Warren Buffet (R) and
Charlie Munger
Photo: AP
do the deals. People can see how our
subsidiaries operate in the future
and the truth is that I think some
of the other executives are getting
better known. As I mentioned, my
phone isn’t ringing off the hook with
good deals but maybe the next guy
will get more calls. We absolutely are
the first call and we will continue to
be the first call whether Charlie or I
answer the phone or somebody else
does.
MUNGER: It is weird that about
99 per cent of public companies
that change hands in a sort of
auction provided or presided
over by an investment banker is
leveraged to the gills and then re-
leveraged. Their money is coming
out of charitable endowments and
pension plans. Sooner or later this
is going to end in an unpleasant
episode, and, I think, we’ll be around
in good shape at that time.
Warren, one of your more famous
and perhaps most insightful
quotes goes as follows, “Should
you find yourself in a chronically
leaking boat, energy devoted to
changing vessels is likely to be more
productive than energy devoted
to patching leaks.” In light of the
unauthorized accounting scandal
at Wells Fargo at what magnitude
of leakage would Berkshire consider
changing vessels?
BUFFETT: Wells Fargo proved the
efficacy of incentives and it’s just
that they had the wrong incentives.
That was bad. But they committed
a much greater error by ignoring
the fact that they had a faulty
incentive system. You can’t have
377,000 employees and expect
that everyone is behaving like Ben
Franklin. If we find something
wrong is going on, we need to do
something about it. Wells Fargo
and Salomon didn’t do it. The
truth is we’ve made a couple of our
greatest investments with people
who have made similar errors such
as American Express and Geico.
And that caused a lot of pain at
American Express in 1964. It caused
a lot of pain at GEICO in 1976.
It caused a layoff of a significant
portion of the workforce, all kinds
of things. But they cleaned it up. I
see no reason why Wells Fargo as a
company from both an investment
standpoint and a moral standpoint
is in any way inferior to the other big
banks with which it competes. I like
Tim Sloan as a manager, and he is
correcting mistakes made by other
people. Charlie says that an ounce
of prevention isn’t worth a pound of
cure but about a ton of cure.
MUNGER: Wells Fargo is g oing
to be better going forward than
it would have been if these leaks
had never been discovered. I think
Harvey Weinstein has done a lot
to improve behavior. If I had to say
which bank is likely to behave the
best in the future, it might well be
Wells Fargo, of all of them.
I’m a huge fan of your Charlie,
mostly for your [book]- The 25
Cognitive Biases. I’m fairly certain
that your cognitive biases work
for Internet-related companies.
Now that you’re partnering with
Amazon [and JPMorgan] on
health care, I’m curious, have you
started to understand how to apply
these biases to Internet-related
companies? Or is there another set
of tools you use to decide if you
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