First hand: the wisdom of Warren Buffett

October 27, 2009

Photo Credit: *Jimmy

The BBC aired an informative and entertaining profile tonight of Warren Buffett, “The World’s Greatest Money Maker: Evan Davis meets Warren Buffett“, hopefully spreading his name to more Brits; the average person here has no idea who he is, despite him being wealthier than the GDP of half the World’s countries and usually coming top of the World’s rich list! When I met Evan Davis he mentioned that he had just 5 minutes with Buffett, but that’s not stopped him presenting a thorough profile and insight by combining research and interviews with others close to Buffett, including with Bill Gates.

Evan describes Buffett by saying:

“He really is different to the other super-rich… uniquely clever, funny and generous”.

This is the man that’s lived in the same house for the last 50 years, (currently worth around $700,000), on a regular street in Omaha in America’s mid-west and drives a beat up old car with the licence plate “THRIFTY”. I’ve been to the Berkshire Hathaway annual shareholder meeting for the past two years, met both Warren Buffett and Bill Gates in the process and learnt a lot from the wisdom of Warren Buffett by reading his shareholder letters and attending the day-long Q&A at the gigantic stadium where the AGM is held.

Questions from the audience of around 30,000 attending what has become known as “Woodstock for capitalists” cover a wide range of topics including business, religion, the environment and tips for a successful life. Buffett is always interesting and frequently entertaining. The fellow attendees are all delighted to be there and I have met some wonderfully friendly Nebraskans who are all delighted at the influx of visitors in this weekend, the highlight of the Omaha calendar. If you are at all interested in business or investing I do recommend going at least once to this unique event. (See “how to attend” at the bottom of this article).

Buffett’s approach to investing in businesses is first and foremost about investing in things he understands, “stay within your circle of competence” and these guidelines:

  • Businesses with a durable competitive advantage through a strong brand (protective moat)
  • Management integrity, passion for the business and talent (doing business with people he likes, trusts and admires)
  • Paying a sensible price for the business

At this year’s meeting he brought up that he doesn’t have either a calculator or a computer on his desk, quite simply, “if the calculation needs so much accuracy that you need to use a computer, then don’t invest”; it should be obvious whether a company is worth investing in or not. He further explained, the key to successful investing is strong emotional stability, not skill or high IQ; in fact it’s dangerous to be too smart! An IQ of 120 is just fine; anything above that and you’re too clever for your own good.

For more lessons on life, business and investing a great free starting point is the website of Berkshire Hathaway where you can download all the annual shareholder letters.

My favourite Buffett quotes:

“Price is what you pay, value is what you get.”

“Time is the friend of the wonderful company, the enemy of the mediocre.”

“It’s better to hang out with people better than you. Pick the associates whose behaviour is better than yours and you’ll drift in that direction.”

“It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

“There seems to be some perverse human characteristic that likes to make easy things difficult.”

“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

“Only when the tide goes out do you discover who’s been swimming naked.”

“If you let yourself be undisciplined on the small things, you will probably be undisciplined on the large things as well.”

“The smarter side to take in a bidding war is often the losing side.”

“No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”

“When proper temperament joins with proper intellectual framework, then you get rational behaviour.”

“Success is having people love you that you want to have love you.”

Charlie Munger is equally as erudite, but somewhat taciturn:

“Acquire worldly wisdom and adjust your behaviour accordingly. If your new behaviour gives you a little temporary unpopularity with your peer group…. then to hell with them.”

“I sometimes tell my friends, I’m doing the best I can. But I’ve never grown old before, I’m doing it for the first time and I’m not sure I’ll do it right.”

How to attend the Berkshire Hathaway annual shareholder meeting:

Anyone can attend by one of two routes that I know of:

1. Becoming a shareholder in Berkshire Hathaway
2. If you are in business for yourself attend the Entrepreneurs’ Organization event which is held to coincide with the shareholder meeting. This year it included a behind the scenes tour at one of Berkshire’s businesses, the Nebraska Furniture Mart and a talk by Bob Prosen.