Inc.: Do you remember when you first came across Warren Buffett?
Mansueto: My introduction to Buffett was in the book The Money Masters (Harper & Row, 1980), by John Train. I found an approach to investing that made enormous sense to me: rigorously analyzing a company's fundamentals, understanding exactly how it makes money, developing a view on the business's future prospects, and deciding if it's a good business. You might think, well, that's so logical. Doesn't everybody do that? But part of Buffett's genius is simplifying business.
Inc.: How much of an influence was Buffett on your decision to start Morningstar?
Mansueto: First, Buffett got me excited about securities analysis. I wrote away to smart mutual-fund managers to get their annual reports, to see what stocks they were buying and what they were thinking--people like John Templeton, Ralph Wagner, and the people at Source Capital. That was my first exposure to the mutual-fund business. And I had all these reports on my kitchen table, and I thought, "Wouldn't it be great to compile all these reports into one compendium?" I thought it would make a very interesting product, certainly one that I would want to buy. So in a way I was creating a product for myself.
Inc.: And that's when you started Morningstar?Mansueto: Actually, I didn't start Morningstar until two years after I had the idea. That's something else I got from Buffett. He doesn't invest often, but when he does, he prefers to do it in a really big way. He says you want to pick and choose the right opportunity. Then, once you spot opportunity and you're convinced your reasoning is correct, you move boldly. So after I had the Morningstar idea, I went to work as a stock analyst for an investment firm in Chicago. I wanted to watch the fund industry and look at the competition more closely. And once I was convinced that this was a great opportunity, I quit my job and put everything I had into building Morningstar.
Buffett says investors would be better off if they could invest only a limited number of times, as if you had only 10 tickets that permitted investments in your whole life. Buffett gives the example of a baseball batter just patiently waiting as the pitches sail by him. You wait for the perfect pitch--and then you hit it out of the park.
Inc.: What made you sure Morningstar was the perfect pitch?
Mansueto: It had all the elements of what Buffett calls a great business. Buffett looks for companies that have a "moat" that shields them from competition and allows them to earn high rates of return. The moat is something that creates high barriers to entry for would-be competition.
ON SHARING THE RISK
"Most of our directors have a major portion of their net worth invested in the company. We eat our own cooking. [My partner] Charlie [Munger]'s family has 90% or more of its net worth in Berkshire shares....My wife, Susie, and I have more than 99%....Charlie and I cannot promise you results. But we can guarantee that your financial fortunes will move in lockstep with ours...."
ON BEING INCLUSIVE
"Charlie and I have two simple goals in reporting: 1) We want to give you the information that we would wish you to give us if our positions were reversed, and 2) we want to make Berkshire's information accessible to all of you simultaneously.... Today, many companies...favor Wall Street analysts and institutional investors in...ways that often skirt or cross the line of unfairness."
Reading list
* The Money Masters, by John Train, Harper & Row, 1980
* Buffett: The Making of an American Capitalist, by Roger Lowenstein, Main Street Books/Doubleday, 1996
* Berkshire Hathaway Annual Reports, on-line at www.berkshirehathaway.com
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