Something you did not know about Warren Buffett

Tuesday, 18 January 2022 — Gold Coast, Australia

[8 min read]

Dear Reader,

In a booming market, we’re regaled with stories of people making extraordinary amounts of wealth in a relatively short space of time.

These tales of untold riches can fan the fires of envy…which brings forth the ‘fear of missing out’ syndrome.

But be careful what you wish for.

If you haven’t been around markets long enough, you’ve probably not read about how those once high-flying investors came back to Earth with an almighty thud.

For those who have been to this rodeo before, you’ll remember Alan Bond and Christopher Skase.

Aesop’s fable, The Tortoise and the Hare, teaches us that slow and steady wins the race.

When you fall into the trap of thinking you’re smarter and better than others, it has a habit of making you act carelessly and arrogantly.

The key to successful long-term (and I stress, long-term) investment is to have the humility and good graces to know you don’t know all that much.

And believe me, knowing that is not a weakness, it’s a strength.
It stops you from being tempted into investments you know nothing about and have no idea on how to assess the downside.

Unfortunately, hubris — borne from a lucky, short-term winning streak — tends to express itself in cockiness and a swagger of overconfidence.

In Aesop’s fable, the hare believed his superior speed more than compensated for a distinct lack of discipline.

The hare, self-satisfied in his ability, thought he could afford to race ahead and dose off.

Whereas the tortoise stuck diligently and persistently to his task.

In a case of life mimicking art, here’s a real tortoise and hare story.

The hare

Richard Fuscone was a retired bond executive with one of Wall Street’s famed institutions, Merrill Lynch.

According to The New York Times:

‘When Mr. Fuscone retired from Merrill Lynch in 2000, the view among his peers was that his best days lay ahead of him.

‘Just 49 years old, he was young, ambitious, sat on a pile of high-flying Merrill Lynch stock and, as many others in investment banking were doing at the time, he was ready to strike out on his own and make some real money.’

Confident his dotcom boom winning touch would continue, Fuscone established his own investment company.

Money flowed in.
Life was good…actually, it was better than good.

He had all the trappings of success…including a Greenwich (Connecticut) mansion. From The New York Times:

‘Mr. Fuscone became well-known for the lavish benefits that he threw at his mansion. Guests still recall the thrill of dining and dancing atop a see-through covering on the home’s indoor swimming pool.’

The mansion, described as one of Greenwich’s finest, had two elevators, two pools, and a seven-car garage.

In 2005, Fuscone borrowed US$12 million to expand his already expansive home.
No worries. Markets were on the up. What could possibly go wrong?

Then came the credit crisis of 2008.

You’d think a smart guy who’d been around markets for so long could have spotted this crisis coming from a mile away…nope. Greed and hubris blinded him.
He had raced so far ahead of the pack, he lost sight of what was normal.

Fuscone’s investment business — with a portfolio that obviously reflected the cavalier and wanton way he conducted himself privately — failed.

The US$25 million Fuscone had sunk into his business…well, it too sunk.

In 2010, unable to maintain the US$66,000 monthly (yes, monthly) mortgage payment on his Greenwich palace, Fuscone filed for bankruptcy.

The mansion, once valued at US$32 million, was snapped up by a (cashed-up) neighbour for US$8 million…a quarter of the boom time value.

At his bankruptcy hearing, Fuscone told the judge:

‘It has become a dire situation…the only source of liquidity is whatever my wife is able to sell in terms of personal furnishings.’

Pride does indeed cometh before a fall.

The tortoise

Grace Groner was born on 4 April 1909 in Lake Forest, Illinois. At the age of 12, she was orphaned when both her parents died.

In 1931, after graduating from Lake Forest College, she started working as a secretary for Abbott Laboratories and remained working there for 43 years.

In 1935, Grace invested US$180 to buy three Abbott Laboratories shares (valued at US$60 each).

Being conditioned by the Great Depression, Grace lived a frugal life spending less than what she earned.

