From very early on in his investment career, Buffett had qualms about Wall Street. He began his career as a stockbroker, but when he learned that a stockbroker made his money not by enriching his customers, but by churning their portfolios, he lost interest in the job. As his wealth grew and amplified his opinions, he voiced them more frequently, and conveyed his distaste for Wall Street brokerage firms. And so it came as a shock, in 1986, when he turned on a dime and bought a giant stake in Salomon Brothers (where, at the time, I happened to work). The firm had been mismanaged and was the target of a hostile raid which, if successful, would almost certainly have cost the CEO, John Gutfreund, his job. In rode Buffett to take a stake in the firm that foiled the raid, and to keep Gutfreund in his job.
But it was no ordinary stake. Buffett's reputation as the soul of integrity enabled him to charge the embattled CEO extra for his capital: his dollars were not just money, they were also an ethical imprimatur. Salomon Brothers sold Buffett a security that guaranteed a high return, no matter how the other shareholders fared, and a sensational return if the firm's stock price happened to rise. Other investors had to worry that the firm was well run, whereas Buffett was being paid a big sum to bet only that it would not go bankrupt. He had rented not just his capital but also his reputation. The moral algebra of the transaction was curious: it caused a lot of people to feel better about Salomon Brothers but no one to think worse of Buffett.
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