In last year’s Berkshire Hathaway issue of The Manual of Ideas, we asked some of our members to share one or two things they have learned from the great investors at the helm of Berkshire over the years. Selected responses are included below, including from Jeff Auxier, Tom Gayner, Allan Mecham, and other highly regarded value investors. Enjoy!
(The following contributions may be edited for space and clarity.)
HENRIK ANDERSSON — Manager, D&G Global; Co-founder, InvestingByTheBooks.com
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]My twenty year-old self that jotted down [during Buffett’s speech], ‘Why is [Buffett] praising his managers so much, shouldn’t he be tougher and more demanding,’ has now come to appreciate the fuller circle that this line of thinking represents.[/pullquote]
As a student at University of Nebraska – Lincoln in the mid 1990s, I listened to Warren Buffett speak at a seminar in front of about 100 students. Being from Sweden and just having dipped my toe into investing a few years prior, I had barely heard of this dry-humorist who made companies and stocks sound so common-sensical and simple. I sometimes bring out my notes from that occasion, smiling at the brilliance of his words and at my youthful exclamation marks and scribbles (Buffett: “Even though I do spend a fair amount of time on numbers, there are other qualities in an investment I value more”. My note: “Ask professor about what ‘qualities’). Fast forward exactly twenty years and I am fascinated daily by the impact these two gentlemen have had on not only the world of investing but business-wide. Well-deserved for sure, but still amazing. Is there another line of work with the same focus on “one source”? Babe Ruth and baseball?
Of all the wisdom in how one ought to go about the job of trying to compound capital at a satisfactory rate, it is the “personalization” of investing that has grabbed me the most. The fact that it is nothing wrong with saying “too hard”, “outside my circle of competence” and “not going outside your spots of smartness” is just one part of it. The more important part, I think, is to learn what works best in my hands. That in order to be a good long-term owner I must respect and really believe in a company´s business model, its leadership and future opportunities. Yes, the value must be there at the start of the ownership, but without these other attributes it is nigh impossible to enjoy the fruits of long-duration investing.
In my opinion, some of the best books – apart from the usual suspects – in order to understand Buffett’s psyche are Dale Carnegie’s How To Win Friends and Influence People and Fred Schwed’s Where Are The Customers’ Yachts. My twenty year-old self that jotted down “why is he praising his managers so much, shouldn’t he be tougher and more demanding”, has now come to appreciate the fuller circle that this line of thinking represents.
JEFF AUXIER — President, Auxier Asset Management
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Back in the fall of 1982… I called Warren Buffett at his office on a Saturday and he picked up the phone… I was hooked.[/pullquote]
Back in the fall of 1982, just starting in the investment business, I was on a mission to interview America’s greatest investors. I actually called Warren Buffett at his office on a Saturday and he picked up the phone. He was extremely generous with his time and recommendations of books and other investors who he thought were worthy of study. I was hooked. His systematic, low-risk approach to business ownership has been invaluable in navigating the numerous crashes, panics and economic downturns over the past thirty plus years. I have been attending the Berkshire meetings since the 1980s. To enjoy the fruits of compounding, I believe the teachings of Warren Buffett and Charlie Munger are unmatched for their value.
MARTIN CONDER — Director, Novum Capital
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]The other essential learning from Buffett and Munger is the importance of certainty. So often investors are looking for opportunities as a quick way to make money and higher returns. Instead, to look for certainty is a much easier path to follow![/pullquote]
It would be so easy to repeat some of my favorite Buffett and Munger quotations (I do keep a list), but this would rather miss the point. We have heard these many times and even then it doesn’t mean that we would be able to encapsulate all of them into an investment process and follow it on a daily basis.
It has taken me many years to understand the Buffett/Munger philosophy in such a complete and deep way that it survives the daily onslaught of advice, comment and other investment ideas which I am subject to. Doing what you can to avoid all the noise is part of the answer. But traditionally we learn that investment is about analyzing companies, their financials, their business models, strengths and weaknesses etc. This of course is still necessary, although Buffett and Munger do seem to have worked out a way to hone down their analysis to focus on what they see as being the relevant features rather than try and understand everything.
