Letter #98: Warren Buffett, Shawn Carter (Jay-Z), and Steve Forbes (2010)
CEO of Berkshire Hathaway, Founder of Roc Nation, and Editor-in-Chief of Forbes | 2010 Conversation
Today’s letter is the transcript of a conversation between Warren Buffett, Shawn Carter (Jay-Z), and Steve Forbes. This conversation was done for the inaugural Forbes 400 Summit and covered topics ranging from investing to hip-hop and everything in between—showing just how similar the arts of investing and music are, and the universal approaches and characteristics of greatness.
Warren Buffett is the CEO of Berkshire Hathaway (widely considered to be the greatest investor of all time), Shawn Carter is the Founder of Roc Nation (as Jay-Z, he is widely considered to be the greatest rapper of all time), and Steve Forbes is the Editor-in-Chief of Forbes (considered to be one of the greatest business magazines of all time).
I hope you enjoy this conversation as much as I did!
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Transcript
Steve Forbes: Jay and Warren, thank you very much for coming by. And thank you for the facilities, Warren. You two are unique. Even though you're in different spheres, you've reached a level of success, almost legendary. What did you do? What made you different? Warren, we'll start with you, because in investing, there are a lot of bright people. They've all claimed to read Graham and Dodd, they all claim to be disciplined. And yet, there's only one Warren Buffett.
Warren Buffet: Well, I was lucky that I got started early. Always helps when you to get started early. And my dad happened to be in the investment business. So I would go down to his office on Saturdays. And so at age, probably seven or something, I started reading these books that were around the place. And so I had a 15-year jump on many people in a sense, and that helped a lot, and I was always fascinated by them. I knew what I wanted to do early. And I think that's a huge advantage too. And then, you don't need a lot of brains in this business. I've always said, If you got an IQ of 160, give away 30 points to somebody else, because you don't need it in investments. What you do need is emotional stability. You have to be able to think independently and when you come to a conclusion, you have to really not care what other people say, and just follow the facts and follow your reasoning. And that's tough for a lot of people. That part, I think I was just lucky with, I was born that way.
Steve Forbes: In terms of emotions, it's a truism that in investing, emotions are your enemy.
Warren Buffet: Absolutely.
Steve Forbes: That when the market's good, if you feel good, don't. If you feel bad, you should probably do it.
Warren Buffet: Right.
Steve Forbes: But how did you... What was that extra thing where so many will acknowledge that, and yet we saw in the current crisis, they panicked while you went into seemingly potential disasters like GE and Goldman Sachs.
Warren Buffet: I can't really tell you the answer--I didn't learn it in school or anything. I just, it never bothered me if people disagreed with what I thought, as long as I felt I knew the facts. There's a whole bunch of things I don't know a think about, and I just stay away from those. So I stay within what I call my circle of competence. Tom Watson said it best, he said, "I'm no genius, but I'm smart in spots, and I stay around those spots." Well, I try and stay around those spots. And I just don't have a problem if somebody says you're wrong on something. I go back and look at the facts. And I think that really is much more important, frankly, than having a few points of IQ or having an extra course or two in in school or anything of the sort. You need emotional stability.
Steve Forbes: And so in terms of people who are not even in the business, if they... I think we're talking now, when we had dinner the other day, about how in tennis, most of us are never going to get to Wimbledon. But if we just focus, as somebody once said, "Get the ball over the net. Don't try to be fancy about it, just get the ball over the net, you'll do fine."
Warren Buffet: Yeah, and that's a little bit like, I've got this rule, The first rule is don't lose. And the second rule is never forget the first rule. So it really isn't so much having a lot of brilliant decisions. It's just not really having some terrible ones. And frankly, I did learn from Ben Graham how to avoid ever having any disasters in investments. It wasn't that you were going to come up with the very smartest thing, but if you never have any significant losses, some singles and doubles will produce a lot of runs before you get through.
Steve Forbes: Who was Ben Graham? He was your primary mentor, model?
Warren Buffet: He was a wonderful man. And he was my professor at Columbia. I read his book when I was 19 at the University of Nebraska. And I'd started investing when I was 11. I started reading about it when I was like seven. So I've gone through all... I've read every book in the Omaha Public Library by the time I was 12 on investing and stock market. And I had a lot of fun, but I never really found out... I never got grounded in anything, and it was entertaining, but it wasn't going to be profitable. And then I read Graham's book, The Intelligent Investor, when I was at University of Nebraska, and that just opened up the whole thing up to me. My oldest son is named Howard after my dad, Graham, Buffett. And he was a marvelous man, never expected anything from me in return. He just did all these things for younger people.
Steve Forbes: Yeah, but just a couple of quick examples of the things that he did that you will look back on. It's one thing to read something, but quite another to see it in action.
