Lunch With Warren Buffett - Part 2

Each year a lunch with Warren Buffett is auctioned online by the Glide Foundation as a fund raiser. In 2007 it went for $650,100, in 2008 for $2.1 million and in 2009 the winning bid was $1.7 million. In 2006 my wife, Shelly, and I had lunch with Warren for free (and he bought). We felt like we were getting a good deal at the time but felt even better when the auction amounts went so high.

I began corresponding with Warren in 1994. It turned out that one of his earliest investments was in The Western Insurance Companies which were based in my hometown of Fort Scott, Kansas, about 80 miles south of Kansas City. Warren said he put 50% of his net worth in stock of The Western and “It did very, very well.”

When we arrived, Shelly and I were invited into the Berkshire Hathaway offices for a short visit. There is no fancy lobby, no expensive wood paneling and only 19 people work at world headquarters. They oversee more than 60 companies which have 200,000+ employees. In 2009 revenues for the entire company were over $100 billion. There is probably not a more efficiently run main office, for the size of the overall company, in the country.

During our visit Buffett went through the process of finding and analyzing The Western which included contacting the Nebraska Department of Insurance as well as Independent Insurance Agents who represented The Western and agents who competed against the company. Then Buffett went to Kansas City and met with then CEO Ray Duboc. This was intriguing to me because he did the same thing at GEICO, with Lorimer Davidson. Buffett was 21 years old at the time. How many 21 year olds walk in and get access to company CEOs? In a letter after our lunch Buffett wrote, "Western, in a major way, contributed to the financial success I had. I owe a lot to Ray Duboc, the Western and Fort Scott, Kansas."

During lunch we discussed reinsurance and the New Madrid fault catastrophe exposure. Berkshire Hathaway writes insurance for insurance companies, which is called reinsurance. Those companies in turn write the actual polices we purchase to cover our homes, automobiles and businesses. He mentioned a $1.5 billion fire-following earthquake reinsurance contract Berkshire Hathaway writes for a major insurance company. One of his responsibilities in running the company is to manage the amount of exposure the company has to any one catastrophe which can occur, which is why he keeps an eye on the New Madrid situation.

We talked about the best deal on credit cards. He showed me his American Express Green card and I showed him my American Express Platinum card. We compared annual fees and mine was lower. When I told him it was a Costco American Express card he smiled and said they are a good company and the vice chairman of Berkshire Hathaway, Charlie Munger, is on the board of directors there. Buffett is notoriously frugal so being able to "one-up" him on the credit card fee was a bit of a coup.

When I mentioned a free meal we had received during our trip to Omaha, Warren pulled out his billfold and showed us complementary dining cards he has from a few restaurants where he can eat for free. You wouldn't think the richest man in the world would even keep cards like that, but he is a known bargain hunter. I won't mention any names, but one was an establishment that guys really like because the servers are all cute girls in somewhat skimpy outfits.

One of my goals during the visit was to ask Buffett a question he could not answer. I accomplished this by asking, "Do you know what your credit score is?" He said he did not. I guessed he had not experienced any problems obtaining credit along the way. In the March 31, 2008 issue of Fortune Magazine I read where he did check his credit score. It was 718, which is slightly below the U.S. median. He quipped, "I've been telling my family for years my credit was sort of shaky." Turns out there were some incorrect entries on his credit report.

Specific investments were not discussed, except for one company in Kansas City. It was a smaller company and one he had not heard of. Berkshire Hathaway has grown in size to the point where investing in or buying smaller companies won't have enough impact on the results to make it worthwhile.

When you're really good at something it looks very easy. Buffett started his career with $10,000 and turned it into $60+ billion. In 2010 he was the 3rd richest man in the world, per Forbes Magazine. All he did was look for good companies to invest in or buy outright and then he hung on over a long period of time. It sounds simple and it is, but it's very difficult to implement.

Learn The Secrets To Getting Free Money

Two very attractive young ladies flash (a figure of speech) on the TV screen in a program titled Learn The Secrets To Getting Free Money. Obviously this is important information so I pay close attention.

One of the young ladies is Denise Pernula who is a Playboy Bunny (and Entertainment Correspondent) which are two things I had never put together but the fit, upon reflection, is obvious. The other young lady is Sara Underwood who was Playmate of The Year in 2007. It’s quickly obvious to me I am going to be exposed to some powerful financial information.

