LESSONS FROM THE ORACLE, Part II
By Chuck Violand
June 8, 2015
Some people think the secret to Warren Buffett’s success is that he’s unemotional when it comes to investing in companies. This is not the case, according to the Wall Street Journal article mentioned in Part I of this series. Instead, Buffett is inversely emotional: alarmed by other people’s greed and ready to capitalize on their fears. Emotion is the second of three powerful weapons in Buffett’s investment arsenal.
“One of the hardest things for most investors is to sit and watch other people make money,” says Howard Marks, who has known Buffett for years. Entrepreneurs are notorious for this, especially when it comes to competitors. Not only do they resent competitors who are making money, but they equate others’ successes with losing.
Money by itself doesn’t have emotion. It’s neutral. We bring the emotion with our own feelings and beliefs about money, even if they aren’t based on sound reasoning.
What does Buffett do when it comes to investments? He evaluates his decisions critically rather than emotionally. He asks himself whether the investment makes sense long-term, with or without a tall stack of cash.
What would Buffett advise us to do? The same thing! Approach business decisions with a critical eye to the long-term impact on our businesses, regardless of whether the decisions involve equipment purchases, geographic expansion, or service diversification. It doesn’t matter. Making business decisions when we’re emotionally worked up can cause us to make the wrong ones—ones that we often regret later.
Buffett’s third weapon in his investment arsenal is information. Years ago, Buffett turned himself into an information hub by developing a network of contacts that overflowed with great ideas. “Warren has the ability to figure out which things are important in a whole narrative and to ignore everything else,” Marks commented. “He’s also extraordinarily good at knowing what he’s good at and what he’s not and staying away from the latter.”
Does this mean you should never venture beyond the things you’re currently doing? Absolutely not. It means don’t overreach for the sole purpose of having more. It means play to your own strengths.
What does Buffett do? He starts by doing his homework before making a decision. He researches companies he knows nothing about before investing in them.
What would Buffett advise us to do? Get to know ourselves and our businesses! Figure out what we are especially good at doing. Then determine whether there are trends taking place in the industry on which we can capitalize based on those strengths.
Develop your own network of experts and opinion leaders by getting out of your office and attending conventions or seminars where you can keep your knowledge updated and pick the brains of other business owners.
We would do well to consider the investment strategies one of the richest men in the world uses when we consider our own companies. Who knows, our businesses might do so well that one day we find ourselves trading business with Warren Buffett!