Discovering Warren Buffett likes Pipelines
If you’ve spent any time in the professional investor universe—you know—the landscape is chock-a-block with liars. Professional investors speak to other professional investors about companies they like, when they don’t own a single share of that company. They claim to be building a position, when really, they’ve just dumped their entire position. They say they’re short something when they’re actually long, long when they’re short; they own at-the-money options when they wouldn’t even put up money for the tails. They think Japanese Yen is undervalued, but they’re still selling. The bond wears an attractive coupon, but they’d never touch it. It goes on and on. The lies. The subterfuge. The dialectic angling.
Enter the exception: Warren Buffett.
Is it the investing track record that makes the man? Is it the fact that he spends all day reading quietly, by himself, in a room? Is it the five 12-ounce cans of Coke-a-cola he drinks a day? Regular Coke at work. Cherry Coke at home? Anyone who has read the books and watched the documentaries on Warren Buffett knows he’s an unusual bird. Why is he unusual?
Warren Buffett is unusual because he tells the truth.
By the way: how do you know when someone is telling the truth? I submit: you read what they’ve written. You read everything they’ve written. It’s easy to lie when speaking to a TV camera. It’s easy to lie when speaking to a crowd. It’s easy to lie in a conference room, when it’s clear the meeting will be over sooner, the goal will be achieved, if the expedient thing is uttered. It’s harder, actually, it’s impossible, to write your thoughts down on paper for 56 years (1970-2025) and do anything other than tell the truth. Let me explain.
Warren Buffett writes an annual letter. These annual letters detail his thoughts and his actions over the course of his career. You can audit these thoughts and actions, but you don’t need to, because unlike 99.9% of the world, he does it for you. Buffett is famous for admitting mistakes. The most fun part of reading his annual letters is phrases like this one, from the 2011 annual letter. “I’ve run out of good news. Here are some developments that hurt us…. I spent about $2 billion buying several bond issues of Energy Future Holdings, an electric utility operation serving portions of Texas. That was a mistake – a big mistake…. The company’s prospects were tied to the price of natural gas, which tanked shortly after our purchase and remains depressed.” Or, “Last year I told you that a housing recovery will probably begin within a year or so. I was dead wrong.”
The man was dead wrong.
Warren Buffett, arguably the most successful investor of all time, tells you when he’s dead wrong. In fact, he makes a practice of admitting his mistakes. And if you read enough of his work, it’s patently clear he’s not writing for you per se. He’s writing for himself. He’s writing as a way to continue a thought thread, a chain of logic, that he’s been working on for nearly a century. Does it matter what the chain of logic is? What it touches? That it stems from Benjamin Graham’s Intelligent Investor? Or could it be anything? Could it be about trees? Or the sky? Or about bombs over Iraq? Or about the zebra longwing butterfly, which has black and white strips and a wingspan of 3.9 inches?
This summer, I’ll be spending more time in Warren Buffett’s annual letters. By the way, the nugget that led me here was pipelines. Oddly, I was looking to see which pipelines Warren Buffett has owned over the years when I noticed something. Buffett doesn’t just “like” pipelines as an investment proposition (he’s compared them to owning railroads); he likes them so much that upon retirement last year, he picked as his successor a man who began his career at CalEnergy, which then became MidAmerican Energy Holdings, which was then acquired by Berkshire Energy. Buffett is entrusting his life’s work, his beloved Berkshire Hathaway, to a man from a pipeline company. As Kurt Vonnegut would say, so it goes.