Warren Buffet: Well, what he did was he got me thinking not as a stock as something with a ticker symbol that wiggles around and that you look at charts [on earning]. It taught me to think about it as part of a business. And that was vital. And he taught me not to really pay any attention to stock market fluctuations except when they were working in my favor, so that, not to get you know elated because something had gone up or depressed because it went down. So if I knew the facts on something and it went down, I bought more of it, because I looked at it as a business. And then he taught that famous lesson about a margin of safety, that you don't drive a truck that weighs 9900 pounds across a bridge that says limit 10,000 pounds, because you can't be that sure about it. If you see something like that, you get out a little further down the road, and you find one that says limit 20,000 pounds, and that's the one you drive across.
Steve Forbes: So he in effect, taught you that stocks weren't just numbers, those were shorthand for flesh and blood businesses. And very easy to overlook.
Warren Buffet: Absolutely. I've never forgotten.
Steve Forbes: Jay, you are in a business that's perhaps even more competitive, because there's probably not a young person in the country who at some point in their lives wants to be an entertainer, a star. And you've not only have done it, but you've done it consistently. And even though you're only 40 going on 41, in that business, that's almost like 80 in Warren's world. It's tough to do more than one or two. Looking back, what were the things that broke you out of the pack in the most dramatic way possible?
Jay-Z: When I was... as I was listening to him, I just hear all the similarities and all the things in what he's saying, right? Because if you don't look at it as tickers and things like that, you're really just searching for the truth within all that. And within all the numbers and all the chaos, you're just searching for the truth. And that's the key to being a recording artist. You're telling your story, or finding your truth, at the moment. Mine's a little opposite from Warren because I started a little later. My first album didn't come out till I was 26. So I had like, a bit more maturity of where I was at. My first album had all these emotions and complexities and layers to them that a typical hip hop album didn't have, because we were making it at 16-17 years old. There wasn't enough wealth of experience to share with the world. So at 26, I had been through so many different things, I had so much wealth to share with the world at that time. And from that starting point, I've never forgotten those things, like you say, I've never forget those true things that you stick to, your basic things that make you successful. And for me, it's that truth, finding that truth, the truth for the moment of where I am at the time. Not trying to cater to a certain demographic, or not being something I'm not, not driving the truck over bridge... the whole thing. Like, there's so many similarities in what he was just saying.
Steve Forbes: Now, in terms of a mentor, you mentioned at a young age, you got a love of words. And before we recorded, you mentioned a sixth grade teacher brought that out in you that's lived a lifetime.
Jay-Z: Yeah, I was telling you earlier, in our classrooms where we grew up, I grew up in Marcy Projects in Brooklyn. Our classrooms were flooded, so it was very difficult for teachers to give you one on one attention. And there was this one 6th grade teacher, her name was Ms. Lowden, and she must have saw something in me and she gave me this attention. And she gave me this love for words. It's just funny how it works. It's worked for me to this day. But just a little bit of attention. She also took us on a field trip to her house, which opened me up to the world. My neighborhood had been my world. It's the only thing I had seen. I just saw a whole different world, and my imagination grew from there. I wanted that. I aspired to have that. Small thing, she had like a ice thing on a refrigerator. You pushed ice and the water come down. I was really amazed by that. I was like, I want one of those. It's true.
Steve Forbes: Now, you also, even though you didn't record your first album till you were 26, you, in effect, were writing music in your own mind.
Jay-Z: Yeah, I was around music my whole life. My Mom and Pop had like huge record collection. So I started out listening to music early on and I would just write music. And I just had a love from there. I didn't get to it, I got caught into my neighborhood and my surroundings, but I've always taken it with me, and I've always went back to it, and it just got to a point where it was like, make this decision. This is something you really love and you'd love to do, it's time to really focus on it and get serious about it. Give it your all. And once I did that, it was no looking back from there.
Steve Forbes: And you were able to overcome where you grew up. As you once put it, you saw what happened, and things like drug deals, where the life would end. And you decided at some point, I'm not going there.
Jay-Z: Yeah, just, those sort of decisions that happen in many of our lives when we have... we're faced with that those fork in the road moments. I was around people, and I've seen people who were really, genuinely nice people, going away for 13 years, and all these unjust in Rockefeller laws. And I was just around that so much that I just told myself, Man, I have to make a decision at some point. And I made this decision to focus on music, which was my love. And it worked out.
Steve Forbes: Consistency. People have a love of music. They may do one or two or three albums, and then for some reason, they fade away. That hasn't happened to you.
Jay-Z: I think, again, it goes back to a bit of Warren was saying as well, like, it's discipline, as well. The discipline to not get caught up in the moment. Music is like stocks too. There's the hot thing of the moment, there's this hot electro sound, or the hot autotune voice, or the hot... whatever is new and exciting. And people tend to make emotional decisions based on that. They don't stick with what they know. This is who I am, this is what I do. And then they jump on this next hot thing, and it's not for you. So for me, just having the discipline, and having the confidence in who I am. And if I go into a studio, and if I find my truth of the moment, there are a number of people in the world that can relate to what I'm saying, and is going to buy into what I'm doing. Not because it's the new thing at the moment, but because it's my genuine emotions. This is how I feel. This is how I articulate the world. And just having the discipline to just be yourself.