They introduce the segment Free Money by Kevin Trudeau. He is a #1 New York Times Best Selling Author and, much more importantly, a consumer advocate. So here we have the holy grail of financial success. Cute girls, an author and consumer advocate. I can hardly wait.

His stated goal is to provide us with access to billions in free money from the government. From the onset I’m thinking this will be really great information as long as we don’t all try to access these billions at the same time. If we did, of course, we would end up swapping billions among ourselves (since we are, technically, the government).

The two young ladies look enthralled to be learning this information, my guess being that the Playmate and Bunny positions do not pay all that much, which is why they probably wanted to be on this program and as close to the source, Mr. Trudeau, as they could get.

Wikipedia.org has an interesting recap of Mr. Trudeau’s activities since 1990. Along the way there were charges of fraud and, well, I’ll let you read the details online when you have a chance. A search for “Kevin Trudeau Fraud” (with or without the parenthesis) will turn up some interesting information.

He is also the author of Natural Cures “They” Don’t Want You To Know About, The Weight Loss Cure "They" Don't Want You To Know About as well as Debt Cures "They" Don't Want You To Know About. Apparently “They” don’t want you to know much of anything. In addition, although it does not involve “They,” he has promoted Advanced Mega Memory and Mega Memory audio tapes. This could be how he remembered the phone numbers of the two young ladies so he could invite them to be on the show.

But wait, there’s more! Another book titled Lose 30 Pounds in 30 Days! The Weight Loss Secrets "They" Don't Want You to Know About (There “They” are again!)

Lose weight, access billions, develop a great memory? How can one guy take care of all these great societal challenges all by himself?

Oh, the title of the book he sells is Free Money “They” Don’t Want You To Know About. But wait, it gets better. If you order online you’ll receive as a Free Bonus, “Debt Cures” (you only pay an additional $11.95 for postage and handling). How can they give that book away for FREE? You, being a savvy consumer, have already figured that one out, haven’t you?

When I Grow Up

In 1999, Monster.com ran an ad on TV that featured kids saying the following things about their future career aspirations:

• When I grow up, I want to file all day.
• I want to claw my way up to middle management.
• Be replaced on a whim.
• I want to have a brown nose.
• I want to be a yes man.
• Yes woman.
• Yes, sir. Coming, sir.
• Anything for a raise, sir.
• I want to be underappreciated.
• Be paid less for doing the same job.
• I want to be forced into early retirement.

Now, with that background from the Monster.com commercial I’d like to propose a financial planning version which goes like this:

• When I grow up I want to do a poor job of managing my financial resources.
• I want to buy things I won’t use or don’t really have a need for.
• See how much I can charge on my credit cards before they finally cut me off.
• Buy a house just to impress people, even if I can’t really afford to pay for it.
• Drive a new car every year and eat that expensive depreciation for breakfast, lunch and dinner.
• Ignore the fact my family is counting on me and avoid any kind of estate planning which might provide for and take care of them.
• Buy stocks on a hunch, hot tip or whim.
• Spend money I don’t have, on things I don’t need, to impress people I don’t even know or like.
• Hope for the best. As Alfred E. Neuman would say, “What! Me worry?”

Lunch With Warren Buffett

My wife and I had lunch with Warren Buffett on December 1, 2006. He was the richest man in the world at the time and I told him about the richest man in my hometown of Fort Scott, Kansas, who had a one car garage. Warren smiled and said, “Well Rick, I have a two car garage!”

What does this have to do with managing your money? It’s about what you consider to be important. Obviously a really big house and garage are not that important to Buffett. While he could afford any house he wants now, he just doesn’t want a newer, bigger or fancier house. He’s happy with what he has. A lot of people never quite figure this out.

The happiest people I know also seem to have their finances under control. They sleep better, have a more positive outlook on life and they have the opportunity to make financial decisions while playing offense, instead of playing from a defensive position. Some of these people were just intuitive about money. They took to managing it like some people pick up a golf club and have a natural swing. Earl Nightingale said there are two kinds of successful people in life. River People and Goal People. River People are born with some natural abilities and instincts which drive them a certain way. Goal People can be successful too, they just have to work a little harder to get there. But one way or the other, you need to get your money life organized and under control. Buffett, in case you are wondering, is a River Person.