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Friday, June 19, 2009

The Other Omaha Oracle

Most people who follow business or American pop culture at all know that Warren Buffett, Chairman of Berkshire Hathaway, is often called The Oracle of Omaha. Over the last 40 years, his stock picking skill has made him one of the wealthiest men in the world and has rewarded his shareholders big time. But his partner, also an Omaha native, is no slouch. Charlie Munger serves as Chairman of Wesco Financial and Vice Chairman of Berkshire Hathaway. Analysts give Munger credit for softening Buffett's buying parameters to include "franchise" companies (such as Coca-Cola) among Berkshire investments. Today, they form the bulk of the Berkshire equity portfolio which early on was simply value stocks.

Charlie Munger is 85 years old. He is very spare of speech. Each year, when a friend sends me a copy, I pour through the transcript of the Berkshire annual meeting. For six hours, Buffett and Munger field questions from a number of the thousands of shareholders who sit in a packed Omaha auditorium. Buffett is full of humor, homespun wisdom, and sharp observations. Munger, not without wit, is far drier and often answers questions in a sentence or two. I make it a habit to read them carefully and then re-read them a few times. You can learn a lot by reading what Charlie has to say.

Recently, I found a copy of a rare speech that Munger gave in a public forum at USC. Unlike the Wesco or Berkshire annual meetings, this one was a long one. It was full of gems about business in 21st century America. My favorite was: "the great lesson in micro-economics is to discriminate between when technology is going to help you and when it is going to kill you."

That is an amazingly succinct quotation for such a profound thought. Technology saved us all two decades ago. Both media and agencies were able to throw away the green eyeshades and streamline our billing and accounting departments. The millions saved in salaries was immense. Then, several years later, we did not need nearly as many secretaries as e-mail took over and we soon made our own travel arrangements without using a travel agent. Power-points allowed us to put together great looking presentations overnight without having a huge art services team or outside vendor doing most of the work.

But there has been a huge downside to the tech boom and all of us (who are honest) are feeling it now and have great concern for the future. Newspapers are being destroyed by several factors but being able to read them for free on line is a major contributor. TV advertising is far less effective due to technological advances such as time shifting devices (i.e. TiVo), Netflix, You Tube, and Hulu. Radio is reeling in terms of ad billing as young adults in particular go to i-pods, on line options, friends who steal music for them, and soon cellular in a big way. Ad agencies know that TV and radio do not work as well as they once did and that magazine often builds the impact it once had far too slowly. Agencies also know that for small accounts the Google dashboard has features that would allow a $500,000 account to function much more productively without an agency. Only a handful of people admit it but we all know that it is often the case. Perhaps only the cable industry and on-line of all media types have a pipeline of new products and services that will use technology to help them grow in the future.

So, all of us have to seriously consider Munger’s challenge about knowing when technology will kill you. A few people that I know have already addressed it but most seem to think that it will go away somehow. It will not.

Should we listen to two old guys like Buffett and Munger on this issue? Well, consider that they were early investors in the initial public offerings of Ogilvy & Mather (now part of WPP) and Interpublic. Also, they still own the Buffalo News, have a large stake in the Washington Post companies and were major holders of Cap Cities/ABC before they became Disney. About a dozen years ago, Buffett said that “local TV is a good business. It used to be a great business.” I wonder what he would say about TV today. These guys know media.

Please try and examine what technology is doing to your business. Will it help you grow or will it kill you?

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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