’s birthday, in fact), Buffett had heard that Mrs. B was entertaining a $90 million offer from a German furniture retailer. Prior to his offer, Buffett had studied the Furniture Mart’s tax returns and found that it had earned $15 million pre-tax in years previous. Buffett had met with her son Louie and discerned the price point that Mrs. B had in mind. He knew that the Mart’s $100 million in sales commanded two-thirds of Omaha’s furniture sales, and its moat so wide that Dillard’s refused to sell furniture in Omaha. Mrs. B “had a toll bridge to the living rooms of Omaha” (Lowenstein 250).

I’ll admit—the familiar story tells better than the truth. But the truth will better serve the fellow investor. Decisive action may give the appearance of reckless impulse, but in the case of Buffett, it is merely a convenient façade that covers detailed preparation and measured calculation.

Disclosure: I, or persons whose accounts I manage, own shares of Berkshire Hathaway at the time of this writing.

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5 responses to “Warren the Impulsive?

  1. Great post, especially the last bit:

    “I’ll admit—the familiar story tells better than the truth. But the truth will better serve the fellow investor. Decisive action may give the appearance of reckless impulse, but in the case of Buffett, it is merely a convenient façade that covers detailed preparation and measured calculation.”

  2. Thanks Daniel. Sometimes I forget that Buffett is the learning machine with a remarkable memory for numbers. He can make quick decisions because he’s looked at the financial statements in an industry over decades and remembered globs of it.

  3. True. Have you ever heard Bruce Lee’s concept of hitting and kicking?

    He said something like when he was young he simply thought a kick was a kick. Then, as he learned more, he broke those movements up into separate parts, and they became to him very complex actions. After many years of that, he realized that a kick was just a kick.

    Buffett’s decision process is undoubtedly a lot like that. Because he has spent decades gathering data–about businesses and people and incentives and so on–a decision to him is (now) just a decision.

    As young investors we should strive to make decisions that fast–and that well–but not ahead of our time (meaning: not before we’ve mastered all those steps in between).

    Otherwise, Mr. Market will kick harder than Bruce Lee (and our portfolio’s won’t have much defence).

  4. The kicks hurt even more when we consider the effect of compounding returns over a lifetime. Any mistakes when we are young are very costly.

    Sounds like something more than just an investing lesson there; save up the wild years for our eighties.

  5. Oy. Don’t remind me! :-)

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