Interesting comments here from a recent talk Warren Buffett gave. I have to say though – I really don’t like the line about going “all in” when you can. I think that what Buffett did was go all in on Berkshire and the way he arranged his company. It was an all in bet on his own entrepreneurial venture. Not a stock market bet per se. To me, that’s a big big difference. When you start your own company you can influence the outcomes of the operations and the multitude of factors that will generate revenue.
Many people don’t know it, but many of Buffett’s earliest bets were essentially corporate raider type bets. He knew the insiders at Geico (Ben Graham was a board member) and after becoming the largest shareholder at Berkshire he removed the executives and replaced them with his own people. The buy and hold strategy that many people attribute to Warren Buffett is not at all the strategy that made him money. The brilliance in Buffett was how he structured his own company. See my piece on the “Many Myths of Warren Buffett” for more.
When you go all-in on Apple stock for instance, you’re just betting the farm on other people’s ability to manage a company. That’s a big difference in my opinion. Buffett didn’t make all his money betting on the ability of other people to manage a company. Far from it. Berkshire was a far more complex company than that. The country boy from Nebraska is a bit savvier than that….Here’s more via Market Folly:
Berkshire Hathaway’s Warren Buffett recently met with MBA students from the Richard Ivey School of Business and the legendary investor talked about how his investing principles have changed over time along with numerous other topics. Here are some highlights and notes:
Question: The key to your early career was essential information arbitrage. Given the changes in the world and that information now moves at the speed of light, how do you continue to have such great successes?
Buffett: People have better information now, but they still act irrationally … Sometimes you have to work a little bit hard to get the good deals. And looking through the Korean stock manuals I’ve found some of these same opportunities today. But ultimately, the key to success is emotional stability. You don’t need a high IQ to get rich.
Q: Explain your overall investing strategy
Buffett: Invest in equities slowly over time. And invest in yourself. Enhance your own talents and weaknesses. And look to buy companies that will go on forever, like Coca Cola. For the more serious investor, buy equities strategically, opportunistically. And go all in when you can, and when there is a good deal. I had a limit in my fund on the amount I could put in to one investment. There was a fantastic opportunity so I approached my investors and told them I wanted to increase that amount. I ended up putting 75% of the fund in that investment and it worked out well. And I’m sure I will do it again. Don’t use leverage, and sit on cash if there are no good investment opportunities.
Q: What is the most important thing you have learned in life?
Buffett: Find your passion. You will know it when you see it. It is more important than money. You want to ask the question, “Where am I going to have most fun?”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.