Tagged as the "World's Greatest Investor", Warren Buffett is currently estimated a total of $50 Billion who as an investor avoids anything high-tech, yet one of his good friends, perhaps the "World's Most Famoust Entrepereneur" is Microsoft founder Bill Gates. Together, they share the passion for the future. Warren Buffett and Bill Gates are two who are admired and looked up to by millions of people worldwide for their knowledge and the success they have today.
During the spring of 2008, Warren Buffett and Bill Gates were invited at the University of Washington Business School. They came to share their experience and combine wisdom in conversation with the students. Below is the unofficial transcript:
|Bill Gates and Warren Buffett|
Buffett: They asked that we might start off with talking about what got us here. It's pretty simple in my case. It's not IQ, I'm sure you'll all be glad to hear that. Everybody in this room has more IQ than they need to do my job. The big thing is rationale. I always look at IQ and talent as sort of representing the horsepower of the motor but then in terms of output, the efficiency with which the motor works it depends on rationale...Why do smart people do things that interfere with getting the output they're entitled to? It gets into the habits and character and temperament, behaving in rational manner and not getting in your own way. Everybody here has the ability to do anything I do and much beyond. Some of you will but some of you won't. The ones that won't will be because you get in your own way not because the world doesn't allow you to. So I have one little suggestion for you. Pick out the student that you admire most and then write down why you admire them. Put down the list of qualities. You're not to name yourself in this (laughs) and put down the one that quite frankly stand the least in the whole group and put down the qualities that turn you off in that person. The qualities of the first one you admire are qualities you need a little practice, can make your own and which if practiced will become habit forming. The change of habit is too light to be felt until they're heavy to be broken. You will have the habits 20 years from now that you decide to put into practice today so I suggest you look at the habits and behavior you admire and make it those your own habits and then look at what you find apprehensible and decide those are things you 're not going to do...Ben Franklin did that 200 years ago and still works today and when you do that you'll find you can convert all your horsepower into output.
Gates: I think Warren is absolutely right about habit. I was lucky enough when I was young to have an exposure to computers which were very expensive and kind of limited in what they could do but still fascinating. And some of friends and I really talked about that and decided that they would change because of the miracle technology of chips into something everybody can take advantage of. And we really thought writing a software was a new thing. We hired our friends who wrote software. We thought about what the potentials were and didn't really see any limit and so that vision of getting our friends together, getting them to work as a team really seem what kind of tool this could be, a tool of how we could stay in information age. The key thing is magnifying your brainpower instead of just your muscle power. And by pursuing that with a pretty incredible focus and being there at the very beginning of the industry, we were able to build the company that has played a very central role in what's been a pretty big revolution. Now fortunately, the revolution was still at the beginning. It was 23 years ago when we started the company but there's no doubt that taking the habits we formed and sticking with those which is hard to change, the work 23 years are gonna give us a lot more potential and maybe even get us pretty close to that original vision which was computer on every desk in every home, which is a fun fun thing to be involved with.
How you define success personally?
Buffett: I can certainly define happiness cause that's what I am. I get to do what I like to do every single day of the year. I get to do with the people I like. I don't have to associate with somebody that causes my stomach to churn. The only thing in my job I don't like and this only happens only 3-4 years is occasionally I have to fire somebody. Other than that I tap dance to work, and when I get there I think I’m supposed to lie on my back and paint the ceiling. It’s tremendous fun. They say success is getting what you want and happiness is wanting what you get. I don’t know which one applies in this case, but I do know I wouldn't be doing anything else. But I do advice you when you go to work, work for an organization you admire and you ought to be happy with what you're doing. I always worry about people who say, ‘I’m only going to do this for 10 years. I really don’t like it very well. And then I’ll do this …’That’s a little like saving up sex for your old age. Not a very good idea. I don't regard what I do as the most important thing in this world at all, but it's right for me. Luckily I kinda stumble into things I do best.