Steve Forbes: Because you once said, as an artist, you are fighting against everything that's new, and everyone's fascinations with new things.
Jay-Z: Yeah--shiny things. People fall in love with shiny things.
Steve Forbes: So in essence, as you grow older, you bring an audience with you, because the topic of your music grows with you... it doesn't go stale.
Jay-Z: Yeah. Because for hip hop, it's like 30 years old. Like hip hop is fairly a new genre of music. So we've never seen the maturation of hip hop in this sort of way. This never happened before. People would get a certain age and still try to pinpoint this young demographic, because hip hop was a young man's sport, but people that listen to hip hop when they're 18, they still gonna like hip hop when they 28. It's just that the voices in hip hop are not speaking directly to them anymore. Weren't--they weren't. They were speaking to an 18 year old demographic. So, you're 28, you don't have anything to listen to, because no one's relating to you. So my whole thing was, I'm not going to do that. I'm just gonna make the music that I love to make and I want to make, and I'm gonna mature with my music. And luckily for me, it was the right decision.
Steve Forbes: When did you realize that not only did you have this ability with music, and not to get stale, but recognize too, you have to be treated also, even though you love it as a business, so that you don't end up as so many do. They lose everything they have, they are, in effect, indentured to companies, and they're not masters of their fate.
Jay-Z: Yeah, that was the greatest trick in music that people ever pulled off, is to convince artists that you can't be an artist and make money. I think the people that were making millions actually set that. I think they set that whole thing up. It was almost like shameful, like, especially in rock and roll, you had to pretend it--you got these millionaire guys who had to pretend as if they weren't successful at all, or it would be like a detriment to their career. Hip hop from the beginning, just, it was always been aspirational, just always broke that thing, that thing that an artist can't think as well. And I think, at the end of the day, as long as you... when you separate the two, you're not making music with business in mind, because you... at some point you have... it has to be real when they touch it, when they listen to it. Something has to resonate with them that's real. As long as you... when you're in the studio, you're an artist, you make music. And then after you finish, you market it to the world. I don't think anything is wrong with that. In fact, I know there's nothing wrong with that.
Steve Forbes: So how... going right from the very beginning, you learn about the business of music, because you could...
Jay-Z: Well, we were forced, yeah, we were forced in the beginning. I wish I could say we were geniuses and say, We're going to start our own company. That's not what happened. In the beginning, we went to every single label, and every single label shut that door on us. The genius thing that we did, was we didn't give up. We didn't say, because these guys, we use that What do they know? approach. We didn't give up at that point. I think that was the genius thing we did. We start selling our own CDs, and we built our own buzz, and then the record company came back to us. So now we had a different negotiation. It wasn't the same artist-label relationship. Now we retain ownership in our own company. And was the best thing for us.
Steve Forbes: Well, one of the things you did, fairly recently, was about three years ago, you are with a company, you're a President of a company, you saw firsthand what you thought was wrong with the music business, you wanted out, and you were willing to put money to get yourself out.
Jay-Z: Yeah, I didn't necessarily want out. I wanted to work with them, but I wanted like a fund, in a sense.
Steve Forbes: Because you're a president of the company?
Jay-Z: Yeah, I was the President of Def Jam Records. And I wanted to... I wanted a fund to--I wanted to work there. Because what I wanted a fund to...
Steve Forbes: What struck you is, they take all these artists almost like throwing them against the wall, see which ones would stick. You thought that was a huge waste of money.
Jay-Z: Yeah, and the music business for a long time, a hit record solved all your problems. Because there wasn't the internet and there wasn't YouTube, and there wasn't so many other factors. It was just the music. So that model still exists, of just putting artists out and seeing what works. And as the machine started moving faster, a lot of things got lost in the process. A&R, and artist development. So it got to a point where, as the music business, we were releasing hundreds, hundreds and hundreds of albums every year, and the percentages was like really low. Like 56 albums, and four artists work, something like that. So I wanted to bring the entire culture into it. I wanted a fund so I could do other things aside from signing artists, like buy a television station or buy a club that we can develop these artists, or buy some headphones. It was just all these different things I wanted to do, and I don't think, at that time, they could really get their mind around it. It's not something they were willing to do. And I just felt like I would be a waste there. So I started my own thing, Roc Nation. And that's what we do. We pretty much... we have everything from... it's a publishing company, we have writers, it's a recording company, we have... it's a touring company, it's...
Steve Forbes: Did you have sleepless nights when you put, what was it, $5 million to buy out your last contract for an album?
