If you are interested on his investment principles, you can catch Part 2 of 3 at:
The final 5 learnings from this 800+ page biography touches on the intangible quality one should have.
Buffett seems to be value money and known as "stingy", but he was also very strict when it came to values and principles
11. Dale Carnegie's teaching
If you want to gather honey,
don't kick over the beehive.
Rule number 1: Don't criticize,
condemn or complain.
Criticism puts people defensive.
Criticism is futile. Everyone wants attention and admiration. Give the other
person a fine reputation to live up to. Don't try to change others. Changing yourself to suit them would be a sensible choice. Unless, that someone is dear to you.
"Praise by name, criticize by category"
Buffett was a likeable boss who
never lost his temper, never changed his mind capriciously, never said a rude
word, berated and criticized his employees, didn't second-guess and interfere
people on their work. Munger says that "Warren doesn't have stress, he
causes it."
"I don't enjoy battles. I
won't run from them if I need to do it. I don't get into fights just to get in
fights."
During the conflict with Pampered
Chef on abortion, he shrank from confrontation, or showed any sign of rancor
over the criticism or the pro-life victory laps.
“You can always tell them to go
to hell tomorrow,” said Tom Murphy, a friend. There was never any need to do it
today. Buffett had saved himself a lot of trouble by following this advice.
Buffet was however, a strong-willed
negotiator. Clayton Homes was a company that BRK acquired. He always Cast
the line on his targets, to test their resolve. During the discussions, Kevin Clayton, son of
founder Jim Claton had snapped the bait, and had been willing to flip the coin
over the phone to set a price. Buffett knew the Claytons were ready to deal,
and held his $12.50 price from a counter-offer of $20. Buffett also turned down
share swap. He buffeted his way.
Many sellers would later regret
selling their companies, and try to backtrack. Buffett would not give an inch,
ensuring no leeway during the subsequent discussions.
12. Easy, safe, profitable and
pleasant
Buffett has a less compulsive
approach. In 1966, he announced that he was dropping his stated goal of beating
the market by 10% a year to 5% a year, or to earning 9%, whichever was less. If
his partners could find better results elsewhere, he was happy for them to go.
Yet the timing worked to his favour - The Dow had an unusually poor year in
1966.
Consistency, year after year
and not losing money would lead to stunning results.
Buffett avoided technology stocks
partly because these fast-moving business could never be run by a ham sandwich
(like Coca Cola).
He liked to say he made most of his
money by "sitting on his ass". Like the investors who kept
their GEICO stock when it fell to $2 a share, inertia had protected him from
many mistakes - both of commission and of omission.
Buffett thought those who were
always out prophesying some turn in the market's direction usually would end up
being wrong 2 times out of 10. So he rarely made statements about the
market, and often played coy when he did. He used words "not
overvalued" into a sentence that said the market was overvalued. Likewise,
Buffett was "not unhappy with" diluting his stock portfolio when
internet stocks were pantheonizing faster than naked mole rates.
Ben Graham taught Buffet, "You can get in way more trouble with a good idea than a bad idea, because you forget that the good idea had limits." Lord Keynes in his preface to Common Stocks as Long Term Investments said, "There is a danger of expecting results of the future to be predicted from the past."
From Ben Graham's class in Columbia, Warren took away 3 main principles, that required nothing more than the stern discipline of mental independence:
- A stock is the right to own a little piece of business - A stock is worth a certain fraction of what you would be willing to pay for the whole business.
- Use a margin of safety - Investing is built on estimates and uncertainty. A wide margin of safety ensures that the effects of good decisions are not wiped out by errors. The way to advance, above all, is by not retreating.
- Mr. Market is your servant, not your master - Mr. Market's moods should not influence your view of price. However, from time to time he does offer the change to buy low and sell high.
13. Being dull
Buffett was ridiculed for his
refusal to buy technology stocks, yet bought MidAmerican Energy Holding Company
in 1999. He bought a light company. How dull!
When it comes to investing, the
kind of electricity he sought was not the thrill of trading, but rather
kilowatts. He was actually diluting the impact of Coca-Cola using MidAmerican
and General Re, kind of diversifying.
