IT takes humility to accept valuable lessons from people we have never met. Often, though, doing so can be beneficially life-altering.
Warren Buffett turned 88 on Aug 30. As I write this non-posthumous tribute column to his wit, wisdom and wonderful writing style, the daily updated Bloomberg Billionaires Index (www.bloomberg.com/billionaires/) ranks Buffett the third wealthiest person on Earth with an estimated net worth of just over US$86 billion (RM356.6 bilion)(and that’s after his giving away more than US$30 billion to charity since 2006).
Buffett retains a smidge under US$1 billion for each year of life, thus far. This superb compounder of wealth is known by different nicknames, including the Sage of Omaha and the Prophet of Profit. My favourite, though, is his commonly reported moniker: The Oracle of Omaha.
I first heard the name ‘Warren Buffett’ more than 25 years ago from my friend and famous Malaysian fund manager Tan Teng Boo when I was interviewing him (Tan, not Buffett!) for a Malaysian Business magazine article.
Back then, few Malaysian investors had ever heard the name of this Benjamin Graham mega-disciple. (Ben Graham co-wrote Security Analysis in 1934, with his one-time student David Dodd; today Graham is hailed as the Father of Value Investing and the Father of Security Analysis. To read a column I wrote on both Graham and Buffett earlier this year, visit me at (www.nst.com.my/authors/rajen-devadason and click on the April 1, 2018 piece.)
With Buffett having just reached the auspicious — for us Asians (whether or not we’re ‘crazy rich’) — age of 88, I wanted to write a tribute to him while he is still very much alive, hale, hearty, and sharp as a tack.
You see, in my opinion there is a qualitative difference between Warren Buffett and the other 2,200 or so US dollar billionaires (www.forbes.com/billionaires/) alive today.
Material success is ephemeral, while immense corporate wealth can dissipate in a few short years. But Buffett’s corporate work of art, his ‘canvas’, is embedded with a lifetime’s worth of solid businesses shepherded into the fold of his super-investment holding company which will outlive him and, probably, all of us reading this, too.
And yet, for all that, Berkshire’s robust strength is NOT the distinctive difference I referred to earlier. This is...
Warren Edward Buffett’s legacy will persist long past his life here NOT ― in my opinion ― because of Berkshire Hathaway, the company he’s lovingly nurtured through superior capital allocation skills over more than half a century of, as he puts it, ‘tap dancing’ to work into today’s economic juggernaut that’s likely to thrive well into the 22nd and 23rd centuries, but because of Buffett’s crystal clear writings on Berkshire, investing and life.
Lessons for life
Allow me to share with you four cogent lessons couched in compelling turns of phrase drawn from his 1984, 1999, 2008 and 2017 letters. They respectively deal with Berkshire’s insurance division; Buffett’s humble recognition of his own areas of competence and incompetence; Buffett’s fundamental investment philosophy; and the primary reason we should buy stocks only with our own cash and not with borrowed money.
1984 - “The buyer of insurance receives only a promise in exchange for his cash. The value of that promise should be appraised against the possibility of adversity, not prosperity. At a minimum, the promise should appear able to withstand a prolonged combination of depressed financial markets and exceptionally unfavourable underwriting results.”
1999 - “If we have a strength, it is in recognising when we are operating well within our circle of competence and when we are approaching the perimeter. Predicting the long-term economics of companies that operate in fast-changing industries is simply far beyond our perimeter. If others claim predictive skill in those industries — and seem to have their claims validated by the behaviour of the stock market ― we neither envy nor emulate them. Instead, we just stick with what we understand. If we stray, we will have done so inadvertently, not because we got restless and substituted hope for rationality. Fortunately, it’s almost certain there will be opportunities from time to time for Berkshire to do well within the circle we’ve staked out.”
2008 - “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.”
2017 - “There is simply no telling how far stocks can fall in a short period. Even if your borrowings are small and your positions aren’t immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions.”
I’ll end this tribute column to the greatest stock investor and top-three business builder of our time with this beneficial suggestion for you:
For as long as Buffett stays spry and savvy enough to write each year’s masterpiece Shareholder Letter, I suggest you read each one closely. And while you wait for the 2018 instalment to be released in February 2019, I suggest you read all previous letters. Those are freely available here: www.berkshirehathaway.com/letters/letters.html
For your own benefit, study them closely for lessons you may apply today in your own life, and tomorrow throughout your personal investing journey.
© 2018 Rajen Devadason
Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at https://www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com You may follow him on Twitter @RajenDevadason