What if? Warren E. Buffett, An Alternate History
"We are born a thousand men and die as one." (HBO's Industry, but also Heidegger)
In 2022, Todd Combs asked Charlie Munger an interesting question:
If you hadn't met Warren, what do you think you would have been doing in life?
Munger answered he would have continued his law practice but would still have found his way into full-time investing. (Reginald Lewis went through the same transition from advisor to principal).
Asking ‘What if?’ can lead us down interesting paths. I find it particularly compelling for Buffett given his long and well-documented career involving countless decisions and characters. Remove just a few key elements and the arc of his life could have bent in a very different direction. Or, as Munger likes to say, all of life is just “one damn relatedness after another.”
With Berkshire’s annual meeting around the corner, I had some fun imagining how close Buffett came to living a different life. What else could have happened?
In The Undoing Project, Daniel Kahneman outlined biases of imagination, what he called the ‘rules of undoing’:
In undoing some event, the mind tended to remove whatever felt surprising or unexpected—which was different from saying that it was obeying the rules of probability. It was a tool for making sense of a world of infinite possibilities by reducing them.
The more items there were to undo in order to create some alternative reality, the less likely the mind was to undo them. People seemed less likely to undo someone being killed by a massive earthquake than they were to undo a person’s being killed by a bolt of lightning, because undoing the earthquake required them to undo all the earthquake had done.
Another, related, rule was that “an event becomes gradually less changeable as it recedes into the past.” With the passage of time, the consequences of any event accumulated, and left more to undo. And the more there is to undo, the less likely the mind is to even try. — The Undoing Project
I found this to be true when I kept gravitating to key turning points in his life. It’s much harder to imagine seemingly arbitrary alternate timelines. Buffett, who serves in the Korean War and returns with a different outlook on life, disinterested in markets; or with a mental health issue, unable to focus or stomach volatility as he had before. Buffett, who barely survives an accident, retires early, and devotes his time to family and charity. Buffett, whose marriage ends early and who leaves Omaha to escape the haunting memories.
It feels much easier to remove people or decisions from the story we know, than to add new elements which can open up an infinite number of new threads.
What if he had never met Charlie Munger? No acquisition See’s Candy for starters.
Charlie was the one that said, “For God’s sakes, Warren, write the check.”
And as a result perhaps no investment in Coca-Cola.
But Buffett also used to call Munger the “abominable no-man” for the latter one’s tendency to shoot down ideas. Would Buffett have made more mistakes without Munger? Probably. But which? This may have been just as important a factor in Berkshire’s success, but it doesn’t offer a narrative to attach to. Consistent with Kahneman’s rules, the mind strains against these open-ended scenarios. So just keep in mind that this little thought experiment is inevitably biased.
Take another missed connection: what if young Buffett showed up at GEICO’s offices only to find the doors locked? No revealing conversation with Lorimer Davidson. No in-depth understanding of GEICO. I think Buffett would have been determined enough to try again. But what if…
Or consider his first acquisition of an insurance operation, National Indemnity. The fact that it was purchased for Berkshire and not for his investment partnership has been framed as a kind of original sin. Buffett wrote about it in 2014:
Early in 1967, I had Berkshire pay $8.6 million to buy National Indemnity … a small but promising Omaha-based insurer. Why did I purchase NICO for Berkshire rather than for BPL [Buffett Partnership]? I’ve had 48 years to think about that question, and I’ve yet to come up with a good answer. I simply made a colossal mistake.
If BPL had been the purchaser, my partners and I would have owned 100% of a fine business, destined to form the base for building the company Berkshire has become. Moreover, our growth would not have been impeded for nearly two decades by the unproductive funds imprisoned in the textile operation. Finally, our subsequent acquisitions would have been owned in their entirety by my partners and me rather than being 39%-owned by the legacy shareholders of Berkshire, to whom we had no obligation.
Despite these facts staring me in the face, I opted to marry 100% of an excellent business (NICO) to a 61%-owned terrible business (Berkshire Hathaway), a decision that eventually diverted $100 billion or so from BPL partners to a collection of strangers.
In The Snowball, Munger commented that Buffett would have been a lot richer “if he hadn’t been carrying all those shareholders.” In the partnership he was paid a share of the profits compared to a modest salary at Berkshire. But, Munger reflected, Buffett “was never just rawly competitive with no ethics.”
Buffett “wanted to live life a certain way, and it gave him a public record and a public platform. And I would argue that Warren’s life has worked out better this way.”
I agree. But what if…
I have more ideas for a future post. If you have your own ideas on how Buffett and Munger’s lives could have played out differently, email me or ping me on Twitter.
The Market Wizard. What if he’d never picked up Graham’s books?
The Bostonian. What if he had gone to Harvard?
The Family Office. What if the National Guard had allowed Buffett to move?
The Successor. What if Buffett had remained in New York?
The Dempster Dumpster. What if Buffett had never met Munger?
Graham’s Final Lesson.