More importantly, investment is about taking good decisions, and here you have to deal with your own psychology and avoid bias and the madness of the crowds. Of course, we don’t start with all the potential best investment ideas laid out in front of us from which to choose. That would probably be too easy. Instead, new ideas come at us “one by one” and have to be evaluated as such. This requires a strict discipline, rigorous mental framework and ability to keep saying “no”.
The other essential learning from Buffett and Munger is the importance of certainty. So often investors are looking for opportunities as a quick way to make money and higher returns. Instead, to look for certainty is a much easier path to follow! There is one quote in my mind, although I am not sure if it came from Buffett or Munger exactly in this form: “better to be confident of a good result than hopeful of the great one.” Put simply investment is more likely to be successful by investing in situations where the outcome is more certain (and which incorporates a strong compounded return on capital) than by trying to identify the next “big thing,” and furthermore which company will be most successful with that.
JEREMY DEAL — Managing Partner, JDP Capital Management
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Buffett’s story had a profound impact on me. I identified with the idea of analyzing stocks as whole businesses, and buying whole businesses…[/pullquote]
My journey with Berkshire began shortly after college when I read The Warren Buffett CEO by Robert Miles. The book profiles Berkshire’s wholly owned businesses and their founders/CEOs, the transaction history selling to Buffett, and the resulting estimated contribution to Berkshire’s net worth over time. The essence of the book is the success and unconventional nature of Berkshire’s “hands-off” ownership culture.
At the time I was working for a successful entrepreneur in the electronic security industry who I greatly admired. But I was more interested with investing than my job, and was spending most of my spare time analyzing local private companies for sale, and public stocks that I could understand. When it became obvious that I was much more passionate about capital allocation than running a traditional business, I started reading everything I could about the greatest investors.
Buffett’s story had a profound impact on me. I identified with the idea of analyzing stocks as whole businesses, and buying whole businesses with a similar attitude to stock picking. I also identified with Buffett’s temperament and read everything I could about his career, starting with the early Partnership letters.
Like many value investors, my own career as money manager was conceived after first being inspired by Buffett’s.
In 2003 I attended my first Berkshire shareholders meeting. I walked around the convention center booths meeting CEO/founders of Berkshire subsidiaries and asking what it was like being part by Berkshire. I remember being surprised at how friendly and willing the CEOs were to talk about being owned by Berkshire.
Some of the more memorable conversations I had were with Doris Christopher, (Pampered Chef), Randy Watson (Justin Boots), David Sokol (Mid America Energy) and Terry Piper (Precision Steel Warehouse). Each manager talked about how much freedom they had, and that compensation was tied to returns on invested capital. They all seemed very happy and aware of how lucky they were to be part of the Berkshire family.
Today as a fund manager I continue to be as excited and curious about Berkshire as ever. In fact the core principles that make up our strategy at JDP Capital Management are rooted in Buffett-inspired wisdom such as the importance of being concentrated, thinking independently, analyzing stocks as whole companies, and having the courage to go against the consensus.
DOMINIC FISHER — Director, Thistledown Investment Management
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]I defy anyone to read ‘The Superinvestors of Graham-and-Doddsville’ and not want to have at least some of their money invested by people from that ‘small intellectual village.’[/pullquote]
The first lesson I learned early in my career: It’s possible to beat the market. The firm I joined in 1988, Hambros Bank, paid for an induction course run by a training company in west London. Day 1 introduced us to the efficient markets hypothesis. By the end of that first day I was depressed – the objective of my chosen career was unobtainable according to strong academic evidence. “What I am being paid to do cannot be done,” I thought as I went home. But, before giving up, I thought I’d check the academic position against reality. I bought Peter Lynch’s One Up on Wall Street, and, in Chapter 2, “The Wall Street Oxymorons,” read of Warren Buffett, the greatest investor of them all. Then, if you wrote to Kiewit Plaza, Mr. Buffett’s assistant would send you a bound copy of the letters from 1977 to 1986. I did, and I still have it. It showed me it was possible to do what I hoped to be paid for, and to do it with integrity.