At the end of 1999, "Warren,
What's Wrong?" was on WSJ's headline - Berkshire stocks had
"stumbled" badly. In public, Buffett repeated constantly - in almost
unvarying terms - Margin of safety, circle of competence, Mr. Market's
vagaries. He maintained a stock is a piece of a business, not a bunch of
numbers on a screen. He refrained from arguing or disputing the madness (of
market rising). When asked if it bothered him when people called him a
has-been, "Never".
A money manager wrote that
investors like Buffett were "fallen angles, disgraced with poor
rankings... Made obsolete in 1999 by mavericks who say the old laws of
investing have been repealed and backed up their theories with
eye-popping numbers.”
According to Munger, the market was
then irrational, with "wretched excess" that will produce wretched
consequences. Indeed, every indication in the market said that he was
wrong. He had only his inner conviction to steer him straight. Buffett never
fought back.
"When it comes to Microsoft
and Intel, I don't know what that world would look like ten years from now. And
I don't want to play a game where the other guy has an advantage... The
software business is not within my circle of competence. We understand Dilly
Bars and not software."
This was even more peculiar as he knew the founders of Microsoft and Intel.
By 2001, the internet boom had
boomeranged. Buffett still had billions of unused capital. BRK's 2001
shareholder meeting saw crowds coming back.
"By shamelessly
merchandising birdless bushes, promoters have in recent years moved billions of
dollars from the pockets of the public to their own purses (and to those of
their friends and associates)... Speculation is most dangerous when it looks
easiest."
BRK's best opportunities always
came at times of uncertainty, when other lacked the insight, resources and
fortitude to make the right judgements and commit. "Cash combined
with courage in a crisis is priceless."
14. How to impress Warren
Crisis at Salomon in the 90's has
equal bearing like Lehman Brothers of 2008. Buffett became Chairman to steer the
Salomon out of the mess. He was also looking for a CEO. Deryck Maughan was an
Englishman who ran Salomon's Asia operations was quickly being put forward.
Maughan was not a stock trader, was viewed as ethical and possessed of common
sense. Since he spent years in Tokyo, the chance that he was tainted by the
scandal (Treasury bond auction) was remote.
When asked, Maughan was confident enough to
nominate himself as CEO, then added that he would serve whomever Buffett chose.
Two other things got Buffet's attention. Maughan did not ask for protection
against being sued, and how much the job would pay. (As much as he hated
admitting, Buffett did not enjoy paying people.)
Read more at:
In contrast, Buffett fired Paul
Mozer of Salomon, as he had no tolerance for liars and cheaters.
Buffet also despised unearned
position and inherited wealth. It offended his sense of justice.
“A football player on the
Nebraska football shouldn't inherit the starting quarterback position from his
father.”
15. Good name and reputation
Buffett and Munger are individuals
who value their good names and reputations as their most priceless possessions.
Over a lifetime, you'll get a
reputation for either bluffing or not bluffing.
He told his children, "It
takes a lifetime to build a reputation and 5 minutes to ruin it."
Buffett was first to admit he
doesn’t know something well enough – like technology stocks.
“He was fundamentally honest, and deliberately
limited his money,” says Munger.
Both Buffett and Munger regarded rationality and honesty as the highest virtues. Quickened pulses and self-delusion were the major causes of mistakes.
“The snowball just happens if you’re in the right kind of snow, and that’s what happened with me. I don’t just mean compounding money either. It’s in terms of understanding the world and what kind of friends you accumulate. You get to select over time, and you’ve got to be the kind of person that the snow wants to attach itself to. You’ve got to be your own wet snow, in effect. You’d better be picking up snow as you go along, because you’re not going to be getting back up to the top of the hill again. That’s the way life works.”
The snow Warren Buffett created so
carefully was enormous by now. Yet his attitude toward it remained the same.
However many birthdays lay ahead, he would always be astonished each time the
calendar turned, and as long as he lived, he would never stop feeling like a
sprout. For he wasn’t looking backward to the top of the hill. It was a big
world, and he was just starting out.
~~~
I think Buffett advises discipline and unwavering will in the face of quick profits.
All the best and I wish you success in your passive (compounding) income.
Buying stocks is like watching the paint dry or seeing the grass grow (Wall Street bull, Mar 2019)
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