Gates: I think the key point there is you gotta enjoy what you do everyday. And for me, that is working with very smart people. It's working on new problems and every time we think "Hey we have little bit of success", we're pretty careful not to dwell on it too much because the bar gets raised. People's expectations of the products... The competition, the breakthroughs, the research make the field I'm on in I think as the most exciting field there is...the computer industry, in particular software I think is the most exciting, I think I have the best job in that business.
Buffett: I have turned down business deals that would otherwise be decent deals because I didn't like people I would have to work with. I don't see any sense pretending. Take on and be involve with people that causes your stomach to churn, I say it's a lot like marrying for money, it's probably bad idea under any circumstances but absolutely crazy if you're already rich right? (laughs)
Both of you are innovators in your given industry, what's your definition of innovation is?
Buffett: I don't do a lot of innovating in what I do. I have just two functions at my job. One is to allocate capital which I enjoy doing. And the second one is to have a group of managers... to keep a group of people enthused about what they do when they have no financial need to do it whatsoever. At least 3 quarters of the managers we have are rich beyond any possible financially. Therefore my job is to figure out how to cause them to want to jump at the bed at 6 in the morning and work with all the enthusiasm they did when they were poor and starting. And if they do those things, they do the innovation.
Gates: Technology business has a lot of twists and turns. Probably why it's a fun business is that no company gets to rest on its laurels. IBM are more dominant than any company will ever be in technology and that's just not gonna happen again. And they have the smartest people and they have all the customer feedback and yet they missed a few turns on the road. And so that makes you wake up everyday thinking, "Hmmm... let's try to make sure today's not the day we miss that turn in the road." Let's find out what's going on in speed recognition, artificial intelligence, let's make sure we're hiring in the kind of people who can pull those things together and make sure we don't get surprised. Sometimes we do get taken by surprise. For example, the internet came along and we have it sort of 5th or 6th priority. It wasn't like somebody said internet to me and I said oh i don't know how to spell that. I said I got that on my list I'm okay. But there came a point where we realized it was happening faster and was much deeper phenomenon than it had been recognized in our strategy and so that's what's a case where as an act of leadership I had to create a sense of crisis and have a couple of months were we all just threw ideas and sent electronic mails around and a bunch of retreats then eventually call a few ideas... Here's what we gonna do, here's how we gonna measure ourselves internally and here's what the world should think, here's what were gonna tell them what we're going to do. And that kind of crisis is likely to come up every 3-4 years or so.
Growing up who were your biggest role models and what kind of role did they play in your success?
Gates: I have great parents, both of whom were involved in lots of interesting activities and would come home and talk to us about the world of business, law or politics or charitable activities they were involved in. They had us as avid readers and so we have pretty broad interest in reading. Scientists were group I gravitated to because the notion out of their heads they came up with mean ideas, that sort of fascniated me. So quite a bit of a time I thought I'd be a mathematician or scientist. It's only when I got to Harvard that I started to think of this sort of all absorbing hobby I got, computer stuff. Which I said ok, I gotta get rid of this and decided to do something serious until I started realized this is pretty serious and it's actually more interesting and more impactful than doing and trying to come up with a theory in math and so I had that dilemma for a couple of years but eventually decided that computer really was a great thing to be involved with.
Buffett: Instead of calling them role models, I call them heroes. I think if you tell me who your heroes are, I can tell you how you're gonna turn of at quite an extent. None of my heroes ever let me down. Number 1 was my dad and had a huge impression on me. My wife is one of my heroes. She taught me a tremendous amount and never seen anybody better with human beings. You can absorb a lot by just watching. I watched my dad and watched her. I had professor Ben Graham back in Columbia and had a big impact on myself. I've been lucky to have terrific heroes and that takes you a long long way. I've gone through 1 or 2 periods were kind of though in life like everybody but having the right heroes will take you right through it.
The internet exposes us to vast amount of information and in particular children are being exposed to more and more complex issues at vey young ages. Yourself being a father Mr. Gates what is your comment on the access now to information and how do we handle that?
