Warren Buffett: America, Lucky Genes and Compound Interest

May 3, 2019 10:52 AM
 

Warren Buffett once said, “My wealth has come from a combination of living in America, some lucky genes, and compound interest.”

I think he’s underestimating his unprecedented business sense by just a bit. Five years ago, I was one of more than 40,000 people to travel to Omaha, Neb., to pay homage to Buffett. While I only had a five-hour drive, most of the others who attended came by plane (several by private plane).

This weekend, Omaha will once again be overrun by thousands of people who will fill the downtown arena, cheering and giving standing ovations for a duo of gray-haired men, ages 88 and 95. Seems crazy, right? Yet, the two—Buffett and his business partner, Charlie Munger—aren’t normal. They will take the stage as the 2019 Berkshire Hathaway annual meeting to provide financial reports on the company and answer shareholder questions. 

When I attended in 2014, I was amazed at Buffett and Munger’s quick mind and sharp wit. The two have decades of experience that can apply to any business, especially farming.

For instance, Buffett believes that to make money in an industry, you must first understand it fully. As the leader and largest shareholder of Berkshire Hathaway, a holding company that oversees and manages a number of subsidiary companies, he’s had exposure to an array of businesses, including Dairy Queen, Duracell, Fruit of the Loom, NetJets and Helzberg Diamonds.

“When you know what you know and what you don’t know, it takes you a long way in the business of life,” Buffett notes. “It’s a question of being self-realistic in your own talents and shortcomings.”

It is important to identify your skillset, Munger adds, which shouldn’t be difficult.

“If you’re 5’2”, you don’t have much future in the NBA, and if you weigh 350 lb., you shouldn’t dance ballet,” he says. 

Buffett is known for having two rules. Rule No.1 is never lose money. Rule No.2 is never forget rule No.1. Risk analysis and scenario planning are common practices at Berkshire Hathaway and its subsidiaries. “All businesses should constantly be thinking about what could mess up their business model,” Buffett says. 

Berkshire Hathaway’s goal is to buy a good business and not interfere with its management. “But there will be times when our lack of supervision will miss something,” Buffett acknowledges. With that in mind, all managers are required to provide a letter outlining what Buffett should do if something happens to them. 

Even though Berkshire Hathaway’s stock has trailed the market this year and some investors are frustrated that Buffett continues to sit on more than $110 billion of cash, I still think we have a lot to learn from the “Oracle of Omaha.”

Read more: Lessons From A Famous Billionaire

Warren Buffett’s Recipe for CEO Success

How Warren Buffett Adds Business Value

Here are just a few of my favorite quotes from Buffett: 

“I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”

"When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."

“Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick ‘no.’”

“You only find out who is swimming naked when the tide goes out.”

“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

To [Buffett] the perfect amount to leave children is "enough money so that they would feel they could do anything, but not so much that they could do nothing."


 

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