Her life was rich in terms of friends and community service:

‘Despite living in one of the wealthiest communities in the US, Grace lived humbly.

‘Although Grace never wed nor had any children, she was outgoing and had numerous friends.

‘She was certainly not a miser either.

‘Grace volunteered at her local church, donated money anonymously in her community, and even travelled in her later years.’

Grace Groner passed away in 2010 (aged 100), the same year that Richard Fuscone filed for bankruptcy.

What happened to those three shares she bought back in 1935?

To quote from the Stock Market School:

‘Grace Groner held her shares over 70 years, and through the power of capital gains, share splits, and reinvestment of the dividends she amassed a fortune.

‘At the time of her death at age 100 on January 19th, 2010, Grace owned more than 100,000 shares of Abbott Laboratories which were valued at approximately [US]$7 million.

‘Just prior to her death, she had established the Grace Elizabeth Groner Foundation which now oversees her entire estate which generates $300,000 per year for internships for service-oriented students of her alma mater, Lake Forest College.’

Some people might say Grace got lucky in putting all her capital in a stock that happened to perform well.

But that overlooks the fact she worked at Abbott Laboratories for 43 years. Grace would have known that company inside out.

Given her community service and generousity, I can’t imagine Grace working for a company that didn’t reflect her values.

Aside from the ‘all the eggs in one basket’ aspect, the moral of Grace’s story is about how the application of discipline and patience can produce long-term, lasting results.

When it comes to investing, my advice is to run your own race. There will always be someone making more money than you or enjoying a better lifestyle. But that’s only what you see.

What you don’t see is how these visible trappings of success are being attained.

Is it from high-risk behaviour that pays off today but gets punished tomorrow?

Long-term, slow, and steady tends to win the wealth-creation race.

And for those who think Warren Buffett is the exception to this rule, you’d be wrong.

As reported by CNBC in September 2020:

‘Currently, at 90, he [Buffett] has a net worth of more than $81 billion…$70 billion (of his fortune) came after he qualified for Social Security benefits, in his mid-60s.

‘…those who attach all of Buffett’s success to investing acumen miss an important point.

‘The real key to his success is that he’s been a phenomenal investor for three quarters of a century.

‘Had he started investing in his 30s and retired in his 60s, few people would have ever heard of him.’

I’m guessing most people don’t realise that 85% of Buffett’s wealth has been accumulated since he turned 65.

Run your own race.

Regards,

Vern Gowdie,
Editor, The Daily Reckoning Australia

‘Hatred is the most accessible and comprehensive of all the unifying agents. Mass movements can rise and spread without belief in a god, but never without a belief in a devil.’

Eric Hoffer

We left Paris for the countryside. The City of Light has grown a little dark. We imagined it must have felt a little like it did during the German Occupation in the early 1940s. People gathered at café tables…wondered what the government would do next…and exchanged forged documents.

‘Are they checking papers? I heard they arrested people on the Avenue Maine. Where can I get a fake pass?’

You have to show ‘your papers’ wherever you go.

People over 65 are required to have the vaccine…and a booster…or they aren’t allowed to sit down in bars or restaurants.

Why? Jupiter (France’s president, Emmanuel Macron) says the country is ‘at war’. People have to make sacrifices. And, as in any war, most people go along with their leaders, wave the flag, and hate the enemy.

The other week, we began by exploring how the press had abandoned its post. No longer asking tough questions on behalf of the public, it became a shill, giving out ‘correct’ views on behalf of the elite.

Then, we saw how it takes two to tango — two points of view, pro and con. Without the yang, the yin spins out of control. Without fierce opposition, the ruling elite becomes corrupt, incompetent, and dysfunctional.

And with no honest press to watch over the proceedings, the court fills up with kangaroos. Defence attorneys are banned from the courtroom. The innocent are condemned. Jaywalkers get the death penalty.

