Warren Buffett is a titan of the modern business landscape. His firm Berkshire Hathaway’s Class A shares currently trade for over $180,000 per share, the highest price on the NYSE.
His yearly chairman’s letters are widely quoted; his name appears in book titles as often as world leaders. Clearly, Warren Buffett is doing something right. The core ideas of his business philosophy are deceptively simple – so simple that we’ll be taking a look at a few of them here. But like the rules of chess, these simple ideas have many, many permutations. We at Avidian encourage you to look into Buffett’s own words if you find his ideas appealing.
1. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.
Buffett believes fervently in the value of a company’s reputation. In a memo to Berkshire Hathaway staff, he set an unusual standard – “Would you want to read about this, on the front page of the paper, written by an intelligent but unfriendly reporter?” He wasn’t unreasonable, either; he recognized that Berkshire Hathaway employed a quarter of a million people, and the chance of everything, every day, being perfect was zero. However, if you set an example – in deeds as well as words – that shady business won’t be tolerated, the mistakes won’t get a chance to flourish. “Culture, more than rule books, determines how an organization behaves”; do what you can to improve the culture around you, and watch the effects grow.
2. We enjoy the process far more than the proceeds.
Warren Buffett has done well for himself (to say the least) but he has not stuck with investing for the sake of the money. He found a genuine passion for what he does, and it has kept him going each and every day. It guides his business decisions – he’s said he only wants companies run by people who love the business, not the money. If you have found yourself stuck in a rut, take a mental health break – engage in some relationship management with your loved ones and old friends – and ask yourself: What are my goals? As Buffett put it, “Take the job you would take if you were independently wealthy. You’re going to do well at it.” Other obligations may keep you from turning around your career at a moment’s notice, but once you’ve figured out where to go, the path won’t seem as hard. Once you get there, you can skip to work every morning.
3. It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
This sums up Buffett’s approach to purchasing companies for Berkshire Hathaway’s portfolio: buy for value, not based on the vagaries of the market. How do you determine value? You look at the company’s overall position, its behavior over time, and whether or not it’s currently undervalued. You can leverage this idea, even if you don’t have the benefit of a strong financial services portfolio backing high-powered deals like Warren does. When you’re recruiting new talent, look for excellent and steady workers who feel undervalued; when you’re shopping for a CRM solution, find one that meets your needs at a good price. You’ll see the results in the long run.
4. If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.
Focusing on buying for value isn’t a revolutionary idea, but it also isn’t the whole story behind Buffett’s success. This is the other half of Buffett’s formula, though: looking at the long term potentials of an acquisition. Many of the actors in the market behave like gamblers; Buffett encourages you to think, and act, like an owner instead. As an owner, you will be thinking of building genuine value and wealth in your assets, not just trying to move them quickly. You’ll consider matters like relationship management for financial services or building customer loyalty in the retail sector, where the short-term gambler’s perspective will act destructively if it gets a temporary advantage. If you didn’t have to worry about instant returns – if you could build for value in five years, not in five weeks – what would you do? Buffett would ask: Why aren’t you doing that already?