Gates: Definitely the internet has every kind of information you can imagine. All the best and worst things that people are interest in are out there. The decision parents has in terms of do you let your kids go out on the internet. One great thing about the internet is if you set up the right way there's a log of exactly what's the person's gonna look at. you have to decide up to what age you think it's legitimate that you have access to see where they're going and what they're interested in. And personally I'd rather see what my kids is interested in and talk to them about it than try and block all together than ever learning anything about it. Because someday in their life whether a magazine or friend or terminal that I don't control, if they're curious about something they're going to find out about it. So my theory is not my child is gonna be ok as long as they don't hear about things... On the whole, the fact that the kid has this tool to be curious about all these topics has got to be a fantastic thing.
Do you feel that technology has made businesses more efficient to the point where we can pay more for them?
Buffett: I'm sure technology has made more efficient. I would afraid to say otherwise with Bill sitting next to me. (laughs) But a lot of things in business including maybe much of technology has the same effect as to when you went to a parade and the band started coming on the street and all of a sudden you stood up on tiptoe and another 30 seconds everybody is on tiptoe and you wouldn't be seeing any better. There is that aspect to business, the self neutralizing aspect.
Gates: There's definitely a leap, a one time leap where you go from not using technology well to using it well. Particularly of U.S. companies are doing that better than their competitors outside United States. You get all stability to communicate so you get a global scale than a lot of business before. You look at the big earth in that generating 20% return on equity are companies like Coke or Microsoft, Boeing or GE which are going to that worldwide marketplace and I know every one of those has been helped by technology. But that could not explain why 10 years from now they be getting that type of return on equity. There's something almost certainly ephemeral about current conditions.
Buffett: But the real trick is to stand up on tiptoe and not have anyone notice it. If you can do that then you do very well.
Bill, Warren the world has becoming a much smaller place both on technology and finance, how do you see yourself as businessmen taking your businesses globally and how do you view that individually as a person?
Buffett: We don't do it directly. Our two largest commitments are Coke and Gillette. Coke has 80% of the earnings coming from abroad and that would be larger in the future. Gillete has 2/3 of the earnings coming from abroad and it will be larger in the future. They are participating in the worldwide improvement in living and that will continue to participate so we do it by piggy backing. Bill has to get out there and do it for Microsoft.
Gates: One great thing about our business is it is global. What you need in a spreadsheet about the same thing in Korea, in Egypt as you need in Unites States. In a PC standard is a global standard. We have to do some adaptation for the local language and that's the fun part of our business, understanding bi-directional languages and the large alphabets you have in Chinese, Japanese, Korean. In over the years we got very very good at that. In fact our market share is much higher outside United States than inside United States because it is relatively hard to set up subsidiaries and understand local conditions, local distribution and relationship. And since most of our competitors in the U.S. and are as good at doing international business, we thrive even better in these other countries. Most of our growth will come outside United States. United States will get to a point where it's largely replacement market, most homes and business desktops will have PC's. It doesn't mean they won't replace if they want better software. But outside U.S. we have that early slope phenomenon so it's very much a global business.
Buffett: When you think about it, 15 years ago this country has almost had an inferiority complex about its stability to compete in the world. With software and the whole development of computer now the rest of the world is looking to us and Bill has played a big part. He has contributed a major way to a change about our attitude about this country and the world's attitude about this country.
What impelled you to make a trip together to China in 1995 and what's your perception before and after the trip? What has that trip affected you global visit decisions in that region ever since?
Gates: We went to China for a lot of reasons partly to relax and have fun. We found a few McDonalds there so it didn't feel too away from home. It was also excited to see the change taking place. We saw different parts of the country got to see some of the leaders. Microsoft has already been investing a lot. Although a lot about 3 million computers are sold in China people don't pay for the software (laugh). They will though...As long as they're gonna steal, we want them to steal ours. I'll figure out how to collect sometime in the next decade. It's a great great place to be involved in.