Jay-Z: Yeah, at the end of that, my Def Jam, very much so. I actually have a better story for you. So my last year at Def Jam, when I proposed this and it didn't work, I went over to sign with a group called Live Nation and made Roc Nation. But that was me as a businessman. As an artist, I still had one album left with Def Jam and Universal. And I went to Doug Morris and L.A. Reid, who was our chairman of Def Jam at the time. He did a great thing for me, he allowed me to walk in and have the conversation with Doug. And Doug, we had a fantastic relationship. So it was very cool. But I bought my last album back. And what people don't know about, is the day I--I had flew in from Hawaii, I was doing some recording, and I had an iPod in my pocket, and I was on a commercial flight coming from Hawaii to New York. And I had on jogging pants, and my iPod, with all the music that I recorded, was missing. It was on the plane somewhere. So I had to walk into the office the next day and buy an album back that might leak the next day. So every day I would wake up and check all the internet places and everywhere, and be like, for three months... But at the end of the day, it was worth it, just, I was heading in a different direction, and just that freedom, and it turned out to be a great decision for me. It was a great decision for the company, they got some money. And a great decision for me. Got a very successful album, The Blueprint 3, which had Empire State of Mind on it. Sold about 4mn singles itself, and...
Steve Forbes: Which someday may become the anthem for New York.
Jay-Z: Yeah... Actually, my first number one record was off--I mean, as a solo artist. I had number ones with collaborators. But my first number one across the board record came off that album, so it was like, really good time for me. And I think, and I believe in everything lining up. So I think it happened at that time for the right reason.
Steve Forbes: That leads to, you mentioned, things line up--luck. We all know hard work is essential, discipline is essential, staying power is essential. But there's that element there that you can't quantify but you know it's there. Warren, you've had some thoughts...
Warren Buffet: Well, there's a lot of luck. Just being born in the United States in 1930, the odds were like, 30 to 1 against me. I didn't have anything to do with picking the United States, as I emerged, and having decent genes for certain things. And in my own case, I was sort of wired for capital allocation, and being wired for capital allocation a couple of hundred years ago in Nebraska wouldn't have meant a thing. And even now, being born in various parts of the world, that wouldn't have meant much. But here I was, in this soon to be very rich, capitalistic system. And it just so happened that I did paid off enormously in a market system like we have. And if I'd had a talent in some other area that was way less commercial, I would have had a good time doing it, but it wouldn't have paid off like this. But of course, Jay said it perfectly when he talked about... he's in a recording for himself, and the money comes afterwards. I got to do what I love. And it doesn't get any luckier than that. If you can spend your lifetime, and I'm 80 now, doing things you love every single day... I would be doing what I do now and I would have done it in the past if the payoff had been in seashells or shark's teeth, or anything else. If you can go to work every morning, I tap dance to work, and I come down and I... every day is exciting. So that is lucky. That didn't have to happen that way. If I had been born in 1930, if I'd been born a female, if I'd been born black, I would not have had the same opportunities that I had. It's just, it's chance. My parents love my sisters just as much as they love me, my sisters are just as smart, or smarter than I am, and all of that, but they didn't have the same expectations in the 30s for young, smart girls or for a young smart guy. And so I've had all kinds of luck. I had the luck of... I got turned down by Harvard. Well, getting turned down by Harvard, then I got to study under Ben Graham at Columbia, which changed my life. All kinds of things have worked out. I just hope I stay lucky. I've been lucky for 80 years.
Steve Forbes: You... where you grew up, you could have easily ended up, as you've discussed with your friends who did something, and by golly, they were put away and didn't get the opportunity.
Jay-Z: Yeah, there are very few people from my neighborhood, in my environment, that make it out. Forget about being successful, but to make it out alive. Or to be incarcerated. I have a great friend who just came home, was one of the most beautiful people you ever meet. He just came home from doing 13 years, and we were... we were together every single day. And had it not been for music, and music taking me out at the right time, my life could very easily have been his. Very easily. We were together every single day.
Steve Forbes: You mentioned the story about London.
Jay-Z: Yeah. So we were into different things. We were into a lot of street things. And just so happened I had a talent to make music. And a guy by the name of Jazz who I started out with really early, he got the opportunity, got to deal with EMI, he had the opportunity to go to London to record his album. And I went along with him and we were away for two months. Well in that two months, there was a sting operation. And my friend I'm talking about, they took him away for 13 years. And the only reason I wasn't there because I was away, doing this music stuff.
Steve Forbes: Amazing. Business models. Where we've touched on it, that just because you've done something right before with a music business, they're accustomed to doing things a certain way. World changes, they can't adjust. Warren, what advice do you have? You've seen it in the newspaper business. You made your name. Washington Post, Buffalo News. Legalized monopoly. 30 IQ, you could put them in those businesses and they'd succeed. And then now, now they're all crashing.