Second lesson: Value investing works. I defy anyone to read The Superinvestors of Graham-and-Doddsville, Buffett’s appendix to The Intelligent Investor, and not want to have at least some of their money invested by people from that “small intellectual village.”
TOM GAYNER — Chief Investment Officer, Markel Corporation
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]My simple message is to say, ‘Thank You’…[/pullquote]
Warren Buffett and Charlie Munger changed the arc of my life for the better and not just financially. Their examples and clear teachings about integrity, quality, time horizons, curiosity, and value and values, and so many other things, made me a better person than I otherwise would be.
My simple message is to say, “Thank You,” and that I will continue to do the best I can to help future generations in the way that they helped me.
DANIEL GLADIŠ — Director, Vltava Fund
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]One of the things I’ve learned from Warren Buffett is that beauty lies not in complexity but in simplicity.[/pullquote]
When I was a young and ambitious investor and believing myself to be clever, I was often trying to be “creative” in my investments. I was a bit impatient, too. In retrospect, I must admit that more often than not my clever ideas did not end as I had expected. One of the things I’ve learned from Warren Buffett is that beauty lies not in complexity but in simplicity. And it’s not just about beauty, because as complexity declines so, too, generally does risk. Some of the lessons the market taught me came at pretty high prices, and so Buffett has certainly saved me a lot of money. He doesn’t know it, but I am very thankful to him.
Today I view stocks as I do trees. For number of years now, I have been planting a few trees each spring with my kids. When you’ve planted a tree, from one day to another you see no change. If you come back in several years, though, you are usually surprised by how much the tree has grown. Buying good stocks is like planting trees and then watching them grow. Simplicity and patience – these are what I have learned from Warren Buffett.
ARKO KADAJANE — Portfolio Manager, Ambient Sound Investments
Warren Buffett cleared my thinking on two important aspects: intrinsic value and business predictability. Basically being a value investor means for me that I have to find companies which are more or less predictable in the long run and available at a bargain price.
PAUL LOUNTZIS — President, Lountzis Asset Management
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””][Buffett’s] influence on my life, both professionally and personally, has been profound.[/pullquote]
I first came across Mr. Buffett over 42 years ago when I was a teenager and have followed him since that time, though more closely over the past 30 years. His enormous influence upon my life, both professionally and personally, has been profound. In fact, outside of my parents and my wife he has had the greatest impact on my life.
While Mr. Buffett is perhaps the greatest investor that has ever lived and his many lessons on investing available from his writings, lectures and interviews have made me a far better investor, his impact upon me personally has been far greater. The world is well aware of his investment greatness and when his name is mentioned, people immediately respond with several comments; investment genius, wealthiest man in the world, and a friend of Bill Gates, among others. While I am certainly well aware of each of those comments, I tend to think of several other things when Mr. Buffett’s name is mentioned:
- Integrity as a way of life
- Do what you love to do with people you respect and admire
- Make a difference in lives of others: clients, shareholders, students…
- Charity—giving back the majority of your wealth to society
- Share your wisdom as an outstanding teacher
I thought I would share several of his quotes that have served to inspire and educate me to becoming a better human being, which I believe is even more important than being a great investor, though I certainly strive to be that as well. Mr. Buffett’s quotes are listed below:
Someone’s sitting in the shade today because someone planted a tree a long time ago.
It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.
Measure your success by how many of the people that you want to have love you actually do love you… The trouble with love is that you can’t buy it.
People ask me where they should go to work, and I say work for whom you admire the most. Do what you love, and work for whom you admire the most, and you’ve given yourself the best chance in life you can.
