The letter was from an adviser to Forest River Inc., an
Mr. Buffett liked what he saw: The company had a big market share and little debt.
The next day, Mr. Buffett offered to buy
Mr. Buffett has relied on gut instinct for decades to run Berkshire Hathaway Inc. Watch him at work inside his $136 billion investment behemoth, and what you see resembles no other modern financial titan. He spends most of his day alone in an office with no computer. He makes swift investment decisions, steers clear of meetings and advisers, eschews set procedures and doesn't require frequent reports from managers. Occasionally he picks up the phone, calls his broker and trades $100 million or more of stock.
A TRUE SPECIALIST
James Maguire is a "specialist" with one of the premiere jobs in the business1: He is responsible for trading Berkshire Hathaway.
On a recent Wednesday, he received only 13 phone calls, including one wrong number. There were no urgent confabs with his staff. He found time to work on new lyrics to "Love Me Tender" for a birthday party for his friend Bill Gates, and to demonstrate a newspaper-throwing technique he learned while delivering papers as a boy in
The older Mr. Buffett gets -- he turned 75 in August -- the more his minimalist approach poses thorny questions for
Mr. Buffett says he has no immediate plans to step down and does not intend to name a successor beforehand. Mr. Gates, Microsoft's chief executive and a
The uncertainty troubles some outsiders. In April, Fitch Ratings revised the ratings outlook on $7.5 billion of
Though his empire has grown, Mr. Buffett says his routine has changed little over the years. He says he spends the better part of most workdays thinking and reading. He fields a handful of phone calls, and on most days, he confers with the chiefs of a few
Mr. Buffett, with a personal net worth of $43 billion, is the nation's second-richest man, after Mr. Gates. His nearly 55-year record has brought him recognition as one of the best investors ever, earned him fierce loyalty from
Mr. Buffett calculates that since 1951, he has generated an average annual return of about 31%. The average return for the Standard & Poor's 500 over that period is 11% a year. A $1,000 investment in
Berkshire Hathaway, of which he owns about 31%, is a large and complex business. It has substantial stakes in Coca-Cola Co., Wells Fargo Co. and American Express Co. And it boasts 42 subsidiaries in businesses ranging from insurance to ice cream to bricks.
Mr. Buffett believes that managers of these companies ought to be left to run their businesses without interference from him, and without having to hew to any unifying corporate strategies or goals. "We delegate to the point of abdication," Mr. Buffett says in
This approach sets him apart from other chief executives. Former General Electric Co. Chief Executive Jack Welch, for example, decentralized management but closely monitored his managers, who had to meet strict goals. Microsoft Corp. requires that its offices and businesses around the globe coordinate their efforts so the company's products fit together.
Even the job of investing Berkshire's $45 billion stock-investment portfolio -- bigger than all but eight of the 7,063
Despite its size,
Marc Hamburg, the 56-year-old chief financial officer, oversees financial reports produced by
Mr. Buffett tells the chiefs of his business units not to produce any special reports for him. When Berkshire was acquiring wholesale food distributor McLane Co. in May 2003, for example, he told Chief Executive Grady Rosier that whatever reports he was producing for its then-owner, Wal-Mart Stores Inc., would be fine for
Mr. Rosier called Mr. Buffett recently to discuss two company jets. "
AN OWNER'S MANUAL
Charlie [Munger] and I are the managing partners of
Charlie and I mainly attend to capital allocation and the care and feeding of our key managers. Most of these managers are happiest when they are left alone to run their businesses, and that is customarily just how we leave them. That puts them in charge of all operating decisions and of dispatching the excess cash they generate to headquarters.
Most of our managers are independently wealthy, and it's therefore up to us to create a climate that encourages them to choose working with
"That is your decision," Mr. Rosier recalls Mr. Buffett replying. "That is your company to run." Says Mr. Rosier: "Wal-Mart left us alone, too. But not like this."
