The Smartest Thing Warren Buffett Ever Said

The Smartest Thing Warren Buffett Ever Said

By Matt Koppenheffer | More Articles | Save For Later
April 30, 2013 | Comments (1)

Berkshire Hathaway  (NYSE: BRK-A  ) (NYSE: BRK-B  ) CEO Warren Buffett is never shy about sharing wisdom. The brilliant investor is known for witty quips (“Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”) as well as longer parables (such as “The Superinvestors of Graham-and-Doddsville“). But could any one of Buffett’s gems of wisdom be the best? Could there be one Buffett-ism to rule them all? To find out, I grabbed five game Fools to weigh in.

Scott Phillips: In trying to distill Warren Buffett’s brilliance, many Buffett-watchers lean heavily on the Oracle of Omaha’s formative years at the metaphorical knee of his mentor, the famed value investor Ben Graham. Graham was notoriously mechanical in his investing; seeking to find companies with specific financial characteristics, then buy them in bulk. However, Buffett — particularly after he met his business partner and Berkshire Vice-Chairman Charlie Munger — is far from the myopically mechanical investor some would paint him to be. Indeed, in his 1982 Chairman’s letter to Berkshire Hathaway shareholders, Warren Buffett wrote: Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation. Yes, the reported numbers matter — a lot — but they are a guide to starting to understand the business, not neatly packaged answers. Buffett’s brilliance was in taking the fundamental lessons he’d learned from Graham and improving on them by understanding the factors that build and sustain great companies. Buffett has said he has one message for the managers of Berkshire’s subsidiaries — “widen the moat.” He wants them to focus on doing those things that make the business stronger and less vulnerable to the competition. Talking about Coca-Cola (NYSE: KO  ) , he said “Give me $10 billion and how much can I hurt Coca-Cola? I can’t do it.” That fact won’t show up in black and white on the financial statements, but is far more important than the numbers themselves.

Jason Moser: I had the great fortune of attending the Berkshire meeting last year, and while I’ve followed Buffett for a while now, something he said during the Q&A session last year resonated with me. Someone asked him his opinion on gold, to which he replied (and I’m paraphrasing): Let’s say you own an ounce of gold today. You hold it, love it and caress it. In 50 years you’ll still own an ounce of gold. Now say you own 100 acres of farmland today. In 50 years you’ll still own that same 100 acres of farmland. The difference is you’ll also have had the time to produce crops to grow more stuff to buy more farmland and whatever else you want. In other words, there’s a tremendous cycle of production there. Gold on the other hand is more or less an unproductive asset. This, to me, is key to why Buffett has been such a successful investor all these years. Not only is he able to focus on longer periods of time, but also the ever-so-valuable cycles of production that can occur during that time. It should therefore come as no surprise that if you gave me a bar of gold today, I would sell it and go buy stocks.

Tim Beyers: While Buffett is often thought of as the patron saint of value investing, I find him in many ways to be the quintessential Rule Breaker. Just listen to what he said at last year’s confab: I would never spend a lot of time valuing declining businesses. The same amount of energy and intelligence brought to other businesses is just going to work out better. I’d never have believed it had I not heard it myself. After all, what is value investing if not for figuring the worth of an oversold business that may, in fact, be in decline? Buffett’s lesson here, I think, is to be open to a broad range of stock ideas. Don’t merely look for a low price-to-earnings ratio. Look instead for businesses that are surprisingly strong defenders of the majority share of a profitable niche, such as Walt Disney  (NYSE: DIS  ) . The House of Mouse isn’t cheap at 20 times earnings, but can you name an enterprise with more big-name brands under its belt? Marvel, Star Wars, Pixar, and all those princesses that seven-year-old girls worship? Don’t be surprised if Berkshire takes a close-up tour of the Magic Kingdom.

Jacob Roche:

It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently. This quote always stuck with me because it’s so applicable to both life and business. It takes a long history of coming through for people to build a reputation with your friends, family, and coworkers, but one big mistake can shatter that reputation and leave a lasting bitter taste in the mouths of people who know you. Whether you’re the normally responsible friend who had too a few too many drinks at a party, or the go-to guy at work who told off the wrong client, a person’s worst impression of you is usually their most lasting. This is even more true for the highest levels of management in a large company. It can take decades for a company to earn the trust of its customers, shareholders, and employees. And while a big accounting scandal may take years to fully percolate, it starts with one bad decision. Whether it was the massive accounting scandals at Enron, Worldcom, or evenWaste Management, an unethical decision that could have been avoided can, at best, result in massive fines, like WM’s half-billion dollar shareholder suit, or even jail time in the case of Enron and Worldcom executives. These unfortunate fates could have been avoided by managers at the top simply deciding to do things differently in that crucial moment.

