DEEP THOUGHTS FROM WARREN BUFFETT
Interesting comments here from a recent talk Warren Buffett gave. I have to say though – I really don’t like the line about going “all in” when you can. I think that what Buffett did was go all in on Berkshire and the way he arranged his company. It was an all in bet on his own entrepreneurial venture. Not a stock market bet per se. To me, that’s a big big difference. When you start your own company you can influence the outcomes of the operations and the multitude of factors that will generate revenue.
Many people don’t know it, but many of Buffett’s earliest bets were essentially corporate raider type bets. He knew the insiders at Geico (Ben Graham was a board member) and after becoming the largest shareholder at Berkshire he removed the executives and replaced them with his own people. The buy and hold strategy that many people attribute to Warren Buffett is not at all the strategy that made him money. The brilliance in Buffett was how he structured his own company. See my piece on the “Many Myths of Warren Buffett” for more.
When you go all-in on Apple stock for instance, you’re just betting the farm on other people’s ability to manage a company. That’s a big difference in my opinion. Buffett didn’t make all his money betting on the ability of other people to manage a company. Far from it. Berkshire was a far more complex company than that. The country boy from Nebraska is a bit savvier than that….Here’s more via Market Folly:
Berkshire Hathaway’s Warren Buffett recently met with MBA students from the Richard Ivey School of Business and the legendary investor talked about how his investing principles have changed over time along with numerous other topics. Here are some highlights and notes:
Question: The key to your early career was essential information arbitrage. Given the changes in the world and that information now moves at the speed of light, how do you continue to have such great successes?
Buffett: People have better information now, but they still act irrationally … Sometimes you have to work a little bit hard to get the good deals. And looking through the Korean stock manuals I’ve found some of these same opportunities today. But ultimately, the key to success is emotional stability. You don’t need a high IQ to get rich.
Q: Explain your overall investing strategy
Buffett: Invest in equities slowly over time. And invest in yourself. Enhance your own talents and weaknesses. And look to buy companies that will go on forever, like Coca Cola. For the more serious investor, buy equities strategically, opportunistically. And go all in when you can, and when there is a good deal. I had a limit in my fund on the amount I could put in to one investment. There was a fantastic opportunity so I approached my investors and told them I wanted to increase that amount. I ended up putting 75% of the fund in that investment and it worked out well. And I’m sure I will do it again. Don’t use leverage, and sit on cash if there are no good investment opportunities.
Q: What is the most important thing you have learned in life?
Buffett: Find your passion. You will know it when you see it. It is more important than money. You want to ask the question, “Where am I going to have most fun?”
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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13 Comments
Good article. I think he misspoke on the “going all in when you can” line. Bad choice of words. Seems there is more and more resentment towards Buffett from various sites. Not at pragcap but I had to reread some of the back and forth posts from “Many Myths of Warren Buffett.” Those were getting pretty nasty. He is held up on a pedestal too much by the media and his value investing is only part of his overall philosophy. Regardless, he buys dirt cheap and negotiates great deals. That is why he has $40-50 billion. I hope some of the vitriol from posters and other blogs will settle down a bit.
Yes, don’t take my comments the wrong way. I have enormous admiration for Mr. Buffett. But his approach is highly misunderstood by most investors. And sadly, it’s the genius of his approach that really resulted in his great wealth. But it’s been pitched to the public as “so easy, even a cave man can do it”. Or a baby, or just following a green line….That’s not at all what Buffett did. His approach was FAR more sophisticated and brilliant.
Agreed Cullen. We have been Berkshire shareholders for a long time so am very familiar with some of his “step on your throat” deals like Goldman, BAC preferred etc. Also, arbitrage back in day and straight value investing when everyone else is panicked. Maybe it is just a blend and he performs all so well that has made him successful. You are spot on that buying low and selling high just doesn’t paint the whole picture. I do know his politics and gold rants are really annoying a lot of people though. At least the gold diatribes are pretty comical though.
Agreed BHB. It’s fascinating when you understand his approach. He’s sort of got this activist global macro multi-strategy built around an option writing approach (his insurance business). It’s amazing if you can build it the way he has. It’s so far from buy and hold that it’t not even funny….
Right, he says “don’t use leverage” but at its core the float he receives from all his insurance subsidiaries and reinvests is, in fact, leverage. But, in typical Buffett fashion, *he’s* the one who gets to decide the terms at which the leverage is extended, instead of the lender (with some actuarial discounting thrown in). So while his proscriptions against leverage are wise to follow, he just doesn’t happen to follow them. Then again, the rest of us aren’t Warren Buffett…
What about when he put 40% of his partnership assets into American Express in 1964? He didn’t have control there.
He owned BRK in 1964 and according to Buffett:
“For example, in 1964, we could state with certitude that
Berkshire’s per-share book value was $19.46. However, that
figure considerably overstated the stock’s intrinsic value since
all of the company’s resources were tied up in a sub-profitable
textile business.”
I don’t think he considered AMEX to be an all in bet “his business” at the time though it obviously could have hurt his firm very badly….
Personally, I’d rather put Gates, Jobs, Edison, Boyer on a pedestal. These people changed the world. Try to find a passion, yes, but try to do something for society ; you have a chance to get “rich” even if you don’t build a multi-billion dollar enterprise.
His comment about emotional stability is very much core to his success. Emotional stability requires a very long term view which is hard to form when you watch your wealth disappear before your eyes!
I don’t know. I have no doubt that Buffet is very smart but I just don’t like “say one thing do another” people. He is a snake. There are a lot of people who are far more fascinating to me and while not fabulously rich actually had more positive impact on society. But I guess, it is an investing web site so I can’t really expect anything else.
I actually like the Tepper guy more )) At least, he says it like it is, without all this “shining city on the hill” and “great future” nonsense while being an ultimate corrupt insider.
Jeff Bezos at Amazon is the guy I admire most right now….he’s revolutionized so many aspects of our consumer economy, and yet he is totally obsessed with customer satisfaction.
Yes, and that company is still, what, 1/5th the size of WalMart. Can anyone in the world tell me why that company should have a smaller market cap than WalMart because I can’t think of too many reasons why it won’t happen.
I know I’m starting to drift “off-topic”…but, there are very, very few consumer items not available through Amazon (which can even provide same day delivery in select cities in the U.S. and Europe…something, I find truly remarkable).
I know their margins are declining…but, that’s typical for very large retailers.
http://seekingalpha.com/article/592901-amazon-more-problems-than-we-thought
Also,the Kindle Fire has come under scrutiny (escpecially, when viewed as an iPad competitor)…but,the value of the Kindle was never intended to be the device itself…it’s value resides as a portal to extremely afforable content.
I’m a Kindle customer, and I’ve paid for the device many times over just in the purchasing of content.