The TAO of Warren Buffett : By Mary Buffett & David Clark (2008 first edition) – Part 2
Progressing with other notable quotes in this post.
“Its hard to teach a young dog old tricks”
Warren finds that the business ingenuity that comes with age is next to impossible to teach young managers. In Warren’s world, age and experience can be far greater virtues than youth and enthusiasm when it comes to making money the old-fashioned way.
“In looking for someone to hire, you look for three qualities: integrity, intelligence, and energy. Most important of the three is integrity, because if they don’t have that, the other two will kill you”
Warren’s management style is to afford his managers tremendous operational autonomy. He couldn’t give his managers this much freedom if they lacked integrity. If you have to hire people who are not honest make sure they’re not hard working and dumb as bricks.
“Never ask a barber if you need a haircut”
Ask an advisor if there is a problem and he will find it – even if there isn’t one.
“A public opinion poll is not substitute for thought”
There is a great deal of comfort when you invest with the crowd. Just like in high school, no one stays popular forever. In majority of cases there isn’t much upside potential left in a stocks after it becomes really popular.
“The business schools reward difficult, complex behaviour more than simple behaviour, but simple behaviour is more effective”
William of Ockham, medieval english philosopher and monk put forth the idea that the simplest explanation is usually the best explanation. Priests of any profession need complexity to keep laity from performing their priestly magic. If you understood the investment process, there would be no need for investment analysts and advisers, nor would we need mutual funds or priests of profession.
Another example from my personal life is, I used to select harder of two questions in mathematics or physics even in final exams, including board exams in 10th and 12th in multiple choice questions with same weightage. I don’t why I had that obstinate behaviour. There was some sort of contentment in conquesting paper to smithereens.
“There seems to be some perverse human characteristic that likes to make easy things difficult”
Only when something is made difficult to understand is there a need for experts, who can charge high fees for having figured it all out. The greater the complexity, the greater the need for an expert to help guide you through the complexity.
More than two people in the past couple of days have come back to me about Cravatex etc being selected as stocks by paid tip providers.
I would say that if you can’t select a couple of stocks yourself from this list then you have no business to be in stock market doing personal investments in equity. Its better to give everything to fund managers. Better still is to spend your money on a few dozen books than paid tips, so you can keep fishing all your life.
“Recommending something to be held for thirty years is a level of self-sacrifice you’ll rarely see in a monastery, let alone a brokerage house”
Its true that investing in PSU Banks, ITC, HDFC couple, Axis Bank in past delivered you 20-30% compounding but you will not see that advice from a broker, adviser. They would starve to death before adopting buy and hold for decade strategy. It isn’t that they don’t know or believe that this style creates wealth, but it does not create wealth for them. If your broker gets more than one great idea a year, the odds are that he is delusional. If he wants to continuously get you out of recent positions, odds are that he is more than delusional – he might just be dishonest.
“If you let yourself be undisciplined on the small things, you will probably be undisciplined on the large things as well”
A disciplined approach to turn down a 50 Rs cricket bet does really matter to Buffett. Sometimes what you don’t do is just as important what you do.
“I never swung at a ball while it’s still in the pitcher’s glove”
Ted Williams wrote in The Science of Hitting, that to become a great hitter you have to keep yourself from swinging at bad pitches. To become a great investor you have to wait for the right opportunity. Sometimes you have to stay away from investing in equities for years. Unlike Ted, we are luckier to have more than three strikes and we can let 100s of balls go by.
“In the search for companies to acquire, we adopt the same attitude one might find appropriate in looking for a spouse; It pays to be active, interested and open minded, but it does not pay to be in a hurry”
Look for companies in recession, out of favour situations, and at amazingly cheap prices.
“When proper temperament joins up with proper intellectual framework, then you get rational behaviour”
Twice in Warren’s investment career he completely stopped buying stocks because they had gotten way too high in price. In late 60s and late 90s, these helped him from becoming a victim to crashes that soon followed.
“A good managerial record is far more a function of what business boat you get into than it is of how effectively you row. Should you find yourself in a chronically leaking boat, energy devoted to changing the vessels is likely to be more productive than energy devoted to patching leaks”
The best jockey in the world is never going to win races riding a lame horse.
“A pin lies in wait for every bubble, and when the two eventually meet, a new wave of investors learn some very old lessons”
Bubbles happened with radio, airplane, auto, computers, real estate, biotech etc. Stock prices reflect passion in the casino. When earnings fail to appear, the hope that holds up the stock, vanishes, prices hurl earthward when gravity takes over — often with stunning velocity.
“Stock market is a no-called-strike game. The problem when you’re a money manager is that your fans keep yelling, ‘Swing you bum ! ‘ “
Money managers are slave to quarterly and yearly results, even though best course of action may be to redeem money to investors and go on vacation from equities.
“As far as I am concerned, the stock market doesn’t exist. It is only there as a reference to see if anybody is offering to do anything foolish”
I would rate it as my second favourite Buffett quote after the one, “It makes sense to invest only when a stock screams in undervaluation at you. It jumps out from the screen and slaps to wake you up from stupor”