Warren Buffet: It happens. Street railways were big here in Omaha 100 years ago. But I will say this about investing: everything you do learn is cumulative. That doesn't mean that industries stay good forever, or businesses stay good forever. But learning to think about business models--what I learned at 20 is useful to me now, what I learned at 25 is useful to me now. It's not a field that changes dramatically in terms of the underlying principles. It's like physics. There's underlying principles--now, they're doing all kinds of things with physics they weren't doing 50 years ago, but if you have the principles, if you know what makes a good business, if you know what makes a good manager, if you know what makes a good product--and you learn that in one business, there is some transference to other businesses if you go along. And you learn what things you're not going to understand. Knowing what to leave out is just as important as knowing what to focus on. And I don't think I can win every game. Somebody said, How do you beat Bobby Fischer? You play any game except chess. So I don't play Bobby Fischer chess. There's a lot of value to learning that over time and learning what you're good at and what you're not good at.
Steve Forbes: And, Jay, your businesses, like the newspaper business, you yourself have said that record companies are anachronistic, that they lost it, they lost it with Napster. Explain how they did and what you learned from it, and how you thinking go forward and survive in an environment where what had been true for decades is no longer true.
Jay-Z: Yeah, I think that's a big thing about a business is recognizing change. The variables are not the same. There's a big thing called the internet. So it changes the landscape for everything. I think the consumption of music is at an all time high. But as we see, the music business is down. So something has to be done there. It was a time in music where a hit solved everything. You just had a hit, it didn't matter what was going on. Get a hit and it solved everyone's problem. That's no longer true. Not today. And I think, just having that mentality for so long, I think the music business is still stuck in that place because we haven't figured it out.
Steve Forbes: Napster--they made a huge mistake on Napster.
Jay-Z: Yeah, well Napster came along, and it was this file sharing thing, and at the time, we had the opportunity to embrace it. And this way you can control it. It was one place. But when you stop Napster and we shut down Napster, just the arrogance that we had, it made a million Napsters. Now it's impossible to control. Just, that sort of thinking. I think in business, one of the biggest thing is to open yourself up for change. You don't have to change who you are and how you operate, but just, if the landscape has changed, then the way we do business has to change, somewhat. We don't have to change who we are, we have to change the way we go about it. Because like I said, the consumption of music is higher than ever.
Steve Forbes: You've done it in your own music. As you've gotten older, you've brought audiences with you and others have not. What are you doing in terms of the model that's been shattered in music? You mentioned when you left the record label company, you saw you had to do certain things. How are you recreating a model that can work in the future?
Jay-Z: Well, for one, we've taken our time with artists and artist development. For two, there's just so many different parts of the business that we're in. For a long time, music wasn't into touring. Now they're making up these 360... I don't want this to be like a record company bashing...
Warren Buffet: You can do it now. You couldn't have done it 20 years ago.
Jay-Z: Now they're doing this whole 360 model and it's like, you don't... that's not what the record company does. The record company is not in the touring business, so why would an artist sign a rights to you when that's not what you do, that's not your area of expertise. But we were the biggest concept promoter there, so there's... we're into publishing... there's just so many different aspects of music we're in. We're into more of it now and we're getting better at it. Just--to open up different avenues, make ourselves successful.
Steve Forbes: Touring, clothing...
Jay-Z: Movies, publishing, just...
Warren Buffet: I don't want to compete with him. I'm not interested.
Steve Forbes: But then on the tours, you were wise enough, or big enough, or something, where you don't mind sharing billing with Eminem or Bono?
Jay-Z: Yeah. It's fun for me, for one. And for two, like we were saying in the [inaudible], one plus one is three for me. I don't have that ego where I have to be the only guy on the field or the only one that people look at. I'm cool with going out with other artists. I've been doing in my entire career. Before Eminem, before Bono, it was R Kelly or 50 Cent, or DMX. I've been doing in my entire career, I just believe that giving people a better package, that when they leave the concert, they want to come back again. You can get them there the first time. If what you're putting on is not incredible, and impactful, then why would they come back the second time? I think that's--a lot of people make that mistake. When they're hot, at the moment, they just sell them, they sell off the name, and sell off the moment. Yeah, the shiny things. You fall in love with shiny things. You sell off the moment, and then when people come to the concert, they don't have the experience. Well, we're over-delivering on experience. You're not only getting Eminem, you're getting Eminem and Jay Z, You're not only get Bono, you're getting Bono and Jay Z. You can't help but leave that concert with, almost like a once in a lifetime experience, every single time. That's what I'm trying to create.
Steve Forbes: So Warren, you said you wouldn't want to compete against Jay. What advice would you...
Jay-Z: He's superduper joking.
Steve Forbes: What advice would you have for a man who has succeeded in a business where It's often short-lived, being convulsed? How do you--you like businesses where you say there's a moat, where the competitors can't get you. What advice would you give Jay on building moats?
