Warren Buffett did some teaching in his office by bringing his relatively new Berkshire Hathaway money managers, Todd Combs and Ted Weschler, into the loop for the recent agreement to purchase Oriental Trading Co. of Omaha.
Oriental Trading CEO Sam Taylor and Chief Financial Officer Steve Mendlik met with Buffett, Combs and Weschler to discuss the deal, and Buffett agreed to a sale price reported by the Wall Street Journal at $500 million.
“They had some very good questions,” Taylor said. “We talked for about two hours.”
Combs and Weschler, who joined Berkshire in 2010 and 2011, respectively, spend most of their time buying stocks with Berkshire's money. Buying whole companies is Buffett's job and an even more important part of the company's investment strategy. If Combs and/or Weschler are to take over that duty someday, it's good for them to learn from the master.
Being able to look at Oriental Trading's basic value as a business, beyond its 2010-11 bankruptcy, was a classic Buffett lesson.
In 1984, he made a $62 million gain by buying bonds issued by the Washington Public Power Supply System on three of its electrical power plants. One of its other plants had run into financial trouble, which caused most investors to shun all of the bonds issued by WPPSS (pronounced, unfortunately, as “whoops”). That made bonds tied to WPPSS's healthy power plants a bargain that Buffett snapped up.
Oriental Trading's bankruptcy may have discouraged other buyers, but it erased most of a $720 million debt and freed up the company's healthy business operations, according to Taylor. The figures he and Mendlik showed Buffett, Weschler and Combs proved the point, and the deal followed quickly.
Then Taylor and other top Oriental Trading executives had to keep the deal secret until the public announcement on Nov. 1. That meant they couldn't talk about it during the company's annual Halloween celebration for employees.
Taylor, an amateur singer, appeared in a skit as Elvis Presley, singing a version of “Burnin' Love” retitled “Teachin' Love.” The company sells school supplies, decorations and novelties to schools and teachers, including “Hands on Fun,” a line of school activity products.
A sample verse:
Oh, my goodness!
Another school day is dawning.
It's closer, closer,
Those kids can lose control.
My, oh, my,
It's tough to be a teacher.
Young minds to feed —
It's weighing down on my soul.
But I've got my Hands on Fun!
With products by the ton.
Boredom's on the run
With learnin' love.
'Buffettology' in England
Money managers are still trying to duplicate Warren Buffett's success by following his investing principles, the Wall Street Journal reported.
One of the latest is Keith Ashworth-Lord of Manchester, England, who started the ConBrio Sanford Deland UK Buffettology Fund a year ago, buying British stocks that Ashworth-Lord figures would appeal to Buffett. The fund has invested $4.1 million and has returned 29 percent this year.
He told the Journal that he likes being away from the heart of England's investment scene. “I work out of Manchester, not London. It's like how he works in Omaha, not on Wall Street. You're not bombarded by information.”
Among the sources of information he does follow, to keep up on Buffett: Omaha.com. So, hello, there, Keith.
The “Buffettology” term comes from a book by Mary Buffett, a former daughter-in-law, and David Clark. The Journal pointed out that many other investment funds have tried to duplicate Buffett's investing success but found it difficult without a steady source of cash like Berkshire's insurance companies. A fund that simply holds onto stock in “staid” companies may not attract investors, the story said.
Visiting business students
The latest crop of business students to visit Buffett and Berkshire's Omaha businesses included three who didn't have far to travel: Kansas State University, the University of Nebraska-Lincoln and the University of Nebraska at Omaha, along with Columbia, Dartmouth, Illinois, Missouri and the London Business School.
The Collegian at K-State said Buffett wore a purple-striped tie — a school-color birthday gift from the business students — and complimented the school on its undefeated football season.
The meeting took place before last week's presidential election, but Buffett told the students he expected “less silliness” in Washington no matter who won.
“He is kind of the reason I'm interested in finance,” said business student Mike Records, who attends the annual meeting of Berkshire shareholders in Omaha. “When he went out and made all that money, he didn't just go blow it all. He's really down to earth. He does it because he loves to, not because of money.”
Buffett told students not to worry about mistakes they make in life, UNO's Gateway newspaper reported.
“He kept repeating how important it is to love what you're doing,” said UNO student Maja Mihalinec. “When we go out and look for jobs, we should think about the job we would want to have if we were already rich.”
The purple shoes story
The Business Insider website called it a “bizarre question,” but it seemed more like Buffett urging a friend to tell a funny story from the old days.
Buffett called up CNBC when he saw Jack Welch, former CEO of General Electric, on the screen and asked him about his early job selling shoes for the Thom McAn shoe store chain. Buffett, a former J.C. Penney shoe salesman himself, asked about Welch's technique for selling purple shoes to women rather than standard black shoes.
Welch remembered that he got a 25-cent commission for selling the overstocked purple shoes, instead of the 5-cent commission for black shoes, but didn't recall what he told women so they would buy purple.
The rest of the exchange:
Buffett: Well, I think you told me that if they were in purple shoes, men would look at them from miles away, but if they kept wearing those black shoes, which they were only paying a nickel on, they were going to have real trouble.
Welch: I didn't remember that, but that could have been true.
Buffett: You were well-known for that at Thom McAn, and it was the beginning of a fantastic career, Jack.
Welch: Warren, I love you.
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