Warren Buffett says, “The difference between successful people and really successful people is really successful people say no more often.” In fact, it is around 90% of the time. Warren Buffett gets a lot of pitches from companies to be bought. He says no to most of them. Either the fit isn’t there or it’s too small or the numbers don’t work. Whichever reason, Warren says no. Citing his baseball analogy, “You don’t have to swing at every pitch.” Buffett is patient. Very patient. Buffett doesn’t mind being patient — he gets paid for his patience to hold his positions through dividends and to wait. What an enviable position to be in: paid to wait. What should you be saying no to more often?
Simple principles. Great discipline. 20 punches.
While Buffett is the CEO of a massive conglomerate in Berkshire Hathaway, he got here by employing simple principles and through great discipline. One of his favorites is the 20 punches card. The 20 punches card is a principle that you should look at your investments as if you were to only get 20 of them in your lifetime. This means you should think really hard about what you’re going invest in before you invest in it because you don’t get many chances. You’re purposely limiting your choices. And in limiting your choices, you’ll think harder on them before you pull the trigger. In usual Buffett wisdom, this runs contrary to most investment advice of either consistently buying and selling stocks or mutual funds, essentially trying to time the market, which proves to be nearly impossible over the long-term. The Buffett maxim of think really hard, be careful and buy, and then hold for nearly forever is not Wall Street friendly because there are too little fees in it for them. Wall Street likes activity. Buffett likes to make disciplined decisions and then watch. Much to Buffett’s credit, it is easier to be decisive and watch and be patient when you’re getting paid for your patience. With the 20 punches limit, that’s a lot of thinking and a lot of patience and a lot of investment nos.
Investing in yourself.
“The best investment you can ever make is an investment in yourself.”
Another Buffett leadership maxim is investing in yourself. Warren is a big believer in self- and advanced education. He has said over and over again that it is the best investment you can make, perhaps even better than in Berkshire Hathaway. Very early in his career, like nearly all of us, Buffett was scared to death of public speaking. The thought of it terrified him. Knowing the skill would be important to his career in finance, he enrolled in a Dale Carnegie course on public speaking. Then, unlike everyone else, he immediately put to practice what he learned in the course and taught a finance course at Omaha University. He put his skills to the test and he practiced. After awhile, it became second nature. Now, as we know, Buffett takes the big stage with Charlie at the annual shareholder’s meeting in front of tens of thousands of people (and tens of thousands on the live broadcast) and answers shareholders’ questions. This experience would terrify most of us. It’s another day in the office for Buffett. Early in his career, Buffett faced the fear of public speaking and overcame it through rigorous practice of teaching the subject he loved.
“We haven’t learned to solve difficult business problems. We’ve learned to avoid them.”
— Charlie Munger
Warren and Charlie don’t want another business’s problems. Turnarounds or opportunities to take a fledgling enterprise and turn it around into a successful business again do not interest them. They don’t want fledgling organizations as investments. As Charlie states in the quote above, some business problems are too difficult to solve. They are best avoided. Look at the heartache, extremely difficult work, and emotional investment made in trying to solve difficult business problems that are potentially intractable. Warren and Charlie have learned these are best simply avoided. By avoiding them and being all the more selective with the deals they do take on, they’re more disciplined, patient, and happy.
“We don’t provide management.”
— Warren Buffett
Another of Buffett’s leadership maxims is to not provide management to Berkshire’s acquisitions. They want strong enterprises with smart management that has skin in the game and wants to stick around after acquisition. As Buffett says, “these are people that are highly motivated by continuously hitting business home runs.” These managers don’t have a financial reason to work. Therefore, they need other motivation. The sense of continuous success in a field they dominate makes them wake up early each day and get after it. With managers like these, all Warren and Charlie have to do is get out of the way, precisely what they want to do. They’re not there to micromanage or tinker with an already successful enterprise. They’re there to provide AAA credit and offer support as needed. Other than that, they’re hands-off.
Leadership lessons of Warren Buffett.
Another Buffett investment maxim is “don’t ask the barber if you need a haircut.” This is a rule of thumb about alignment of financial interests. If you ask a service provider whether you need his service, he is almost certain to say you do, whether you actually do or not. Buffett discusses Wall Street investment bankers with this analogy. If you’re on the hunt for companies to buy, as Berkshire always is, he doesn’t like asking Wall Street for help because that’s what they’re there for: Don’t ask Wall Street investment bankers if they have a company for you to buy. Of course, they do. Investment banking is their nature. For this reason, Buffett puts out the feelers directly to companies in his investment letters, saying he and Charlie gladly await offers. Almost all of these are rejected because they do not meet Buffett’s simple, yet stringent criteria. You determine what you need. Not someone else. This rule of thumb extends to so many other life aspects. Don’t walk on the car dealership lot and ask a car salesman whether you need a new car. Don’t ask the realtor whether you need to upgrade your home. Don’t ask the life insurance salesman whether you need more life insurance. Don’t ask the HVAC technician whether you need a new HVAC system. Be careful with the misalignment of interests. They can easily get skewed. Further, be careful from whom you seek advice.