Warren Buffet: Well, he's building moats all the time, obviously, that's why he's succeeding, even though he's moved beyond the age that you'd normally associate this field with. The best moat you can have is your own talent. They can't take it away from you, inflation can't take it from you, taxes can't take it from you. So when I talk to students, I see these students and I tell them: You're a million dollar asset. I would pay you $100,000 to the MBAs for 10% of your earnings for the rest of your life. So that makes you a million dollar asset. Now, if you could do something to increase that value 50%, if you can learn to communicate better verbally or in written form, and you become 50% more--that's $500,000 just by improving yourself. Nobody can take that away from you. And so I urge everybody when... I talk to them in high school about this, and colleges. Just, develop the habits--you've got the brainpower, you got the energy, but develop the habits of success. Look around you, at the people that you admire. List what makes you admire them compared to somebody else that looks equally strong or equally talented. Those are things that you can do. Just write them down. People like people that are--they like them if they're humorous and they're friendly, if they give credit to the other fellow. They don't like them if they're stingy or they overstate and over-promise and all those sorts of things. Well, that's a decision you make, so I encourage everybody to build your own moat around yourself.
Steve Forbes: Jay, you have any advice you want to give to Warren on building moats?
Jay-Z: What am I say to this guy, man?
Warren Buffet: You do things I can't do, believe me. I can't do anything he does.
Jay-Z: Brilliant thinker.
Steve Forbes: This then gets to what is money for? You've greatly succeeded, you haven't made the mistakes that others made to get a success and then you let destroy your discipline. In terms of... there are only so many steaks we can eat or hamburgers or whatever, the value added... we'll start with Warren, maybe to start this part of the conversation. The value added you always had was, you could employ capital, multiply it, which meant more businesses, more people for pensions, more hiring. That was a great service. That was doing a real public good. Yet a few years ago, you decided you were going to do something in addition to multiplying capital, which meant opportunity and a higher standard of living.
Warren Buffet: If you go back, really when I was in my 20s--it sounds obnoxious, but I really did know I was going to become rich. Because I just, I'd learned something that was going to work. And my wife and I decided then--she was 100% on board, my first wife, on this. We were going to enjoy life, we were going to have everything we'd possibly use or need. But incidentally, I think a $5 dinner in many cases is better than $100 dinner. I think...
Steve Forbes: Same with wine, too.
Warren Buffet: Yeah, cost of living and standard of living are not necessarily the same. But, I thought I would compound money at a rate well above average. And we decided we'd live well. We never denied ourselves anything. It meant independence, so I could do what I wanted to do. And then, I felt, one way or another, it would go back to society. Now, I thought my wife would outlive me. She was a little younger, and women live longer than men. And she loved the actual process of seeing people with problems that money would help. And I loved the game I was in. So I thought we wouldn't, basically we'd pile it up and she would do the distribution of it. And she did a lot of it while she was alive, but the big money was going to be later on, and then she died while I was still alive. And then I had to make a decision as to the best way to get this money spent, in an intelligent way, relatively promptly. And I came up with the idea of splitting among five foundations, the largest of which is the Gates Foundation. That was four years ago. And I couldn't be more pleased with the decision. I haven't denied myself anything. I eat everything I want, I travel every place I want.
Steve Forbes: Have you denied society something? That the capital, if you'd keep deploying it, might have done more good in more companies?
Warren Buffet: Well, Berkshire is still around, I'm still running it.
Jay-Z: Yeah, you're not doing so bad.
Warren Buffet: I'm making it still for the charities, but I'm making for a lot of other people too. So I didn't have to give up anything. I didn't even... I didn't have to give up what I love doing every day. I didn't have to give up any material thing in the world. And my three children are each involved with a foundation which lets them put money behind their energies. I think it's really worked out wonderfully for me. It's been a perfect solution. When my wife was pregnant, I didn't think I was going to deliver a baby. If I get a toothache or something, I don't take out my own tooth. I turn it over--I follow Adam Smith's advice--I turn it over to a specialist. And there's no reason to think that because I'm good at making money, that I would be the best, necessarily, at distributing it. I want certain goals in terms of how its distributed, but I'm perfectly willing to turn it over to people who are going to spend their lives specializing in that. I want them to get it done promptly. And I want it to be in sync with the kind of things I want to support. But I don't think I have to do it myself.
Steve Forbes: Now, in terms of that, many times, a foundation gets set up. And...
Warren Buffet: Goes off in a different direction.
Steve Forbes: And there's this thing called Parkinson's Law, that an organization becomes self-centered, in for itself, and forgets its purpose that it was created for.
Warren Buffet: I see it all the time.
Steve Forbes: You see it in business--that's why they go broke oftentimes. But in foundations, you see it. So you made a provision that that was not going to happen with your funds, and they had to be... those monies had to be deployed what, within 10 years?