Dan Dzombak:

Buffett: I tell college students, when you get to be my age, you will be successful if the people who you hope to have love you, do love you. Charlie and I know people who have buildings named after them, receive great honors, etc., and nobody loves them — not even the people who give them honors. Charlie and I talk about wouldn’t it be great if we could buy love for $1 million. But the only way to be loved is to be lovable. You always get back more than you give away. If you don’t give any, you won’t get any. Everybody loves Don. There’s nobody I know who commands the love of others who doesn’t feel like a success. And I can’t imagine people who aren’t loved feel very successful.

Munger: You don’t want to be like the motion picture exec who had so many people at his funeral, but they were there just make sure he was dead. Or how about the guy who, at his funeral, the priest said, “Won’t anyone stand up and say anything nice for the deceased?” and finally someone said, “Well, his brother was worse.”

Buffett: Most people in this room and most college students I talk to will have plenty of money, but some will have few friends.

— 2003 Berkshire Hathaway Annual Meeting

Coming from one of the richest people in the world, the quote is a good reminder that there’s a lot more to a successful life than just money. My definition of success is long-term sustainable happiness, and having friends who love you is a key part of that. A close network of friends has been shown to help fight illness and depression, speed recovery, slow aging, and prolong life. While it takes effort to be lovable, Buffett has shown that the benefits are massive and certainly worth the effort.

Van Gogh: “Today again from seven o’clock in the morning till six in the evening I worked without stirring except to take some food a step or two away”

What does nearly every genius have in common when it comes to work habits?

by eric barker

A very interesting new book, Daily Rituals: How Artists Work, examines the work habits of over 150 of the greatest writers, artists and scientists. What does nearly every genius have in common? Those interested in the 10,000 hour theory of deliberate practice won’t be surprised — the vast majority of them were complete and unapologetic workaholics.

Via Daily Rituals: How Artists Work:

William Faulkner:

During his most fertile years, from the late 1920s through the early ’40s, Faulkner worked at an astonishing pace, often completing three thousand words a day and occasionally twice that amount. (He once wrote to his mother that he had managed ten thousand words in one day, working between 10: 00 A.M. and midnight— a personal record.) “I write when the spirit moves me,” Faulkner said, “and the spirit moves me every day.”

Maya Angelou:

Sometimes the intensity of the work brings on strange physical reactions— her back goes out, her knees swell, and her eyelids once swelled completely shut. Still, she enjoys pushing herself to the limits of her ability. “I have always got to be the best,” she has said. “I’m absolutely compulsive, I admit it. I don’t see that’s a negative.”

H.L. Mencken:

His compulsiveness meant that he was astonishingly productive throughout his life— and yet, at age sixty-four, he could nevertheless write, “Looking back over a life of hard work  …   my only regret is that I didn’t work even harder.”

Musician Glenn Gould:

From the time he retired from public performances in 1961, when he was thirty-one years old, Gould devoted himself completely to his work, spending the vast majority of his time thinking about music at home or recording music in the studio. He had no hobbies and only a few close friends and collaborators, with whom he communicated mostly by telephone. “I don’t think that my life style is like most other people’s and I’m rather glad for that,” Gould told an interviewer in 1980. “[ T] he two things, life style and work, have become one. Now if that’s eccentricity, then I’m eccentric.”

Alexander Graham Bell:

As a young man, Bell tended to work around the clock, allowing himself only three or four hours of sleep a night… When in the throes of a new idea, he pleaded with his wife to let him be free of family obligations; sometimes, in these states, he would work for up to twenty-two hours straight without sleep.

Van Gogh:

“Today again from seven o’clock in the morning till six in the evening I worked without stirring except to take some food a step or two away,” van Gogh wrote in an 1888 letter to his brother, Theo, adding, “I have no thought of fatigue, I shall do another picture this very night, and I shall bring it off.”

Artist Chuck Close:

“Inspiration is for amateurs,” Close says. “The rest of us just show up and get to work.” Read more of this post

Charlie Munger: No tweets for me, Buffett’s second-in-command says

No tweets for me, Buffett’s second-in-command says

2:20pm EDT

By Jennifer Ablan and Jonathan Stempel

OMAHA, Nebraska (Reuters) – So they are not completely in sync after all. A day after Berkshire Hathaway Inc Chairman Warren Buffett set up his own account on Twitter, his second-in-command, Charlie Munger, said he has no plans to follow the legendary investor’s lead. Buffett, 82, launched his “@WarrenBuffett” account with the tweet “Warren is in the house,” and immediately started adding followers at the rate of 1,000 per minute. But the 89-year-old Munger – renowned for his forthright style of speaking – suggested fans should not look forward to seeing his trademark remarks in 140-character form any time soon.

