by Rushworth M. Kidder
Looking for signs of promise amid the recessional wreckage? Try the countercyclicals. To the list of things that rise as the economy slides — sales of chocolate bars, traffic at public libraries, attention to ethics and values — you now can add two more: movie attendance and Warren Buffett.
A story in the New York Times last week, citing studies by Media by Numbers, a company that tracks box-office sales, noted that movie attendance is up 16 percent over last year, with ticket sales at $1.7 billion. Escapism? Sure. In 1930, in the depths of the Great Depression (and before the advent of television), some 65 percent of Americans hit the flicks each week. Now, as then, what draws crowds are not serious dramas but Cinema Lite offerings like the current “Confessions of a Shopaholic” and “Paul Blart: Mall Cop.”
Warren Buffett is another matter. The performance of Berkshire Hathaway, Buffett’s Nebraska-based conglomerate holding company, proves that even the Oracle of Omaha is not entirely recession-proof. His net income fell 62 percent in 2008, and the company’s book value dropped 9.6 percent — not nearly the 37 percent decline of the S&P 500, but a decline nonetheless.
Even so, his widely read annual letter to shareholders, released last week, is an engaging and encouraging read — anything but “Buffett Lite.” In it, he reports on losses in the billions, forecasts no rapid recovery, and details his own mistakes as an investor — and yet keeps the reader smiling. How does he do it?
The question is no idle one. For the past 42 days, president Barack Obama’s administration has faced the same challenge. Publicly poised on the razor’s edge between realism and hopefulness, it has sought the proper balance between stark analysis and inspirational cheerleading, straight talk about economic gloom and optimism about the nation’s resilience. Some want a president who, like Franklin Delano Roosevelt or Ronald Reagan, bucks up a worried nation. If the message is too somber, they say, confidence will crumble and markets melt. Others want him to lay out our problems in unstinting clarity. If he’s too upbeat, his credibility will suffer and tough choices will be postponed.
Buffett’s 23-page letter provides some guidance, less through its content than its tone. Like most corporate annual reports, it’s riddled with numbers and rich with analysis. But what comes through is an easygoing mix of authority and humility. The first-person voice is that of a seasoned observer who obviously loves what he’s doing and sees opportunities for progress in the midst of down markets.
What creates that voice? His trademark folksy tone relies, in part, on vivid images. “By yearend, investors of all stripes were bloodied and confused,” he writes, “much as if they were small birds that had strayed into a badminton game.” It also depends on down-home examples (”the creed I saw on restaurant walls when I was young: ‘In God we trust; all others pay cash’”) and pithy aphorisms (”When investing, pessimism is your friend, euphoria the enemy,” or “Beware of geeks bearing formulas”). It even hinges on a comic exaggeration that most annual reports wouldn’t come near: Writing about the abundant takeover opportunities available today, he writes that he and his staff feel like “hungry mosquitoes in a nudist camp,” finding that “juicy targets are everywhere.”
Phrases like these keep the reader moving ahead, awaiting the next zinger. They also provide a lightness of touch, telegraphing that while things may be rough, they aren’t tragic. It’s not just that he says, “America’s best days lie ahead.” It’s that the assurance he projects makes that statement believable. You can almost hear the reader thinking, “Well, if he’s not all that worried, why should I be?”
That assurance, if overdone, can too easily become breezy and glib — a fault that unglues many a politician. What keeps Buffett from going over the edge? Three things. First, he grasps complexity, and can either explain it very well or dismiss it (as he does the complications that sank Fannie Mae and Freddie Mac) as “dangerous” and “indecipherable.”
Second, his explanations come with a disarming self-deprecation. “With apologies to those who are not fascinated by financial instruments,” he writes on the subject of derivatives, “I will explain them in excruciating detail” — a sentence that establishes his own authority while at the same time allowing readers to forgive themselves for skipping a few paragraphs. He even berates himself for making some “dumb” investment decisions in 2008 that resulted in significant losses.
Third, his point of view is indisputably ethical. He calls the mortgage-lending practices in much of the industry “atrocious,” notes that they sometimes involved “fakery,” and describes them as creating a “chain of folly” that “had to end badly.” He sees the mortgage industry’s reliance on “house-price appreciation” as wholesale irresponsibility, writing that “it was Scarlett O’Hara all over again: ‘I’ll think about it tomorrow.’” Of the bond-insurance business, he writes that “the cause of their problems was captured long ago by Mae West: ‘I was Snow White, but I drifted.’”
In the end, then, what’s countercyclical in Berkshire Hathaway’s success is Buffett’s own persona and culture — upbeat but open-eyed, critical of incompetent leadership but hugely grateful for good managers, willing to use wit to complement wisdom, and perpetually certain that a blend of intelligence and integrity can master any challenge. If Obama’s team can master that recipe, it may strike the balance between alarm and encouragement that inspires a nation to countercyclical greatness.
©2009 Institute for Global Ethics
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