Warren Buffet: 10 years after my estate's completed. Yeah, and the money has to all be spent--it can't go to institutions which in turn put it in there endowment or anything like that. I want people that I know, and I know are in sync with me, and I know will be true to certain ideals. I want them to dispense it because who the hell knows, 50 years from now, when the place becomes some large institution, what will happen. People will rationalize then that what's good for the institution is exactly what old Warren thought 40 years ago on his deathbed. So I've seen that happen too often. And I... foundations are not tested by a market system. If you've got a business idea, and he's got music, it's being tested by a market system. People will make a decision was whether that next album is good, and they'll make a decision whether Coca Cola still keeps them happy, and all that sort of thing. A foundation has no market tests. So it's very easy, if there's not a market test, as people will find out in government and other places, it's very easy to start rationalizing things that are a long way from what you originally--people thought you were setting out to do.
Steve Forbes: And you are, in terms of... you're just beginning looking at charities, and you have a very unusual one, scholarship fund, Shawn Carter Scholarship Fund. Describe it and where do you think you see it going?
Jay-Z: For me, the reason I focused on that, because such a small thing changed my life. A sixth grade teacher said, "You know what? You're kind of smart." And I believed her. I said, I'm smart. So she gave me that sort of opportunity, she sparked the idea in my mind. So that's why my first thing is the scholarship fund. Because there are a ton of very intelligent kids that's coming out of these urban areas who can make it all the way, if given the opportunity. So it's a challenge that I gave to my mom. And my mom is so involved with it. Like, she gets on the bus, and she takes these kids to interview with colleges. And now we're starting to see kids graduate from college. And that sort of feeling, when it's real, I'm not just sitting home writing a check, for whatever reason, to make myself feel good or anything like that. It's something that I really want to do and I'm really into and excited about. So...
Steve Forbes: It's effective philanthropy, in other words.
Jay-Z: Right. Yeah. I'm seeing the results. I'm seeing--we're getting our first graduates from the Shawn Carter Scholarship Program, which is like, for me, the best thing ever.
Steve Forbes: And this seems like a contradiction... when you think of commerce, it's meeting the needs and wants of others. You provide the music, people like it, you do well, they get the pleasure. Warren, investment returns, good companies. But yet, in philanthropy, you think about it as almost the opposite side of the same coin, meeting the needs and wants of others, a little different way of doing it. But again, as you say, it's not just writing a check, it's making sure it's actually delivering what it's supposed to deliver.
Warren Buffet: It's tougher than business too, because you're looking for easy things to do in business. You're looking at... people have liked drinking Coca Cola for 100 years, they'll probably like it for another 100 years. It doesn't require any great brainpower to figure that kind of thing out. But in philanthropy, often you're tackling the tougher problems of society, you're tackling things where people have applied money and intelligence before and haven't really solved the problem. Education is a great example. So you're really taking on things where you're not going to succeed every time. And if you like succeeding every time, you have to adjust to that. If you succeed 100% of the time in philanthropy, the projects are too easy. You've got to look for things that are important and where you may fail. Right now, Gates is working on polio eradication; they've gotten 99% of the way there, but the last 1% is very tough, and nobody knows for sure whether that will get done. We did it with smallpox in the past. So it's a different mindset. And you don't get that same feedback you get in business either, immediately.
Steve Forbes: That gets also to a universal thing: learning from mistakes. One of the things you do in your annual report, which has become a classic, is you will discuss what went wrong, like Dexter, and what you... and what you learn from it. Tough to do.
Warren Buffet: Well, it's very important to recognize mistakes. If somebody goes around and says, "I never made a mistake," you quit listening to him. You're in a dream world. So, facing up to it, it's a little like, in terms of discussing issues, you should be able to discuss the other fellow's position just as well as you can discuss your own. That's part of thinking well, and certainly part of making good decisions in business is recognizing the poor decisions you've made and why they were poor. That doesn't mean you never do the same thing, because sometimes it was a freak situation. But I have made lots of mistakes. I'm gonna make more mistakes. But Babe Ruth struck out a lot of times... it's the name of the game that you do it. You don't want to expect perfection in yourself. You want to strive to do your best. But it's too demanding to expect perfection in yourself. And it does some good to recognize them and not start trying to go around kidding people about them.
Steve Forbes: Getting the message out: you've done a very high profile thing to get the message out on giving. Why? And where do you think it's gonna lead? And then I want to ask Jay: very different audience. How do you get the message out on the importance of philanthropy, on helping people so they can have the opportunities you had?
Warren Buffet: Well, the way I got the message out was to get a copy of Forbes and look down that 400 list and start making phone calls.
Steve Forbes: Thank you.
Warren Buffet: Bill Gates and Melinda did the same thing, and we've only called 80 or so people so far, some of them I know, some of them I don't know. And amaz--we've gotten way better reception. To some extent, we hydrated the mind, as they say in the mining business. So we picked people, in many cases, but not all cases, where we knew that they had pretty strong philanthropic interests. But it was very low key, and we just asked them if they would sign a pledge, not legal, but moral, that they would give away at least half of their net worth, either during their lifetimes or death. And about half of the people that we call, maybe slightly over half, have said they'd be delighted. And we've asked them to tell their own story. And the stories are fascinating. How people got to that decision, how they evolved, how their family was involved in it, how maybe personal experiences had shaped that, but it was really very encouraging. I don't think you'd find that in any other society in the world other than the United States. And we'll see how far it goes, but--it will go further--but even if it only went as far as it's gone, it will have an impact.