All along I felt money was just claim checks that should be given back to society. I am not an enthusiast for dynastic wealth, particularly when the alternative is six billion people that have drawn much poorer hands in life than we have, getting a chance to benefit from the money.
In teaching your kids, I think the lesson they’re learning at a very, very early age is what their parents put the emphasis on. If all the emphasis is on what the world’s going to think about you, forgetting about how you really behave, you’ll wind up with an Outer Scorecard. Now my dad: He was a 100% Inner Scorecard guy. He was really a maverick. But he wasn’t a maverick for the sake of being a maverick. He just didn’t care what other people thought. My dad taught me how life should be lived. I’ve never seen anybody quite like him.
It [money] could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself. I didn’t want other people directing me. The idea of doing what I wanted to do every day was important to me.
ALLAN MECHAM — Partner, Arlington Value Capital
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]…the biggest thing I’ve learned is how to become a better thinker, and an independent thinker…[/pullquote]
As you know (I think) Warren Buffett’s story inspired me to start my fund, and outside of my family, Buffett has probably had the largest positive impact on my life to date. After observing and studying Buffett for close to 20 years I’d say the biggest thing I’ve learned is how to become a better thinker, and an independent thinker (granted the second part comes somewhat naturally for me). Buffett’s example and teachings have helped me hone my ability to think rationally and be intellectually honest with myself while listening to the “inner scorecard” as opposed to the outer scorecard. Becoming a better thinker is obviously valuable in business and picking stocks however, Buffett’s example and teachings go way beyond financial advice, and perhaps that’s why his example has such strong appeal/influence on me and scores of others around the world.
JONATHAN MILLS — Director, Metropolis Capital
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]In 2001, things moved in a very different direction after I attended my first Berkshire AGM. I returned to the UK with a new idea: we would build the media business through acquiring other private businesses, using the same approach that Buffett had applied to buying fully-owned companies.[/pullquote]
Simon and I began our journey into value investing in 1994 when I picked up a copy of Robert Hagstrom’s “The Warren Buffett Way” at a US Airport bookstore. I read it, then passed it onto Simon. We both then read through the Berkshire Hathaway “back catalogue” of annual letters and discussed them.
We were initially captivated by how successful Buffett had been at long-term stock market investing, which is what he was best known for at that time. He seemed to offer a one-person riposte to the efficient market hypothesis with its rational expectations and random walk theories. We had both learned about these, and been uncomfortable with them, while studying for Economics degrees at different universities.
At the time we first heard of Buffett, I was in the early days of building my media business and Simon was in the same position with his software business. Time was extremely scarce, but we were sufficiently inspired to form a share club along with one other person. This was largely an analytical exercise to look at listed UK equities through Buffett’s lens. We built a quality checklist and an approach to valuation that followed his thinking and we met once every few weeks to discuss stocks.
In 2001, things moved in a very different direction after I attended my first Berkshire AGM. I returned to the UK with a new idea: we would build the media business through acquiring other private businesses, using the same approach that Buffett had applied to buying fully-owned companies. The plan was to look for “unsexy” businesses which no one else wanted very much but which nevertheless met our quality criteria.
By this time, I had also read Buffett’s partnership letters and several other books about Ben Graham, Buffett, and value investing more generally. I felt that I better understood Buffett’s Munger-inspired journey towards quality. Buffett’s description of seeking businesses with wide moats really resonated with me (and with Simon) because we realized that in building our own businesses we had naturally sought to invest in the long-term creation of barriers which put clear blue water between us and our competition. Our checklist and valuation model from the share club were repurposed to support the acquisition process.
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Buffett’s discipline, patience, integrity, long-term perspective and focus on value are all key ingredients of his success, but he also has incredible skills in persuasion—coming from a unique blend of style, quick wittedness and self-deprecating humor.[/pullquote]
Hunting for businesses to buy became much easier with this “quality first” framework. We completed our first acquisition in 2002, paying 3.5x free cash flow for a small publishing business that had been founded 40 years earlier. It was effectively a little monopoly and its margins have remained at over 60% every year since, during which period it has repaid its acquisition price several times.