Buffett: My family was amazed, I went. I never traveled more than maybe than the outer regions of the county in Nebraska. I just went and had a terrific time and also confirmed my feelings that there will be a lot of Coca-Cola sold there in the future. (laughs)
As two of the most successful business people in the country, what role do you see yourself in giving back to your respective communities and how do you use your influence to get others to give back as well?
Buffett: I think we both have a similar philosophy on that. In my own case, 99% plus will go back to society and that will actually count everything that my family and I have lived on during our entire lifetimes. But just because we've been treated extraordinarily well by society... I'm wired in a particular way, that in a market economy, big capitalist economy, lot of action. I'm well adapted to that. I'm not adapted to pro football...I happen to be someone that pays off huge in society. I get the fun of playing of that while I live...it will go back to the society, I think it would be wrong to be otherwise. If I've been dropped down in some remote country, I wouldn't be worth a damn. I am here because of the tremendous society that surrounds me. It's all gonna go back to society and I know Bill feels very similar.
Gates: I think that's a great philosophy. Not to mention the fact that passing a lot of money could be a bad thing for the people who receive it. They may not think so at times...
Buffett: I don't think it's right that the Olympic team in 2000 should be chosen to be from the same family that was in the Olympic team in 1976...We believe in meritocracy. Why not have meritocracy in terms of what you go out to the world when in terms of the productive good. Let the resources flow to those who use them best. But then I think they ought to give it back to the society...I do not believe in the divine right of the womb. If you select the right womb then you would be entitled to do nothing the rest of your life.
There's been a lot of discussion about how the information age is revolutionizing society. I would like to get your opinion which countries and industries and companies are best prepared to take advantage of these changes and what factors would account best for their success.
Gates: If you look at what's happening with personal computers or what's happening in business in general in terms of how we allocate capital and let labor move around, United States is emerging at a very strong position. The first beneficiary of all these information technology will be United States. They're few other areas like Singapore, Hong Kong, the Scandinavian countries where they're adapting the technology basically at the same rate that we are. There's a few countries that even relative to their level of income are going after technology because they believe so much in education. In Korea and many parts in China we see incredible penetration in personal computers even if in very low income levels because they basically decided to help their kids to have access to information and to get ahead. The whole world is going to benefit in a really big way. There'll be the shift where instead of income level mainly being drive by what country you're in, it will be drive by what your education level is. So today a PhD in India doesn't make nearly as much as a PhD in United States. Unless you get the internet allowing services and advice to be transported as efficiently as goods are being transported through shipping and all those things, then you'll get essentially an open market bidding for that engineer in India vs the engineer here in the United States and that benefits everyone because you're taking better advantage of those resources and people are better off. So the developed countries will get the early benefit from these things. In the long run, the people lucky enough to get good education in developing countries will actually get an absolute the biggest boost from all these things that go on.
Buffett: I didn't get it at first. But it should, it will change the world, the technological revolution in dramatic ways and quickly. Ironically, our approach to that is just directly opposite as Bill's. His is the right one for the world's, our is the right one for me. I look for businesses where I think I can see what's it's gonna look like 10 or 15-20 years. I don't think internet is going to affect the fact that Coke will be the drink of preference and will gain its per capita consumption around the world. We are looking for the very predictable and you won't find the very predictable in what Bill does, so I have a very different opinion. As a member of the society, I applaud with what's he's doing but as an investor I keep a weary eye on it. It's a different approach to investing...
Gates: I disagree strongly with Warren early on. I think that the multiples of technology stocks should be quite a bit lower than the multiples of stocks like Coke and Gillete because we are subject to complete change in the rules. I know very well that in the next 10 years if Microsoft will still be the leader there'll be at least 3 crisis that we will have had to prove our excellence in. I accidentally once where we're in a plane with the CEO of Coke I said something like, "I couldn't run my business when I get to be 60 because it's such a hard business not like Coke." (laugh) I offended him without meaning to.
