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.