Emboldened with this early success, we built a network of relationships within the broker community and went on to complete over 30 similar deals in the next decade. The vendors have either been large corporates disposing of “orphan” businesses that no longer fit their strategy, or retirement sales by entrepreneurs.
In many ways, attempting to emulate the way in which Buffett interacts with people has been as important as the analytical disciplines of investing. Our aim is that in each deal we maintain a reputation for conducting business at the highest level of integrity. There is no last minute tactical price chipping. Gaining a reputation as someone who closes deals and is looking to run each business for the long-term has helped to build great relationships with the entrepreneurs and corporates from whom we are buying. Buffett taught me that the process of buying is itself a sales process.
Primarily as a result of the acquisitions, the initial $50k equity invested in the media company has grown into a business with $50m of revenue that makes $10m of profit each year. None of the businesses we have bought have been runaway successes, but with just a few exceptions they have been bought at prices that represented a discount to the cash flows they have subsequently generated. Using this excess cash flow to acquire more businesses has given us a real life lesson in the power of long-term compounding.
After Simon sold his software business, we had the opportunity to go full circle and establish a fund in 2008, applying the lessons from the private acquisitions to investing in the public markets. Our now much longer checklist and more sophisticated valuation model were once again re-purposed so that we could apply them to the equity markets.
My own personal desire to do this came from the fact that I had found the process of analyzing and valuing potential acquisitions far more enjoyable than the process of negotiating sale and purchase agreements, integrating new businesses acquired, and running a company which now had 300 employees. Running a fund instead would also give me the opportunity to manage my own money in the way that I felt it should be managed. Once we had set up an open-ended fund in 2011 I recruited a CEO for the media business and left him to run it with four MDs reporting into him and minimal oversight from me.
The easy route to building a fund management business would have been to establish a small cap fund. The simple marketing message of applying the lessons learned from buying small private businesses to investing in under-researched small cap stocks would have resonated well with investors and made the huge challenge of raising money much easier.
However, we are inspired by Buffett and Munger’s ability to apply their craft with pleasure well into their 80s. In our 40s, we cannot imagine doing anything else in our careers, so starting a 40 year journey with constraints which would have prevented us from investing where we saw the best combination of quality and value was anathema. Buffett’s career advice to anyone who asks him at the AGMs is consistent: do what you love doing, what you are passionate about. This was Buffett’s final and in many ways his most important lesson to us. In the long run, we know we will be better investors by doing what we love – to paraphrase Buffett, by ensuring that we “tap dance to work each morning”.
Another lesson from Buffett is that one should never invest in something just because someone else has done so (even if that person is Warren Buffett!). You have to do your own analysis and ultimately have your own independently grounded views on the future cash generative capability of the business in question. Without this, you have no way of interpreting new information that comes out of the company or the industry in which it operates. In our case, this has led us to invest in a number of stocks that we are comfortable with, but which we know that Buffett would never consider, such as Apple, Google, Cisco and Microsoft.
Every year we make the trip across the Atlantic at the start of May for the Berkshire Hathaway shareholder meeting. 2015 will be my 15th consecutive meeting. Every year, I probably learn a little less than I have the year before, but I still learn something new. We now bring our team of Analysts with us so that they can absorb some of the life and business lessons from the Oracle of Omaha.
Buffett’s discipline, patience, integrity, long-term perspective and focus on value are all key ingredients of his success, but he also has incredible skills in persuasion—coming from a unique blend of style, quick wittedness and self-deprecating humor. He is the living embodiment of Dale Carnegie’s book How to Win Friends and Influence People that so inspired him when he was young.