Steve Forbes: So you think that even those who were giving are now, in effect, in their minds, upping it?
Warren Buffet: I think, certainly in some cases, I know that's the case. And the very fact of getting involved and spending more time thinking about it, talking with your family more about it, I don't think it ever leads to reduced giving. And I think sometimes--well, I've seen examples of it here, it's led to more. The real interesting thing will be as if it leads to smarter giving over time. We hope to get this group together once a year and talk about, again, mistakes. But then...
Steve Forbes: Do you see the same kind of entrepreneurship we see in commerce, in philanthropy? There are a handful of large organizations, and except for Habitat for Humanity and a couple of others, they've been around for decades.
Warren Buffet: Yeah. There's some. It's harder to evaluate. It's not a market system. You can't put out a P&L at the end of the year. And you can't measure things--I don't believe in measuring quarterly results in business, but the timetable on many things is much longer in philanthropy. So it's not as easy a game, to me, as business. But it's an important game. And the fact that you can't do it perfectly does not mean that you should sit on the sidelines and it does not mean you can't learn from others. I will--I've already learned something from the three or four dinners we've had in talking to people. But the stories are interesting. People do things that are amazingly effective, they do things where they bomb for one reason or another. But we will have smarter philanthropy in this country 10 or 20 years from now, I think, than we have now. And I think, in a small way, this will contribute to it. So keep publishing the list so I can milk it.
Steve Forbes: Jay will soon be on it. But, Jay, in terms of philanthropy, obviously, you're very much focused on your business right now, as Warren was on his for a long time. But how do you get the message out to a different audience that it doesn't have to even be dollars, it's time and what you teach to taking you and showing you another world, or your mother, getting you emotionally, with your father, in a way in which you could move forward in your life and improve your life?
Jay-Z: Yeah, I think the first step for us, because, as far as entertainers, we're like the first generation to really capitalize off our talent. For many years, artists, they were dying broke because the record company took advantage of them in some way, form, or shape. This is like, that, really, first generation--we'll be fine, we're not talking about the rock stars, like Bono. So the first thing, for us, for me, I believe, is to lead by example. And show how these things have an effect on people's lives in a real way. And to tell that story of: this is the neighborhood that made me. And I know there's a future generation of stars in his neighborhood as well, that we must help out as well, if given an opportunity. What someone can be if given the opportunity. So my first thing is to show by example. And then I'm gonna slowly pull a guy like, me and Puff made--I think we could have done more, I think we could have visited and been there, closer, but we've made a huge pledge to Katrina, together. When we did that United Front, and we made a donation together, it showed hip hop, that sort of power, how we can get together and do these sorts of things. So again, my first thing is to do it by example and show how it works and show the example of how opportunity changed people's lives. And we'll move forward from there.
Steve Forbes: Looking both forward and backwards, when you think of certain people in the past, like philanthropy, Andrew Carnegie, big steelman, first billionaire, but great public works, libraries. Warren, 50-100 years from now, when people say Warren Buffett, what words... handful of words, do you want to have come to mind?
Warren Buffet: They'll probably say Berkshire Hathaway. I hope it's still around and doing very well, too. If it isn't, I'll come back and haunt them. No, what I've done has not been very complicated. I've followed somebody else's teachings. But what I really hope, if you could pick one word, it would be teacher. I got an enormous amount... Jay has talked about his sixth grade teacher... I think almost anyone that's been successful has had a teacher, maybe not a formal teacher, it can be a parent, obviously, but somebody's had a teacher that's affected him. And if you can pass that along, I think that's better than money, actually.
Steve Forbes: Jay?
Jay-Z: Oh. Man.
Steve Forbes: Because in some senses, you're a pioneer.
Jay-Z: Yeah. I think a lot is--I hope to inspire, like, I guess Obama took this thing already. But, just the hope of how far we can make it and the hope of, if you really apply yourself and stay true to who you are, how far you can come from where you come from. Because, my sort of success, where I'm from, it's like, there's...
Warren Buffet: Jay is teaching all the time. He's teaching a lot bigger classroom than I'll ever teach in. And it's important. They're gonna learn from somebody, a young person growing up, and he's a guy to learn from.
Jay-Z: So, just the hope. Hope.
Steve Forbes: I think that's crucial, especially as people begin to recognize, yes, you're a fantastic artist. But unlike artists of the past, you also knew how to take control of your destiny by learning about business, learning about distribution, all the innards of production, so that you weren't going to lose what you created.
Jay-Z: Right. Right.
Steve Forbes: Well, thank you.
Warren Buffet: Thank you.
Jay-Z: Thank you.
Wrap-up
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