Over the years, not all of
On occasion, problems of such severity arise that Mr. Buffett abandons his hands-off approach. Trouble surfaced several years ago at General Re,
Earlier this year, regulators began investigating a transaction General Re did in 2000 with American International Group Inc. They are examining whether AIG manipulated its books to mislead investors, and whether executives at the
On that recent Wednesday morning, at just before 9, Mr. Buffett pulled his slate-colored Lincoln Town Car with vanity license plate "THRIFTY" into a parking garage in downtown
He chatted briefly with his assistant, then hurried into his modest-size office and shut the door. There is no computer in there, nor is there a stock-quote machine or stock-data terminal. He keeps a muted television set tuned to CNBC, the financial-news network. Although he occasionally carries a cellphone on the road, he does not use one in
He had barely settled into his seat when one of them rang. It was John Freund, his longtime broker from Citigroup Inc.'s investment-banking unit. Mr. Freund briefed Mr. Buffett on a stock position he had been building for
By the end of the day, Mr. Buffett had bought $140 million of the stock for
Even with such heavy trading, Mr. Buffett's desk isn't littered with stock research. "I don't use analysts or fortune tellers," he says. "If I had to pick one, I don't know which it would be."
Mr. Freund says that when Mr. Buffett is buying stock, he pays little attention to some factors that shape other investors' decisions, such as the economic climate. "He doesn't wait to see what the Fed is doing" to make a trade, Mr. Freund says. Mr. Buffett also can move more quickly than his other clients, he says. "There is no investment committee," the broker explains. "That allows him to make immediate decisions."
Mr. Buffett gives Mr. Freund wide latitude to execute transactions. In 2003, for example, Mr. Buffett was buying shares of Chinese oil company PetroChina Co. Mr. Freund would often call Mr. Buffett at about 9 p.m. Omaha time, when the Hong Kong market was open, an hour at which Mr. Buffett is typically relaxing at home in a sweat suit, playing bridge online. He interrupted his games to place orders.
One night, when a 200-million-share block of PetroChina came on the market, Mr. Freund phoned Mr. Buffett to gauge his interest. "Let's bid," he recalls Mr. Buffett saying. Later that night, a
Mr. Buffett deliberately keeps the outside world at bay, believing it is the best way for him to remain "rational" as an investor. If he is interested in investing in a company, he studies the financials himself. "I've created a good environment," he says. "All I have to do is think and not be influenced by others."
Last year, Mr. Buffett says, he began buying Korean stocks for his personal brokerage account, investing a total of $100 million in roughly 20 Korean companies. He says that the investments were too small to be appropriate for the
He picked the stocks, which he declines to name, by leafing through a reference book compiled in
This year, Mr. Buffett's name surfaced in published reports about potential investors in Dow Jones & Co., the publisher of this newspaper. Mr. Buffett, whose company holds an 18.1% stake in Washington Post Co., declines to comment, as does a spokeswoman for Dow Jones. The Bancroft family, which holds a controlling stake, has said the company is not for sale.
Mr. Buffett, an
In the ensuing decades, Mr. Buffett added several large insurance companies, including General Re and Geico, a national auto-insurance company. He also bought an eclectic mix of manufacturing and retail companies, from paint company Benjamin Moore & Co. to underwear maker Fruit of the Loom Inc.
After speaking with Mr. Freund that day, Mr. Buffett received calls from the chiefs of three
Around , a call came in from David Sokol, chief executive of
Mr. Buffett tends to stick to investments for the long haul, even when the going gets bumpy. Mr. Sokol recalls bracing for an August 2004 meeting at which he planned to break the news to Mr. Buffett that the
"I would have fired me if I was him," Mr. Sokol says.
"If you don't make mistakes, you can't make decisions," Mr. Buffett says. "You can't dwell on them." Mr. Buffett notes that he has made "a lot bigger mistakes" himself than Mr. Sokol did.
That afternoon, Mr. Buffett phoned Ajit Jain, who runs the reinsurance business of National Indemnity. Hurricane Wilma was gaining force in the
"One-hundred percent, worst case," Mr. Jain replied. Despite the reduced exposure,
Judgment calls such as Mr. Buffett's move to reduce hurricane exposure make his succession a difficult issue for
Succession has been a big topic of conversation of late at board meetings, directors say. "We delayed it until late and then devoted a lot of time to it," says Charles Munger,
"The chance of getting another
Mr. Buffett has allowed about $40 billion of cash to accumulate at