No other company has ever grown to Berkshire Hathaway’s size in one lifetime without the luck of being an early entrant into an industry that became much larger than anyone could have imagined. Only Berkshire Hathaway could be said to have truly been built by the relentless application of the good judgement and common sense of a single person. As such it is a fitting living embodiment of Buffett’s business and investing genius.
But much more important than this, Buffett really is a wonderful example to anyone engaged in capitalism because of the way he has built his fortune. Nobody’s reputation for fair dealing is higher and nobody has a word to say against him. Long may it continue.
PHILIP ORDWAY — Managing Principal, Anabatic Investment Partners
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]I discovered value investing by way of Roger Lowenstein’s biography of Warren Buffett, which I finally stumbled across in business school. That book was an awakening for me—it literally changed the path of my career and my life.[/pullquote]
Studying the lessons of Warren Buffett and Charlie Munger has taught me how to think and how to learn, and for that I’ll forever be grateful.
I discovered value investing by way of Roger Lowenstein’s biography of Warren Buffett, which I finally stumbled across in business school. That book was an awakening for me—it literally changed the path of my career and my life. It started me on the road to learning all sorts of things that made the world much clearer and more interesting.
Buffett and Munger’s wisdom is also so profound that it never gets old. It’s always a good sign when I can read or hear something for the second, third, or thirtieth time and still learn something new, still walk away feeling energized. Over the past few years I’ve read several hundred books and articles about business and investing, but there is no better education than Buffett and Munger’s teachings.
In short, the Buffett and Munger way of thinking and their habit of continuous learning showed me how to start filling in the gaps in my own education, and I’d argue that “teach a man to fish” legacy is the most impressive one a person could have.
DAVE SATHER — President, Sather Financial Group
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]Buffett/Munger recognize that taxes are a huge drag on wealth and performance. This has become more and more evident the larger Berkshire has become.[/pullquote]
Berkshire is far more “tax aware” than most people realize. Although Buffett may make headlines stating that his secretary has a higher personal income tax rate than he does—he will not pay any more taxes than he must. Buffett/Munger recognize that taxes are a huge drag on wealth and performance. This has become more and more evident the larger Berkshire has become. Buffett/Munger are not afraid to trade in/out of positions to harvest tax losses, use tax credits or swap assets to delay recognition of gains.
It is worth re-reading the letters Buffett wrote in the early days. With Berkshire being a $350 billion market cap there are many things that are still logical and worthwhile for smaller investors–but simply don’t move the needle at Berkshire. As such, Buffett will not discuss them much today.
Read. In a world that is ever more complex and distracting, don’t overlook the opportunity to quietly sit and read.
Focus on the long term. Whether Buffett/Munger, Klarman or Berkowitz or any other great value investors—they credit a long term orientation to their success. Long-term in the Buffett/Munger world is clearly decades. A long-term orientation allows an investor to navigate around a short term hiccup. This long-term orientation also increases tax efficiency.
Debt kills. Berkshire rarely uses debt and even subsidiaries, like Burlington Northern Railroad, are so liquid they can guarantee their debt without any backing from Berkshire, the parent. The 2008 decline should resonate strongly in all of our minds that when you use leverage it can magnify returns and make marginal decisions look fantastic–but it also puts you at risk for a total wipeout. Berkshire is built and managed to be the last company left standing. Whether managing money for myself or clients—we don’t want to have terrific performance for a five year period only to get too aggressive and ultimately blow everyone up.
Become a good communicator. Buffett has mastered the art of taking very complex topics and breaking them down so a 6th grader can understand them. Although Munger’s command of the English language is different—often blunt—it is an effective counter-dynamic to Buffett. While we have clients nationwide, the majority come from relatively small communities in the Texas area. Although it may be a bit unique to Texas, people all over want to deal with other people who are honest, accountable and accessible. They want to understand the logic in the process. What we do should not be “black box” technology. If it can’t be easily explained, you probably shouldn’t do it. Buffett doesn’t run a black box…and neither do we.
