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Lessons one rabbi learned from listening to Warren Buffett

Lisa Scherzer
Personal Finance Editor
Warren Buffett and Rabbi Jonathan Gross at Berkshire Hathaway's office in 2012. Photo: Courtesy of Rabbi Gross.

Warren Buffett is universally admired for his wide-ranging wisdom. His sage insights on investing, as well as pithy quips on everything from leadership to marriage to Harley Davidson, have been quoted countless times.

Adding to the library of books mining the Berkshire Buddha’s wise investing principles is a new one that aims to draw parallels between Buffett’s philosophies and Jewish teachings.

In “Values Investing: An Omaha Rabbi Learns Torah From Warren Buffett,” Rabbi Jonathan Gross, who served as a rabbi of the only Orthodox synagogue in Omaha from 2004 to 2014, says he became a student of Warren Buffett, but not in the financial sense. “I have read his teachings looking for deeper meaning and I have found lessons about morality, ethics, and character development that are consistent with the values of the Torah and Jewish tradition.”

In 1996, the Berkshire chairman issued a booklet entitled “An Owner’s Manual” to Berkshire’s shareholders, the purpose of which was to explain the company’s broad economic principles of operation. “I set down 13 owner-related business principles that I thought would help new shareholders understand our managerial approach,” Buffett wrote. Coincidentally (or not), 13 is a meaningful number in Judaism: the great Jewish medieval philosopher Maimonides authored “The 13 Principles of Jewish Faith,” which boils the religion’s vast teachings down to 13 fundamental principles (e.g., the belief in the existence of God; the belief in God’s non-corporeality). “So the book basically wrote itself,” says Gross, 38.

Gross’s relationship with Buffett began with a chametz sale in 2012. During the eight-day Jewish holiday of Passover, observant Jews are required to rid their homes of all “chametz,” which includes anything made from major grains, like wheat, rye, barley, oats and spelt (more background here). This means they can’t eat it or own it. Most Jews do a thorough house cleaning and sell any chametz inadvertently left over to a non-Jew. So while he was working as rabbi of Beth Israel Synagogue in Omaha, Gross had an idea: Every year in his annual shareholder letter, Buffett invites people to reach out to him if they have investment ideas they want to share. In 2012, Gross wrote the Berkshire chairman a letter on behalf of him and his congregation, saying, before Passover we’re desperate to get rid of chametz so the price is low; a week later we’re craving bread, cookies and pasta, so the price would be high. It’s a risk-free arbitrage that’s been working for thousands of years.”

“The idea is simple. Buy low, sell high. A great short-term investment. I figured Warren Buffett should be able to relate to that,” Gross explained in his blog at the time. His idea was to sell Buffett the bulk food from the members of his synagogue who had gotten rid of it in preparation for Passover — and which he was going to donate to the local food bank — and ask Buffett “if he would kindly donate the chametz that he just acquired to the food bank.” Two days later Buffett’s secretary emailed Gross and invited him to the Berkshire office. “We sold our chametz to Warren Buffett. It was kind of a publicity thing for the local food bank. He would buy our chametz three times, and he would also donate [the food] and money to the food bank,” Gross says. “He was so generous with his time; he acted like I was the most important thing on his agenda.”

Gross was inspired by Buffett’s wisdom and his “extraordinary ability to relate those principles in a manner that is succinct, entertaining, compelling and easily understood often employing the use of aphorisms and parables” — and saw similarities in Jewish religious texts.

“There’s so much value in what he says, and I thought a lot of it meshed with the ethical teachings of Judaism,” says Gross, whose book is being sold at the Berkshire Hathaway shareholder conference this weekend in Omaha.

So where are the connections between Buffett’s investment wisdom and Torah wisdom? Gross, who is now rabbi of Beth Tfiloh Congregation in Baltimore, gives some examples from his book.

Salad Oil

One is the Salad Oil scandal of 1963. It was a major corporate scandal that ultimately caused over $150 million (more than $1 billion in today’s dollars) in losses to companies including American Express. Amex CEO Howard Clark released a statement saying that though American Express — said to be at the risk of insolvency — wasn’t legally obligated to the creditors, it “feels morally bound to do everything that it can to see that such excess liabilities are satisfied.” Buffett, then a 35-year-old fund manager, did some sleuthing and concluded that American Express was not going under, and that its name was one of the great franchises in the world (according to Roger Lowenstein’s book on Buffett). Buffett purchased a 5% interest in the ensuing fire sale for $13 million, and the investment turned out to be a winner.

Gross writes: “Where everyone else saw foolishness, Warren Buffett saw wisdom. He took 40% of his own available capital and he purchased a 5% interest in American Express. Before the scandal Amex was in possession of large reserves of salad oil that had a definite and easily calculable market value. Post scandal, they had nothing but their good name… The market preferred good oil to a good name, but thousands of years prior, King Solomon wrote in the book of Ecclesiastes, ‘A good name is better than good oil.’”

Amex didn’t have the oil to back up the loan, but they had an ephemeral asset: their reputation. And Buffett banked on the fact that American Express’s reputation was more valuable than the tangible asset. “He bet the farm on that. And King Solomon says that explicitly,” says Gross.

Another parallel comes from Buffett’s 2015 shareholder letter. In it Buffett noted a few of the things that should matter most to investors. He wrote: “At Berkshire, we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100% of a so-so business; it’s better to have a partial interest in the Hope diamond than to own all of a rhinestone.”

Gross writes that philosophy is perfectly echoed in a saying of the Rabbi Matya, who lived in the second century: “Be a tail to lions, rather than head to foxes.” Meaning, being the head — or the big fish in a small pond — isn’t always valuable, Gross writes: “It depends on what you are the head of.” It’s better to be attached to, and surround oneself with, people and things that are superior and that challenge us.

Value investing

Perhaps what Buffett is most known for is his emphasis on value. He searches for bargains, which is ultimately an attempt to get the full value of your money spent. “It demonstrates an understanding that money is only a means,” writes Gross. He goes on to say that this concept is well illustrated in a famous story about the great Rabbi Elijah of Vilna.

In 1796 when Rabbi Elijah became ill, he called for his family and his students. “When they arrived he took hold of his tzitzit, the Biblically mandated fringes that hung from his garment, and he held them up and said, ‘This garment that I bought for a few pennies, by wearing it each day I was able to attain a valuable reward for fulfilling the word of God. In the world to come, even so simple a deed will not be possible.’ As he left this world for the world to come, he wept because he was leaving behind the investment opportunities that only exist in this world.”

Gross writes: “Throughout life we make choices of where to spend our time, money, and energy.  That is the price we pay. The consequence of our life choices is the value we get. The principles that guide those choices are our values.”

On April 30th, Yahoo Finance will have an exclusive live stream of the Berkshire Hathaway annual meeting. Click here for more information.