Warren Buffett was born on August 30, 1930. He is an American business tycoon, philanthropist, and investor, and is the CEO and chairman of Berkshire Hathaway at the moment. He is seen as one of the most successful investors globally and his net worth is more than $100.6B as of April 2021. This makes him the 7th richest person in the world.
Warren was very young when he started developing an interest in investing and business. In 1947, he started studying at the University of Pennsylvania’s Wharton School before he transferred to and at age 19 graduated from the University of Nebraska. He later also graduated from Columbia Business School, where he shaped his investment philosophy around the value investing concept established by Benjamin Graham.
Since 1970, Warren has been the biggest shareholder and chairman of Berkshire Hathaway. Global media has referred to him as the “Sage” or “Oracle” of Omaha. He is also known for his personal frugality despite his massive wealth and for his adherence to value investing.
Warren is also a notable philanthropist and has pledged to give philanthropic causes 99% of his wealth, mainly via the Bill & Melinda Gates Foundation.
Find Your Passion
Warren’s first rule is that you should find your passion. It is interesting to note that this rule appears in many of the posts that I’ve written about the rules of success for various people.
Warren says that he was extremely lucky in that he already found his passion when he was seven or eight years old. He adds that his children have also fortunately found their passion. He mentions that one of his sons loves music like nothing else, while the other loves farming. All three of his children also love philanthropy and what that allows them to do for others.
According to Warren, you are lucky in life when you find your passion, but he also cautions that there is no guarantee that you will be able to find it with your first job.
Warren always tells college students that they should take a job that they would take if they were independently wealthy. If you do that, you will likely be very good at it and do well at it.
He says that if you think you will be a lot happier if you have 2 times what you have, you’re probably making a mistake.
You HAVE to find something that you like doing and if you think that making 10 times or 20 times is the answer for everything in life you will only put yourself in trouble. If you think that earning much more than what you are will make you happy, you will try to compensate by doing stupid things like borrowing money when you shouldn’t, or cutting corners on things that your boss wants you to cut corners on.
It simply doesn’t make sense and when you look back on it, you won’t like it.
Warren only looks at three things when he hires people. These are energy, intelligence, and integrity.
If a person doesn’t have integrity, the other two will kill them. If a person doesn’t have integrity, you want them to be lazy and dumb, and definitely not energetic and smart.
Don’t Care What Others Think
Warren never gets bothered by other people disagreeing with what he thinks, as long as he feels that he knows the facts.
He says that although there are lots of things that he doesn’t know anything about, he simply stays away from those. He stays within what he calls his circle of competence.
Warren quotes Tom Watson on this when he said, ‘I’m no genius, but I’m smart in spots, and I stay around those spots.’
Warren tries to stay around his “spots” but simply doesn’t have a problem if anybody tells him that he is wrong. When this happens, Warren will go back and check his facts.
Warren thinks that being sure of your facts and not caring if somebody disagrees is much more important than having a few IQ points extra or having a few extra courses in school or college.
The most important thing is to have emotional stability.
Read, Read, Read
Warren reads, and reads, and reads, and says he probably reads about five to six hours every day. Although he doesn’t read as fast now as when he was younger, he reads five daily newspapers.
He also reads various magazines and 10- Ks (annual reports issued by companies) and also a lot of other things.
Warren has always enjoyed reading and loves reading biographies.
Have a Margin of Safety
Warren uses an example to illustrate a margin of safety. He says that when you drive a truck that weighs 9,000 pounds and you get to a bridge that says its maximum weight limit is 10,000 pounds, you don’t drive over it as you can’t be sure that the limit displayed is in fact correct.
If you get to a bridge that has such a small margin of safety, it’s much better to drive further down the road until you find a bridge that has a weight limit of 20,000 pounds and then you cross that one.
If you look at a business or financial opportunity and you think that it may just be possible to make it work, or to make some money, it’s better to pass up that opportunity and find one that is more likely to work, i.e. one that has a bigger margin of safety.
Have a Competitive Advantage
The way capitalism works is that there will always be people that want to come in and take your castle away from you. This is simply the way things work and it’s perfectly understandable.