Function with a fiduciary mandate. Treat others as you want to be treated. Although Berkshire may be very diverse in its employees and divisions, Buffett and Munger still speak as if they are running it for “family and friends” that they must look in the eye at church, the grocery store or around town. Despite the size of Berkshire, and the carnival atmosphere to the annual meetings, Buffett/Munger still communicate as if in a one on one setting which reinforces their mindset of treating shareholders like valued/trusted business partners.
Ethics matter. Don’t do anything you wouldn’t want on the front page of the paper/It takes a lifetime to build a reputation and minutes to destroy it. There is no way Buffett/Munger accrue the level of wealth/success they have without attracting a variety of naysayers and negativity. It is instructive to read the negative comments as they are generally ill-informed or simply sour grapes. In giving guidance to their numerous division heads, it remains clear that Buffett believes that reputation comes first. Although painful, we attempt to find our mistakes upfront, determine how to fix mistakes and then communicate this to the client. This is Business 101. In the process, if you put the needs of others first, they are loyal and appreciative. Doing the right thing brings you more success if you have a long term orientation. This approach has made Berkshire the buyer of first choice for family run firms looking for a permanent home.
Be approximately right rather than precisely wrong. If it takes until line 247 of a spreadsheet to run the math, you are making it too hard. If you are properly applying a “margin of safety” then you probably only need simple math.
Bureaucracy kills. Hire the right people and then let them do their job. Buffett is not a control freak. He knows he cannot run GEICO or Burlington. Hiring the right people empowers stellar performers and allows an organization to scale up their opportunities for success and growth.
ADRIAN WARNER — Managing Director, Avenir Capital
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]After almost 20 years of investing, Buffett’s teachings opened my eyes, anew, to the world of opportunity in the public market. He provided a framework for investing that allowed me to realize that while the public market is, indeed, very efficient, one only needs to find a select few inefficiently priced opportunities every now and then to deliver very rewarding returns at relatively low risk.[/pullquote]
During the 18 years I worked in the private equity industry, my colleagues and I spent most of that time patting ourselves on the back for how clever we were for operating in the inefficient private market compared to those who toiled away in the vain hope of beating the extremely efficient public market. I maintained the view that institutional public market investing was essentially closet index investing for which I had zero personal passion and even less belief in it as a worthwhile undertaking.
While I had been aware of Buffett for many years, and had even seen him speak in person as a student at Harvard Business School, it was not until I felt the private equity industry had become overly competitive and institutionalized, and was looking for the next evolution in investing, that I decided to take a closer look at what Buffett had to say.
After almost 20 years of investing, Buffett’s teachings opened my eyes, anew, to the world of opportunity in the public market. He provided a framework for investing that allowed me to realize that while the public market is, indeed, very efficient, one only needs to find a select few inefficiently priced opportunities every now and then to deliver very rewarding returns at relatively low risk.
He also emphasized to me that a history of private equity investing provided a very sound backdrop to investing in the public market. In private equity we learnt to focus on identifying valuable investment opportunities through deep fundamental research at the company specific level. We learnt to worry about the downside first and exercise extreme selectivity in allocating investment capital. We learnt to focus on absolute, not relative or benchmark driven returns. We learnt to invest with a long term orientation and think of investing as buying a stake in a productive business rather than simply buying a piece of paper with a price attached.
While I had seen each of these concepts as central to private equity investing, a closer review of what Buffett had been espousing for so many years highlighted that they were equally applicable to investing in the public market. Despite having spent many years deeply embedded in the world of private equity investing, this revelation allowed me to view the opportunity provided by the public market in an entirely different light and to appreciate the extraordinary potential of applying private equity style investing to the public market.
KEITH WEISSMAN — Senior Analyst, Sibilla Capital
A quote I read stuck with me: Buffett said that the investor of today does not profit from yesterday’s growth. One of the key principles I employ is to not let the past success of a company cloud my judgment of what the company can do in the future. So, Buffett’s words rang true for me.