“Life is like a snowball.
The important thing is finding wet snow and a really long hill.”
Many of you probably know of Warren Buffett as one of the two richest men in the world. However, more interesting are his personality and philosophy regarding business and markets.
The Snowball, Warren Buffett and the Business of Life, by Alice Schroeder, is an extensive biography (more than 900 pages) that illustrates different facets of the life and achievements of Buffett, who began trading at age seven and from whom we can learn a lot.
In past blogs I have shared some of his celebrated quotes. This time around I would like to briefly comment on his knack for business, his investment strategies and his outlook on markets.
I agree with his views of Wall Street -as a group of people who are not always aware of their immense responsibility and who are often only interested in commissions and bonuses. In other words, they have a short-term outlook. A successful investor must move beyond this logic.
For Warren Buffett, there is no other way of investing in companies other than with a long-term perspective, and only in this way can the business prosper – despite what many analysts might think. In this regard, and in applying this vision, Buffett often seeks equity control, or at least seeks to have a significant influence on the companies in which he invests. In this way he largely avoids having to put up with the advisory services of the Wall Street “experts.”
His way of thinking differs from conventional wisdom in many other fields. For example, in asset diversification, Buffett and his partners prefer to invest in a few companies that they know extremely well, instead of having a portfolio with stocks of many companies that they only superficially follow - once again, the norm on Wall Street.
Thus his rule is never to invest or operate in a business that you do not understand. This is a recurring error in the financial markets, and this a common cause of speculative bubbles.
It might seem paradoxical, but Buffett learned a lot from horse races: (1) you shouldn’t bet on all the races; (2) no one goes home after the first race; and (3) you don’t have to make back your money the same way you lost it. These are some truisms of the race track.
On a more personal level, Buffett’s life is full of examples of learning, advancement, and team work. Over the course of his career, Buffett has influenced many people, but he has gathered valuable ideas from many more.
For example, his partner at Berkshire Hathaway, Charlie Munger -also a native of Omaha, as well as a renowned lawyer— taught him to see the other side of the coin, and analyze companies and industries with a strategic outlook in addition to a financial point of view.
The knowledge that Buffett acquired over the course of seven decades is very useful for those of us who run companies. With this in mind, this biography is worth a read. And I’ll continue to share interesting aspects in future blogs.
[An afterthought: if you have read this book or any other that I have shared in this blog, please send comments for the benefit of others who visit the blog.]