If you’re selling television sets, there will be 15 other people that will try to sell a better television set, or the same one at a better price, or one with more features.
If you own a restaurant in Florida that is doing really well, people will try to copy your menu, or provide more parking spaces, or try to get your chef to come work for them, and so on.
Capitalism is all about somebody trying to take away what you have.
This means that you need to build or obtain a castle that has a competitive advantage and is more durable and easier to defend. Some castles will have a moat around them. One of the best moats in this respect is to become a low-cost producer. The moat could however simply be something like having more or better talent.
If you manage to become the heavyweight boxing champion of the world and you keep on knocking out your competitors that try to take your castle, you’ve got a competitive advantage as long as you manage to keep on doing it.
It is also very profitable for the person that happens to be able to do it.
Schedule for Your Personality
Warren’s days are surprising and very unstructured. He does not hold meetings as he doesn’t like them. As mentioned before, he reads a lot. He wishes that he was a faster reader as that would mean he would be able to get more done. He is on the phone only a moderate amount.
Warren’s businesses basically run themselves. His job is to allocate capital and that’s what thinks about. He however doesn’t like to have things packed in hour after hour. That’s not his personality.
Warren says that both he and Bill Gates are extraordinarily lucky. They both get to do what they really like to do, in a way that they want to do it, and with people that they chose to be around. That is terrific. They’ve really got everything going their way, and they’re very fortunate.
Bill’s world runs at a very different type of pace than what Warren’s does, but they both love it the way they do it. Each of them is probably the most productive in the specific model they’ve chosen. It fits their aptitudes and personalities.
Warren likes to study history and especially wants to know what kills great businesses. When he does this, his partner always says that all he wants to know is where he is going to die so that he can make sure never to go there. Through his studies, Warren has determined that what causes businesses to go bad and ultimately kills them, is complacency.
A business owner should always be restless and always have the feeling that someone is always after them. They should then be determined to stay ahead of the enemy by always being on the move.
When you have a great business, like for example Coca-Cola, there would always be the danger that you think you’ve made it and that nobody can touch you, and then rest on your laurels. Warren is however quick to add that he obviously doesn’t see that at Coca-Cola. That is however crucial. When you have reached the stage that you sell 1.8 billion units per day, you have to compete the same way as when you were only selling 10 per day. You need to have that restlessness and the belief that tomorrow will be more exciting than today. That feeling should also permeate the whole organization.
Warren started investing when he was 11. He started to read about investing when he was seven, and by the time he was twelve, he had read every book in Omaha’s public library on the stock market and investing.
Although he had a lot of fun, he never really understood the nitty-gritty and was never grounded in anything. He says that although the reading was entertaining he understood that it was never going to be profitable.
Warren then talks about his professor at Columbia, Ben Graham, and describes him as a wonderful man.
Warren read one of Ben Graham’s books, ‘The Intelligent Investor,’ when he was nineteen and studying at the University in Nebraska. Graham has published a number of books on investing and securities. When he read Graham’s book that just opened the whole investing thing up to him.
In his book, Graham says that when he was in his low teens, he looked around him and looked at the people he admired and then realized that if he also wanted to be admired, all he had to do was just behave like them.
Once he understood this, Graham discovered that there was nothing impossible about behaving like them. Warren followed this advice and started modeling the behavior of Graham and others like him, and the rest is history.
Give Unconditional Love
For Warren, the biggest lesson he received is the power of unconditional love. He describes unconditional love as the biggest and best power on Earth.
According to Warren, you are 90% of the way home if offer that to your child. For a child to know that they can always come back, that is huge in life. This takes you a very long way.
Warren’s message to all the parents out there is that if they can extend unconditional love to their child at a very young age, it will make for a better human being.
Of all the rules successful people have to succeed in business and life, this one is for me the most unusual in that I haven’t come across it before. As a parent that has always been very much involved with my kids, I must admit that it resonates with me. As a child, I always knew that I could go to my mother with any problem or no matter how big a mistake I made, she would guide me through it. I have strived to give my kids the same lesson. I agree wholeheartedly with Warren when he says “that is huge in life.”