The Market Wizard
Buffett traded stocks long before reading Ben Graham’s Intelligent Investor.
I got very interested in technical analysis. I charted stocks and did all kinds of crazy things. … I had charts coming out my ears. I loved all that stuff.
What if he’d already found success and never cared to pick up Graham’s books?
Trading his own account successfully, he might not have bothered going to business school. Technical analysis would have led him to other asset classes, particularly commodities. Instead of Berkshire Hathaway, he might have built something more similar to Commodities Corporation, a famous haven for traders and commodity research analysts. As a mentor he might have picked an old school speculator like Amos Hostetter.
The world would have first heard about Buffett and his rules for trend following and risk management in Jack Schwager’s Market Wizards. Buy a wonderful business? Why, I can just buy a wonderful chart that’s going up and to the right!
After graduating from Wharton, Buffett applied for Harvard Business School. The interview lasted “about ten minutes, and they threw me back in the water,” he recounted. Even though his father was a Congressman, the family pulled no strings for him. “Since Howard Buffett scratched no backs,” Alice Schroder wrote in The Snowball, “his own back went unscratched, and his son’s as well.”
According to her, Buffett relied on his impressive knowledge of stocks for the interview. But Buffett “had misunderstood Harvard’s mission, which was to turn out leaders.” Instead, the stock picker ended up at Columbia.
What if young Buffett had pleaded with his father for a couple of back scratches? What if he had emphasized his early business experience and painted a picture of himself as a future leader of great corporations? What if he had gone to Harvard instead?
Maybe Harvard would have awakened his interest in climbing the corporate ladder. I doubt it. I think his love for stocks would have prevailed. However, instead of working for Ben Graham, perhaps he would have ended up at a local money manager, like Fidelity. He would have absorbed a different culture and immersed himself in institutional money management. I can imagine him becoming the Midwestern version of the aggressive fund managers of the 1960s, someone like Jerry Tsai.
Tsai left Fidelity at the height of the 1960s bull market to start his own firm. He shrewdly sold it before the market fell apart (and later staged a comeback taking control of American Can which he turned into Primerica). Buffett fiercely criticized Tsai in John Train’s Money Masters.
‘Look at this!’ cried Buffett, producing an old Moody’s showing the holdings of the Manhattan Fund… We went over the portfolio and found that more than half the holdings had, within a year or so, either lost 90 percent of their value or gone bankrupt. ‘These were people’s savings!’ said Buffett. ‘This guy was supposed to be an analyst!’
It was a rare instance of Buffett criticizing someone in public. But what if Buffett had lacked Graham’s training and value mindset? What if he had spent his days immersed in the world of institutional money management? Perhaps even Buffett would not have been able to withstand the bubble’s infectious enthusiasm.
The Family Office
When Graham refused to hire him, Buffett returned to Omaha. He was enlisted in the National Guard and required their permission before moving to a different place. While he wanted to work for his idol, others saw promise in the young investor:
Between 1951 and 1954, when I was pestering Ben Graham for a job, he mentioned me to Bill Rosenwald (son of Julius Rosenwald of Sears, Roebuck) with the result that I received an exploratory letter about going to work for the family. I couldn’t follow through at the time because National Guard obligations kept me in Omaha. — Of Permanent Value
Schroeder wrote that “few jobs in money management were as prestigious, and Warren was dying to accept it, even though that meant moving back to New York City.” Well, what if the National Guard had allowed Buffett to move?
Buffett would have joined Rosenwald’s American Securities (today a private equity firm). He would not have learned the ins and outs of running a partnership at Graham-Newman. Would he have compounded capital for the Rosenwald family or still left to start his own firm? Perhaps they would have called him back once Sears started running into trouble? Would Buffett have fought the windmills of a dying retail empire the same way Eddie Lampert did?
In another version of this scenario, the National Guard declined his requests to leave altogether, including when Graham finally called him with an offer. Chained to Omaha, would Buffett have taken over his father’s brokerage? Perhaps it would have been just a short delay on his journey. But what if…
By early 1956, … Ben Graham’s career was coming to an end. He was sixty-two years old, and the market had surpassed the peak of 1929. Its priciness made him nervous. He wanted to retire and move out to California to enjoy life. Graham gave notice to his partners. But first he offered Warren the opportunity to become a general partner in the firm. — The Snowball
“If I had stayed I would have been sort of the Ben Graham of it, and Mickey would have been the Jerry Newman of it—but Mickey would have been the senior partner by miles. It would have been called Newman-Buffett.” — The Snowball
Schroeder noted that Buffett was “not cut out to work with a partner—least of all as someone’s junior partner.” He needed to go his own way. And he didn’t like the lengthy commute from Westchester to downtown Manhattan.
But what if Susie had fallen in love with New York’s bohemian Greenwich Village, cutting down on Buffett’s commute to Wall Street? What if Graham had found a way to accommodate Buffett’s desire for independence? Perhaps he could have run a second partnership by himself? What if Buffett had remained in New York?
