Character and Life
Warren's character comes through in his temperament, his view of the long term, and his humbleness.
“Chains of habit are too light to be felt until they are too heavy to be broken”
Technically a Bertrand Russell re-quote. It is very illustrative how bad business practices can go unchecked until they are too heavy to hide anymore. At that point, they have become an insurmountable force. The same applies to individual virtues and traits and is how bad habits become addictions.
“Risk comes from not knowing what you are doing”
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
Warren values having independent thought. Trying to go along with the crowd instead of your own principles is a sure-fire way to make mistakes.
“We enjoy the process far more than the proceeds”
If you attributed this one to Gary Vaynerchuck, I would understand. This seems to be a central theme among highly successful people. Working on the grind, working on improvement, getting better at what you do will lead to results in the long run. This is another example of where Warren Buffett understands how compound interest works in the long game.
“There seems to be some perverse human characteristic that likes to make easy things difficult”
I have to admit that I am guilty of this at times. Especially when programming, I would spend hours automating a task that probably would only take a couple minutes a month to handle. Worse yet, that code still had to be maintained. If we use the Eisenhower Matrix to work on the hard problems and either delegate or eliminate the easy problems we are setting the basis for not over engineering the easy problems.
“You only have to do a few things right in life so long as you don't do too many things wrong”
It is easier to make forward progress if you minimize the amount of backwards progress you make. This highlights Warren's methodical approach. He would much rather make 1 trade than 2 trades partially for this reason.
“Too-big-to-fail is not a fallback position at Berkshire. Instead, we will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity.”
“We never want to count on the kindness of strangers in order to meet tomorrow's obligations. When forced to choose, I will not trade even a night's sleep for the chance of extra profits.”
“The most important thing to do if you find yourself in a hole is to stop digging.”
These 3 quotes highlight the fiscally conservative position at Berkshire Hathaway.
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks.”
This analogy highlights the sunk-cost fallacy where we often over weigh our emotional investment into our current situation.
“I don't look to jump over 7-foot bars, I look around for 1 foot bars that I can step over”
Winston Churchill attributed his success in life to: “Conservation of energy. Never stand up when you can sit down. And never sit down when you can lie down.” Which is an interestingly lazy point of view in today's always be hustling society. But Warren seems to share a similar strategy.
Warren Buffett definitely understands the value of having a solid reputation. He strives to be perceived as an independent thinker with integrity.
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.”
“Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”
“You can't make a good deal with a bad person.”
“Failing conventionally is the route to go; as a group, lemmings may have a rotten image, but no individual lemming has ever received bad press”
Notice none of these quotes put an emphasis on receiving an education. They are all about self educating.
“The most important investment you can make is in yourself.”
“I just sit in my office and read all day”
This may not seem like the most productive course of action. But by digesting massive amounts of content on a very specific subject, he is able to achieve an edge over other investors.
“I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business.”
“One can best prepare themselves for the economic future by investing in your own education. If you study hard and learn at a young age, you will be in the best circumstances to secure your future.”
By starting earlier, you have much more time for the powers of compound interest to work.
“Read 500 pages like this every day. That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
“I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life.”
“If you get to my age in life and nobody thinks well of you, I don't care how big your bank account is, your life is a disaster.”
By staying away from Wall Street, and focusing on reading as opposed to getting business news from sources like TV, Warren is able to keep to his own independent thinking. Not getting swayed by the current events, and sticking to the underlying principles of investing.
“Be fearful when others are greedy and greedy when others are fearful.”
“We simply attempt to be fearful when others are greedy and to be greedy when others are fearful.”
“You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
“It's been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance.”
It is no surprise that the world famous value investor has some knowledge to share about investing advice.
“Beware of geeks bearing formulas”
It is possible to over analyze. It is also possible to oversimplify complex events with formulas, often writing off important conditions as immaterial.
“Derivatives are financial weapons of mass destruction”
See the previous quote. The only way to make sense of derivatives is to have a copious supply of formulas.
“I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”
When buying for the long haul, you have to be prepared for poor management at some point. Well built companies are somewhat insulated from this risk.
“A ham sandwich could run Coca-Cola.”
Warren is saying that Coca-Cola has such good business systems that it can pretty much operate independently of a CEO actually steering the company.
“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1”
Don't speculate. Focus on assets that provide a wide margin of safety.
“Our favorite holding period is forever.”
If you focus on investing for the long haul, you are less exposed to market conditions.
“Price is what you pay; value is what you get.”
“It's far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”
A wonderful company has better opportunities over the long run. A fair company has the risk of being taken out by a wonderful company.
“Cash … is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent”
Operate with the foresight to not be in a cash crunch and you will have the freedom to focus on other important things besides cashflow.
“The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time.”
“Do not take yearly results too seriously. Instead, focus on four or five-year averages.”
A few outliers can really overshadow a single year either good or bad. Over a few years these start to average out.
“When you combine ignorance and leverage, you get some pretty interesting results”
“The best chance to deploy capital is when things are going down.”
Not getting taken over by fear when everyone else is behaving irrationally. If the prices of assets are falling, that does not mean the value went away.
“Predicting rain doesn't count, building the ark does.”
There are many people that predict that we are at the top of the market, bottom of the market etc. It is nearly impossible to consistently get these macro economic timing factors correct. What is important, is being prepared for them.
“If past history was all that is needed to play the game of money, the richest people would be librarians.”
Capitalism and Politics
“There are 309 million people out there that are trying to improve their lot in life. And we've got a system that allows them to do it”
Warren is placing trust in the ingenuity of people. That over time, if they are not being oppressed, they can achieve more. As a whole, if capitalism is performing correctly, people can grow the economy.
“We live in an uncertain world. What is certain is that the United States will go forward over time”
Because the United States is a composition of people trying to improve their lot in life, collectively, they will be able to achieve it. There is incentive to provide the highest quality goods and services, so the market will continually improve on itself.
“I think the most important factor in getting out of the recession actually is just the regenerative capacity of – of American capitalism”
Because the market will continually improve on itself, there will be improvements of efficiency. There is money to be made in correcting the mistakes of past financial markets. When there is money to be made, you can count on the creativity and ingenuity of people to figure out a way to accept that opportunity.