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Billionaire Buffett Operates on ‘Gut Instinct’

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November 18, 2005 by   Comments Off on Billionaire Buffett Operates on ‘Gut Instinct’

The actual negotiation period between Warren Buffett and Pete Liegl that folded Forest River Inc. into Berkshire Hathaway’s portfolio lasted around 20 minutes, according to a profile in last weekend’s Wall Street Journal.
Buffett, the billionaire investor and insurance executive, was in his Omaha, Neb., office this summer when he received a faxed letter about a company he’d never heard of.
The letter was from an adviser to Forest River, an Elkhart, Ind., recreational vehicle maker. He proposed that Buffett buy the company for $800 million.
Buffett liked what he saw: The company had a big market share and little debt.
The next day, Buffett offered to buy Forest River and to let Liegl, the company’s founder, continue running it. He sealed the deal, at an undisclosed price, in a 20-minute meeting one week later. As the meeting wrapped up, Buffett told Liegl not to expect to hear from him more than once a year. Says Liegl: “It was easier to sell my business than to renew my driver’s license.”
Buffett has relied on gut instinct for decades to run Berkshire Hathaway Inc. Watch him at work inside his $136 billion investment behemoth, and what you see resembles no other modern financial titan. He spends most of his day alone in an office with no computer. He makes swift investment decisions, steers clear of meetings and advisers, eschews set procedures and doesn’t require frequent reports from managers. Occasionally he picks up the phone, calls his broker and trades $100 million or more of stock.
Though his empire has grown, Buffett, who turned 75 in August, says his routine has changed little over the years. He says he spends the better part of most workdays thinking and reading. He fields a handful of phone calls, and on most days, he confers with the chiefs of a few Berkshire subsidiaries. He seldom holds meetings. “There isn’t much going on here,” he says of his office on a typical day.
His nearly 55-year record has brought him recognition as one of the best investors ever, earned him fierce loyalty from Berkshire shareholders and inspired legions of investors who attempt to ape his moves.
That includes his hands-off management style. Buffett believes that managers of his companies ought to be left to run their businesses without interference from him, and without having to adhere to any unifying corporate strategies or goals. “We delegate to the point of abdication,” Buffett says in Berkshire’s Owner’s Manual, a six-page manifesto posted on the company’s website.
It’s hard to find any flaws in his business model. Buffett, with a personal net worth of $43 billion, is the nation’s second-richest man, after Bill Gates.

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