What Warren Buffet Told the Crowd at His Legendary Annual Shareholder Meeting
| 15 | May |
| 2012 |
One of my employees accidentally pocket emailed me while he was at Warren
Buffett's annual meeting in Omaha. When I found out, I asked him to share what
he learned. - KF
Three Smart Ways to Invest in Relationships from Warren Buffett
By Brandon Smith
I’d long heard about the legendary shareholder meetings of Warren Buffett’s Berkshire Hathaway. Dubbed the “Woodstock of Capitalism,” the event attracts 30,000 people to Omaha, Nebraska, every year. For five hours during the meeting, Buffett and his partner Charlie Munger answer questions from reporters, analysts, and shareholders on a wide range of subjects. No audio or video recording is allowed.
Despite the high cachet of the event (I walked past Bill Gates without realizing it until I heard a commotion behind me), any shareholder of Berkshire Hathaway can attend by filling out a form in the annual proxy statement. I’m only four hours from Omaha, so I decided to make the trip.
I’m sure glad I did. The event is a one-of-a-kind networking opportunity. More importantly, Buffet and Munger’s willingness to answer questions is priceless. I was fascinated by their emphasis on people and relationships and took away three key lessons.
1. People skills are critical and take a lifetime to master.
Buffett learned how to invest at 19 from his mentor Benjamin Graham. His method hasn’t changed since. Any one of us can learn Buffett’s method by going to the library and picking up Benjamin Graham’s seminal classic The Intelligent Investor. What has taken Buffett a lifetime to figure out is how to understand people. When Buffett first started out, he placed a heavy emphasis on quantitative data. Despite being the third richest man in the world, Buffett feels he would be richer today if he started paying attention to the people side of investing sooner.
2. Much of investing is figuring out whom you want to create business relationships with.
Because Buffett only invests in uncomplicated companies, figuring out if a business is statistically undervalued is relatively simple for him. The problem is that some companies that seem statistically cheap will never appreciate in value because they have bad management. Before investing in a company, Buffett has to know that management will run the company in the interest of owners—instead of in the interest of management. Often, he literally has to trust management with billions. Buffett figures out if he wants to be in business with a company’s management by looking at their track record over several years. Are they always candid? Do they admit weaknesses and mistakes? Do they set clear standards of accountability?
3. Motivate subordinates with trust and accountability, not money and control.
When Buffett acquires whole companies, he doesn’t get involved in day-to-day management. Instead, his main job is to keep the company’s management motivated. Because the heads of Buffett’s businesses are almost all millionaires in their own right, Buffett doesn’t focus on money. He pays people fairly so they don’t feel ripped off, but he thinks real motivation comes from trusting managers and setting them free. He wants his managers to act like owners; therefore, he treats them like owners. He gives them broad, multi-year objectives and then lets them reach those objectives however they please. For instance, he owns a carpet company and a company that builds houses. Most conglomerates would make their house company buy carpet from their carpet company in the name of “integration,” “efficiency” or “collaboration.” He doesn’t because he can’t hold his managers accountable if he places extraneous demands on them. He says his managers excel because he allows them to “paint their picture” as they see fit. The moment he starts standing behind them and starts telling them to “use more red” or “use more green” in their painting, he will lose their artistic genius.
Brandon Smith is a Ferrazzi Greenlight consultant based in Iowa.
Which of Buffett's tip ring true for you?
Three Smart Ways to Invest in Relationships from Warren Buffett
By Brandon Smith
I’d long heard about the legendary shareholder meetings of Warren Buffett’s Berkshire Hathaway. Dubbed the “Woodstock of Capitalism,” the event attracts 30,000 people to Omaha, Nebraska, every year. For five hours during the meeting, Buffett and his partner Charlie Munger answer questions from reporters, analysts, and shareholders on a wide range of subjects. No audio or video recording is allowed.
Despite the high cachet of the event (I walked past Bill Gates without realizing it until I heard a commotion behind me), any shareholder of Berkshire Hathaway can attend by filling out a form in the annual proxy statement. I’m only four hours from Omaha, so I decided to make the trip.
I’m sure glad I did. The event is a one-of-a-kind networking opportunity. More importantly, Buffet and Munger’s willingness to answer questions is priceless. I was fascinated by their emphasis on people and relationships and took away three key lessons.
1. People skills are critical and take a lifetime to master.
Buffett learned how to invest at 19 from his mentor Benjamin Graham. His method hasn’t changed since. Any one of us can learn Buffett’s method by going to the library and picking up Benjamin Graham’s seminal classic The Intelligent Investor. What has taken Buffett a lifetime to figure out is how to understand people. When Buffett first started out, he placed a heavy emphasis on quantitative data. Despite being the third richest man in the world, Buffett feels he would be richer today if he started paying attention to the people side of investing sooner.
2. Much of investing is figuring out whom you want to create business relationships with.
Because Buffett only invests in uncomplicated companies, figuring out if a business is statistically undervalued is relatively simple for him. The problem is that some companies that seem statistically cheap will never appreciate in value because they have bad management. Before investing in a company, Buffett has to know that management will run the company in the interest of owners—instead of in the interest of management. Often, he literally has to trust management with billions. Buffett figures out if he wants to be in business with a company’s management by looking at their track record over several years. Are they always candid? Do they admit weaknesses and mistakes? Do they set clear standards of accountability?
3. Motivate subordinates with trust and accountability, not money and control.
When Buffett acquires whole companies, he doesn’t get involved in day-to-day management. Instead, his main job is to keep the company’s management motivated. Because the heads of Buffett’s businesses are almost all millionaires in their own right, Buffett doesn’t focus on money. He pays people fairly so they don’t feel ripped off, but he thinks real motivation comes from trusting managers and setting them free. He wants his managers to act like owners; therefore, he treats them like owners. He gives them broad, multi-year objectives and then lets them reach those objectives however they please. For instance, he owns a carpet company and a company that builds houses. Most conglomerates would make their house company buy carpet from their carpet company in the name of “integration,” “efficiency” or “collaboration.” He doesn’t because he can’t hold his managers accountable if he places extraneous demands on them. He says his managers excel because he allows them to “paint their picture” as they see fit. The moment he starts standing behind them and starts telling them to “use more red” or “use more green” in their painting, he will lose their artistic genius.
Brandon Smith is a Ferrazzi Greenlight consultant based in Iowa.
Which of Buffett's tip ring true for you?
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