MidAmerican Energy Holdings Chairman David Sokol, widely seen as a frontrunner to follow Warren Buffett at Berkshire Hathaway, talks about the key lesson he's learned from Buffett, in this excerpt from the new book Behind the Berkshire Hathaway Curtain: Lessons from Warren Buffett's Top Business Leaders by Ronald W. Chan.
During the late 1990s, a stock market bubble was in the making. In addition to Internet stocks, energy stocks also soared to sky-high levels. Hindsight has revealed that many of these companies were cooking the books and telling elaborate stories to investors. David, in contrast, had the self-discipline to remain calm and not make foolish investment decisions.
Being out of step with the times, however, has consequences. "We were by any measure a large company at that point," David explained. "We were generating solid profits every quarter, and we looked at our business in a risk-weighted way. Our stock was rising, but our peers were doubling and tripling theirs. Analysts became critical of us because our stock was lagging behind."
Stock analysts recommended that David adopt a more short-term perspective, complaining that the company's projects were too long-term oriented: "One analyst said to me that we needed more 'deal velocity.' He explained that our peers, including Enron, were making two to three deals a month, but we were only making one or two a year. In the end, I was just fed up."
By 1999, David could no longer bear the shortsighted nature of the investment community. His mounting frustration, and a family tragedy (his son, David Jr., had just succumbed to cancer), prompted David to consider ceasing to play the analysts' game by taking the company private. He set up a special board meeting to discuss the possible privatization of MidAmerican and carefully laid out his reasons for doing so.