Instead of meeting Munger, Buffett would have become a staple on Wall Street. Perhaps he would have spent time with hedge fund pioneer A.W. Jones. Perhaps Buffett’s firm would have become a training ground for a generation of analysts and investors, much like Julian Robertson’s Tiger Management? Without Berkshire as his public platform, his knowledge would have remained trapped among a small circle of professionals. Or perhaps he would still have taken control of a public company. Perhaps today, tens of thousands would make the pilgrimage to Madison Square Garden and wash down their bagels with Coke.
The Dempster Dumpster
Buffett and Munger met in 1959, when the latter was in Omaha for his father’s funeral. This meeting could have easily not happened, leaving Buffett without his intellectual sparring partner. Munger later commented he was being given too much credit in Buffett’s shift to quality. But even with Munger around, the See’s deal almost didn’t happen. Munger noted that “if they had demanded an extra $100,000, we wouldn’t have bought it.”
That was after Warren had been trained under the greatest professor of his era, and had worked 90 hours a week. We just didn’t have minds well enough trained to make an easy decision right. And by accident, they didn’t ask the extra $100,000 for it.
Perhaps Buffett would have remained mostly an old school value investor, a Walter Schloss type. I’m not so sure. See’s was important but Buffett was also starting to shift towards better businesses in other industries like newspapers, advertising agencies, and broadcasters. But perhaps he would have remained interested in deep value situations for much longer. Or he could have pivoted to distressed assets in the 1980s like other value investors (Max Heine, Michael Price, Seth Klarman, etc.).
A less obvious what if is the case of Dempster Mill. Dempster was a manufacturer of windmills and farming equipment. Buffett acquired control of this messy turnaround situation (find a case study here):
Buffett had nibbled at the stock—a cheap, typical-Graham play—a few years earlier. In 1961, he snapped up the controlling interest, giving him 70 percent—and staking a fifth of his partnerships’ assets on it. Buffett appointed himself Chairman, a prophetic move (and unusual for a money manager) that signaled an ambition to be something more than just an investor. Buffett’s Case Study on Dempster Mill Manufacturing Company
Buffett worked with its managers “toward more effective utilization of capital, better operating margins, reduction of overhead.” Unfortunately, “these efforts were completely fruitless.”
“Either through inability or unwillingness, nothing was being accomplished.”
Buffett needed help and it was Munger who offered it.
“We were going to dinner with the Grahams and the Mungers. I’m telling Charlie, ‘I’m in this mess with this company; I’ve got this jerk running Dempster, and the inventories keep going up and up.’”
Munger, who dissected his law clients’ businesses and thought like a manager, said immediately, “Well, I know this guy that used to bring around tough situations out here. Harry Bottle.” — The Snowball
Bottle turned the company around and the rest is history. Hiring him, Buffett recounted, ‘may have been the most important management decision I ever made.’
Dempster was in big trouble under two previous managers, and the banks were treating us as a potential bankruptcy. If Dempster had gone down, my life and fortunes would have been a lot different from that time forward.” — Of Permanent Value
Without Munger no Harry Bottle. And without a successful exit at Dempster? Even if Buffett had eventually turned the company around, one can only imagine the mental scar tissue that would have remained. Buffett tried to avoid confrontation and this situation created lots of it. What if he had sworn off taking control of bad businesses forever? Perhaps Berkshire would have landed in the ‘too hard’ pile.
Graham’s final lesson
I also wonder if Buffett might have quit eventually, had he not met Munger. It is a lot more fun to play the game with great friends. Imagine Buffett all by himself on the Berkshire podium, year after year?
If he had retired decades ago, most of us would never have heard of him.
And in fact he almost retired once. Buffett shut down his partnership because the market was overheated and because he wondered if he still had the same competitive drive.
Some of you are going to ask, "What do you plan to do?" I don't have an answer to that question. I do know that when I am 60, I should be attempting to achieve different personal goals than those which had priority at age 20.
Therefore, unless I now divorce myself from the activity that has consumed virtually all of my time and energies during the first eighteen years of my adult life, I am unlikely to develop activities that will be appropriate to new circumstances in subsequent years.
Buffett never ended up “divorcing himself” from the activity that “consumed virtually all” of his time and energy. But he could have. What if, shortly before his death, Graham had invited his protégé to Laguna Beach to share one final lesson? You know, Warren, money isn’t everything.
I doubt it would have made a difference. Nothing ever grabbed Buffett’s attention as much as business and markets. However, maybe this was because Buffett never allowed himself much of a distraction. He took no sabbatical and spent no time exploring other paths. He kept his attention focused on one domain.
Buffett closed his partnership in 1969, at the peak of the counterculture movement. What if Susie had taken him along on a trip to San Francisco? What if the sage of Omaha had taken some LSD? What if…
Thank you for reading,
Loved this piece. The rabbit holes one goes down when thinking what could have been. The piece reminded me of Emanuel Derman’s pinned tweet. https://twitter.com/emanuelderman/status/1293001208609804288
Great read, enjoyed it. Thanks.