Buffett: You won't offend me! I wanna be in the business I can run when I'm a 100 because I plan to do it. I am gonna retire 5 years after I die. (laugh)
Starting a new company is very risky, how do you determine when is the best opportunity to start a company and how do you get people to support you?
Gates: When I started Microsoft I didn't think of it all as risky. I was so excited with what we're doing. For sure I could have gone bankrupt. But I have a set of skills that were highly employable. In fact my parents were still willing to let me go back to Harvard and finish my education if I wanted to. The thing that was scary to me wasn't quitting and starting a company but when I started hiring my friends and they're expected to be paid. (laugh) And then we have customers who went bankrupt, customers I counted on to come through. Then I have this conservative approach to have enough money in the bank to pay a year's worth of payroll even if we didn't get payments coming in. We have about 10 billion now which is pretty much enough for the next year. If you're gonna start a company it takes so much energy that you better overcome your feeling of risk. I don't think that it's necessary to start a company at the start of your career. I think there' a lot to be said working for a company, learning how they do things, if you're young it's hard to lease premises, they made it hard for me. You can't rent a car when you're young when you're under 25 so I always take taxis to go see customers. People say we'd have discussion at the bar, like I can go to a bar! That's fun because I tell you when people are first skeptical, thinking this kid doesn't know anything, then when you show them you really got a good product and you know something, they actually tend to go overboard and think whoa, they know a lot! It is hard to hire older people because they will be little bit conservative about whether they should come and take the risk. It took 3-4 years before we got into the normal employment pool. Those problems... You better think of those as part of the pleasure, the challenge, part of excitement.
What each of you felt was the best business decision you've made throughout your career?
Buffett: I think just getting in and jumping in the pool basically. I've always enjoy what I've done and a few things have worked out very well. Nice thing about investment business is you don't need very many You'll see plenty of time when you get chances to you have to take a big swing. That is no time to be reading a book of theory of diversification. When you find something that when know the business, it's within your circle of competence, you understand it, the price is right, the people are right, then you take your thumb out of your mouth and you barrel in.
Gates: We were talking this breakfast this morning about of all Warren's investments decisions which was the worst business decisions, it's amazing because it's hard to find because the track record is unbelievable. I think we decided that by some metric, buying a company his named after was probably the worst investment decision...
Buffett: That's true. We went into terrible business because it was cheap. It's what I referred to as "used cigar butt approach" to investing. You see this cigar butt it was soggy and terrible but there's one puff and it's free (laugh) and that's what Berkshire Hathaway was when we bought it. Actually buying Berkshire Hathaway was the single bad decision that I've made. I mean all kinds of decisions that caused us billions of dollars... there were businesses we knew enough to buy a lot of...there were businesses that I did understand, Fanny Mae was one. I made the decision to buy it and I didn't execute and we would have made billions of dollars onto something within my circle of competence and I didn't do it. Conventional accounting doesn't record that but believe me it happens.
Gates: In my case I'd say my best business decision really have to do with picking people. Deciding to go into partnership with Paul Allen is probably at the top of the list. And then subsequently, hiring friend Steve Balmer and having somebody you totally trust, who's totally committed, who shares your vision and yet has a different set of skills and also acts as a check on you. Somebody who hey wait a minute, who would have you think about this and that. The benefit of sparking off whose that kind of brilliance it's not only made it fun but also led to a lot of success so picking of partners is crucial.
If you could change one thing in your life what would it be and why?
Buffett: My age (laugh). I never look back, I don't worry about anything. I consider myself unbelievably lucky so the idea that I could have been a lot better looking or I could have been better athlete, so what? The odds when I was born was over 50 to 1 against being born in the United States and I had 2% probability. I was lucky enough to be born here and lucky enough to be born with terrific parents... When you get old, I just don't think you look back...
Gates: I think that the key resource you have to deal is time and how you spend time and I'm pretty rigorous looking back each year. I even get my friend Steve to come look at my schedule to criticize hey you didn't really need to spend time on this or that and that's pretty useful ... so I'm always trying to make sure I only do things that are important.