Ghoulish sentiments

In France, as in the US, the press not only cheers on the government…it signals that anyone who disagrees is deplorable…a subject for ridicule, even in death.

In the LA Times, for example, an opinion piece by Michael Hiltzik appeared last week: ‘“Mocking anti-vaxxers” deaths is ghoulish, yes…but necessary’.

Necessary? Really? Should Lincoln have shown up at Gettysburg…looking out over the rows and rows of shallow graves…thousands of them. Of the Confederate soldiers who had gone to war against him, should he have said:

‘Hey, you forgot to duck. Ha ha.’

Or perhaps he should have taken a blasé, callous tone, a la Hillary Clinton: ‘We came. We saw. They died.’

Hiltzik continues:

‘On the one hand, a hallmark of civilized thought is the sense that every life is precious.

‘On the other, those who have deliberately flouted sober medical advice by refusing a vaccine known to reduce the risk of serious disease from the virus, including the risk to others, and end up in the hospital or the grave can be viewed as receiving their just deserts.’

When you have the truth, why mince words? Why not call a spade a spade and whack your enemies over the head with it?

The trouble, as we also saw last week, is that the truth is slippery and fleeting. It is rented, not owned. And it comes to light in opposition, not submission.

In a civilised society, people make their own choices. Some turn out well. Some not so well. They follow their hearts, their minds, or their leaders. They are in thrall to some god…some guru…some great idea. Who are we to know whom to ridicule?

Lincoln chose to speak ‘with malice towards none, with charity for all’.

In his day, dead soldiers deserved respect, no matter which flag they followed. But today, every Trump voter south of the Potomac is regarded as an unreconstructed racist. And every person who doubts the virtue of mandatory vaccines is treated like an active shooter.

Yes, today’s world improvers speak in the shrill, unchallenged tones of sanctimonious prigs everywhere. On their high ground, they breathe the pure air of true believers, unpolluted by doubt or ambiguity. But it has no grace or charity in it. And over every fallen enemy they smirk; it is a ‘teachable moment’, they say.

Of course, ‘anti-vaxxers’ are not the only ones to die. With the majority of the population now vaxxed, the majority of the corpses are also vaxxed. They don’t die ‘with COVID’. They die ‘with VACCINE’.

How many of them drove too fast…used drugs or alcohol…or failed to get married or eat their vegetables? They fill up the hospitals and die early. Shouldn’t they be mocked too?

And what sympathy note, along with the dead flowers, will Mr Hiltzik put on the large coffins of those who ate too much? Countries with high levels of obesity have 10 times as many COVID deaths. What did they die of? And what to say to them?

‘You got what you deserved, Fatso!’

Among the shades

Just up the road, at Colleville-sur-Mer, there are rows and rows of white crosses — nearly 10,000 — marking the graves of American soldiers who died in the Normandy Invasion. They came from the farms and factory towns of the US. In the tumult of the Second World War, each of them might have ducked and dodged…and maybe avoided putting on a uniform.

And some of them, huddled in their landing boats, must have wondered had they made the wrong choice?

Herr Hitler stood on the high ground too. He was sure he was right and had no sympathy for those who opposed him. Mockery was too good for them, he believed. And now, the farm boys and city slickers from the US were going to take him down a peg.

Signing up for the military was perhaps not their smartest move…not necessarily the thing that would help them become columnists for the LA Times and live long lives of self-satisfied indulgence.

But maybe they thought that there was something more at stake…something more than their own lives…something more important to them than life itself. And that, if they were killed, at least it was for a reason that made sense to them.

And so, they made their choices, right or wrong. And they died young.

Should we spit on their graves too? Or honour them as fellow human beings…caught up as we all are, in an incomprehensible web of lies and fantasies…and blessed, only occasionally, with spellbinding glimpses of truth and beauty?

No…we do not laugh at the shades. Because we will all soon be among them. And they may laugh at us.

Regards,

Bill Bonner,
For The Daily Reckoning Australia