After much reflection, the Sage of Omaha has finally passed through the looking glass. And as in creating it, Warren Buffet’s philosophy of giving his wealth remains the same: seeking long term growth of value. His disdain for diversification and all high-cost intermediaries the idea brings with it, his focus on decades rather than quarters in terms of returns, his long term seeking of a charity that will do the “most good” rather than “some good” are direct reflections from his 30-year mirror of investing — more bang for the buck, in this case a ‘social’ bang. Citizens of Buffettville know this, but for the rest of the world, this one man has, during the past four decades of Berkshire Hathaway's existence, increased the company’s book value per share by 21.5 per cent per annum. To translate this into touchable numbers, if your NRI brother had invested $1,000 in Berkshire in 1965, that investment would be worth more than $2 million today. To see the Midas in this touch, the same money invested in S&P would have turned into $50,000. It is this 11.2 percentage point per annum difference and the celestial magic of compounding of which Buffett is a strong believer, that has generated this 40-fold gap. With about $30 billion going to Buffett’s fellow wealth creator (for over five years now, Bill Gates and he have been standing at the No. 1 and No. 2 slots in Forbes rankings of billionaires), friend and now partner in charity, he’s also investing in a relationship of values. In his June 26 letter to Gates, Buffett highlights this sense of togetherness, an intimacy bonded by wealth: “Working through the Foundation, both of you have applied truly unusual intelligence, energy and heart to improving the lives of millions of fellow humans who have not been as lucky as the three of us.” The $29.2 billion Bill and Melinda Gates Foundation (BMG) works in the areas of global health and education. Why do we create wealth? At the very bottom of the pyramid, it is for survival — today and tomorrow. Climb up a little and it’s a house — the right size, in the right area. The next rung is all about high-end memberships — golfing at the right club, smoking the right cigar, vacationing the right cruise. You still need to climb many more rungs — go beyond the Capgemini annual World Wealth reports, the millionaire-billionaire catalogues — before you reach the peak, the very top of all lists, aspirations, imaginations. That’s where Buffett and Gates sit. Buffett could well have passed on his wealth to his children, Susan, Howard and Peter. But the conviction of capitalism, of equal opportunity and no more, came in the way: “The idea that you get a lifetime supply of food stamps based on coming out of the right womb strikes at my idea of fairness.” This competency-based criteria works for charity too: while BMG Foundation will get 10 million shares, the Susan Thompson Buffett Foundation will get 1 million shares and charities run by his three children will get 350,000 shares each. All told, 85 per cent of Buffett's wealth, worth about $37 billion are given away. The values and principles of capitalism being applied to giving don’t end here. As one of his many biographers, Roger Lowenstein, notes in Buffett: the Making of an American Capitalist, “He seemed to be searching for the Coca-Cola of charities” (Buffett owns 8.4 per cent of Coca-Cola, bought at $1.3 billion and worth over $8 billion). His pet causes were the danger of nuclear war and population control. When you try and see how the two — his causes and his investment strategies — are linked, you need to watch just one entity: Time. Just like his investments look beyond the last quarter and into the next few decades, his view on causes that needed to be funded was equally long term, both attempted to remove the pain of a future nuclear war or a future oversupply of people. Of course, that has changed since and he seems to be more at ease with health and education — both, like his wealth creation methods, intangible. There is one more link that the BMG Foundation has with Buffett’s later investment habits. Once the Berkshire investible surplus grew beyond a certain level, Buffett was constrained to buy not shares and parts but acquire full companies. His six-fold “acquisition criteria” for buying companies worth $5-20 billion includes at least $75 million of pre-tax earnings, demonstrated consistent earning power, simple businesses and “Management in place (we can’t supply it)”. The BMG Foundation fits in neatly: it has the scale he seeks and the management he can bank on (that’s why Buffett will give in instalments and for as long as at least one of the two Gates is “alive and active”). In his giving, Buffett is completing the circle of capitalism — applying his mind to resources handed to him by society, systematically creating wealth and finally returning that wealth back to society for more Buffetts to harness. He invested with people and companies that could grow money better than he could. He’s now giving with the same idea — to people who can deliver better than he can. Showing, essentially, that creating and giving wealth are two sides of the same gold coin.