Hypothetically, if you are to loose everything today, keep everything in the past but right now starting fresh, and you could only keep 3 things in your life, tangible or intangible what 3 would those be?
Buffett: Well make sure how you define the three. I mean you'd like to know everything that you now know. Essentially the things I applied in the past are going to be applicable in the future. If I lost it all without losing any money of any other people, it wouldn't bother me a lot. If I took other people down with me, it would kill me. I'm not sure I'd recover from that. But if it was just my money it wouldn't make any difference at all because I keep living the same. I have to give up the plane... I eat the same way everybody in this room eats (Gates: He eats a lot worst!) Depends on how you define worse but I think you're right. And in terms of medical care, there's very little difference in how the people in this room live now and are going to live in the next 10 years the way I do... I wouldn't miss anything. I would like to keep playing the game because I enjoy it, if I had the knowledge that had gotten me here and could probably talk to somebody to give me a few bucks... but I would have a lot of fun playing the game again...I think it would be just as much fun as I do.
Gates: Starting now in a small scale again.. I think it's interesting that our business is not in one where money makes that much difference at all. In fact somebody was saying to me recently that Microsoft has such a strong position in our business, I say "Hey if you took 30 of the top people and drop them over to the other team, the score would change very very quickly." There's not some asset there, all the products are gonna be obsolete very very rapidly... it's the people and there's sense of how to do things and their enjoyment... be ashamed to give that up, but starting another company like that again, I'd have a blast doing it.
In light of public controversies, I'd like to ask you to share your perspective of what purpose or what appropriate role antitrust legislation should play in american business?
Buffett: I am no antitrust scholar. I met Bill 8 years ago and he's a terrific teacher and so I spent 6-7 hours explaining his business to me. Here I am the world's biggest dummy on technology but he explains it to me pretty darn well. When I got through with it I bought a hundred shares of stocks just to get cracked at it. I think that shows two things, one is that I got an IQ of about 50 and the second is I didn't think he had any monopoly.
Gates: Well the key goal of competition law is to protect consumers and to make sure new products get created and that those products are very innovative. And when you look at that economy at different sectors and say where is that happening very well and where it is not happening as rapidly, no matter how you score it, there is no doubt that one sector of economy would stand out as absolutely the best and that's the personal computer industry. And so the price of computing before the PC came along was going down at the certain rate, the PC came along and now it has gone down at an incredible rate. The variety and quality of software has also increased to the phenomenal rate we're absolutely at the peak of that today, the number of new software companies being started, the number of software jobs, the level of investments, the number going public...way beyond even it was years ago, it was a big uptake. And so consumers are doing very very well and so it is somewhat a surprise to find ourselves in an antitrust controversy. Thank goodness for the judiciary which is an environment where facts are tested in an appropriate way and people can see. Has the competition worked in a way it should has been beneficial to consumers and there's no doubt in our mind where that's going to come out.
How do you see your organization and how do you prepare your commonest for that period?
Buffett: Your assumption is wrong because I will keep working until five years after I die. I've given director Ouija board and I'll be in touch. (laughs) But the Ouija Board, it doesn't work. We have outstanding people that can do what I do. We've got the people identified to do that, the board of directors of Berkshire knows who they are. In fact I've gotta letter. I've already sent out a letter that tells what should be done and I've got another letter addressed which it starts out yesterday I died. It tells what are the plans for the company. It's all taken care of, it's written. I've put down at the bottom, "dictated but not read."
Gates: My attitude is a lot like Warren. I wanna keep doing what I'm doing for a long long time. I think probably a decade from now or so even though I still wanna be totally involve with Microsoft because it's my career, I will pick somebody else to be CEO (Buffett: I see some hands in the audience here) and that's a big transition for the company. Sometimes you find somebody who does better and sometimes you don't. Actually I'm pretty interested in people who wants the job, it got some fun parts to it.