“No, certainly not,” Munger said in an interview, after being asked whether he planned to join the social media network. “That’s not my milieu. I don’t like too many things going on at once.” It marks a rare point of departure between Buffett and Munger, who have worked together at Berkshire for decades. “We have practically no disagreements. That’s just the way the chemistry has worked,” Munger said, commenting on his working relationship with Buffett. “People who think we’re quite a diverse pair, and that one is helping the other – it’s more like two twins, and one of them is a little more able than the other.” Berkshire Hathaway will hold its annual shareholder meeting on Saturday in Omaha. Buffett calls the meeting and the weekend’s related events “Woodstock for Capitalists.”

Find the Customers Your Competitors Are Offending

Find the Customers Your Competitors Are Offending

by Sehreen NoorAli  |  10:00 AM May 3, 2013

In a targeted effort to appeal to Gen Y, Pizza Hut offered free pizzas for life to any attendee of last October’s presidential debate who dared ask President Obama or Governor Romney, “Sausage or Pepperoni?” Outraged by the mockery to the democratic process, millennials shamed the popular company across national outlets. The backlash against the campaign shocked Pizza Hut and forced it to backpedal.

Pizza Hut’s campaign unwittingly shut the door on thousands of customers who were either: 1) people within the target market that the ad alienated (ex: millennials who care about politics more than pizza); or 2) people excluded from the target market altogether (ex: non-Gen Yers).

This is a basic problem with target advertising: it frequently ignores the fact that people who share a common demographic do not necessarily share the same preferences or opinions. By extrapolating consumer behavior from fixed demographic information like gender, age, and ethnicity, companies indiscriminately make conclusions like “African-Americans love fried chicken,” “senior citizens only care about incontinence” and “single men aspire to be James Bond.” Using unrefined market segmentation to understand the preferences of potential target customers often backfires. Take Diet Pepsi’s “Skinny Can” controversy, or Groupon’s callous Tibet commercial. Read more of this post

Little Data Makes Big Data More Powerful

Little Data Makes Big Data More Powerful

by Mark Bonchek  |  11:00 AM May 3, 2013

You may not know this, but Big Data has a little brother. And together, Big and Little Data are far more powerful than Big Data alone.

Big Data is what organizations know about people — be they customers, citizens, employees, or voters. Data is aggregated from a large number of sources, assembled into a massive data store, and analyzed for patterns. The results are more accurate predictions, more targeted communications, and more personalized services. Big Data is what enables banks to predict credit card fraud by analyzing billions of transactions, marketers to understand customer sentiment by analyzing millions of interactions on social media, and retailers to target promotions and offers by analyzing millions of purchases.

In contrast, Little Data is what we know about ourselves. What we buy. Who we know. Where we go. How we spend our time. We’ve always had a sense for these things — after all, it’s our lives. But thanks to the combination of mobile, social, and cloud technologies, it’s easier than ever to gain insight into our own behavior. Read more of this post

Leadership Is More than Interpersonal Skills

Leadership Is More than Interpersonal Skills

by Terri Griffith  |  12:00 PM May 3, 2013

Most of the 89,000 leadership books offered on focus on traditional interpersonal leadership: the relationships between leaders and followers. Interpersonal leadership sets up an expectation that leaders must be in dialog or at least in view of their followers. Yet this style of interaction is less likely as work stretches across locations and company boundaries as we telecommute, crowdsource, and take on joint ventures. Modern leadership may be as much about facilitating strategy through hiring, training, technology, and focused tasks and goals, as it is about face-to-face interaction.

Clear and meaningful tasks, goals, and technology tools that support the organization’s direction can supplement interpersonal leadership. This is a classic topic in the management field. In the 70s, Steve Kerr and John Jermier offered that leaders do many things beyond their interpersonal relationships with their followers. Talking about the history of substitutes for leadership research, Jermier said in 1997, “[Substitutes for leadership] pointed to unobtrusive and impersonal forces such as technology and task characteristics, professional standards, and formal regulations (policies, rules and procedures).” One of their conclusions was that some people don’t even need leadership in the traditional sense, or find leadership substitutes through interactions with other workers. Hiring for employees who can model the vision of the organization through their work can substitute for interactions with formal leaders. Read more of this post

Scientists Develop Epilepsy Warning Device

Scientists Develop Epilepsy Warning Device

By Agence France-Presse on 6:57 pm May 2, 2013.
Paris. A tiny device implanted in the brain of epilepsy sufferers has for the fist time been able to predict the onset of seizures, scientists reported on Thursday.

The potentially life-saving device works with electrodes that monitor electrical activity on the brain surface, they wrote in The Lancet Neurology.

The electrodes were connected to a second device implanted under the skin of the chest, which transmitted the data wirelessly to a hand-held device that calculated the probability of a seizure.

The device lights up in red for a high risk, white for moderate, or blue for low seizure probability. Read more of this post

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