More Business Advice from Warren Buffett

Two weeks ago, I had the good fortune of having my Blog post on Warren Buffett featured on WordPress.com’s home page.  Out of over 400,000 blog posts per day, WordPress features only 10 in its Freshly Pressed section.  I have no idea how my post was selected, but I bet it had to do with Mr Buffett’s popularity, especially in light of the recent turbulence in the stock market.

Needless to say, my Blog site was visited by thousands of Warren Buffett fans, so I thought I’d do another post on the Oracle of Omaha’s advice.  I found a nice article on about.com by Joshua Kennon, a private investor who authored The Complete Idiot’s Guide to Personal Investing, 3rd Edition.  The piece summarized some of Mr. Buffett’s best investment advice.  I chose seven of these nuggets, which I thought could also be very applicable to running and growing a business.

1.  Risk can be greatly reduced by concentrating on only a few holdings.  Business application: FOCUS!  Every company has limited human and capital resources, so concentrate your efforts on a few key areas rather than trying to “boil the ocean.”

2.  Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.  Business application:  STAY THE COURSE.  Once you have made a business decision to go in a particular direction, stay focused on that direction and tune out the inappropriate noise.  If you are sure in your decision and it has been made rationally with good information, then eventually it will pay off.

3.  Be fearful when others are greedy and greedy only when others are fearful. Business application:  BE CONTRARIAN.  More money can be made in business by NOT following the “conventional wisdom.”  Trends move from one end of the pendulum to the other, so when the crowds are strongly of one opinion, then it could be time to make money by taking the opposing view.  For example, just 5 years ago, the “experts” thought the datacenter industry was stagnant.  There was a glut in capacity, and pessimism all around.  The smart contrarian entrepreneur who could see the tidal wave of virtualization and cloud computing was coming, made money by investing heavily in datacenters.

4.  The ability to say “no” is a tremendous advantage for an investor. Business application:  Concentrate, focus, and don’t get distracted.  The ability to say “no” is also a tremendous advantage for a business person.  Steve Jobs, for one, has always prided himself on saying “no” to things that did not fit his vision for Apple.  It is natural for opportunistic business people and entrepreneurs to want to look at EVERY opportunity, but by saying yes to too many projects, you dilute your resources and your company’s energy.

5.  An investor should act as though he had a lifetime decision card with just twenty punches on it.  Business application: BE SUPER SELECTIVE!  Imagine running your business knowing that you will only have 20 truly awesome ideas to bet on in your career!  That’s only one every two years.  Applying this advice means you must do your homework, be very diligent, and choose your projects very judiciously.

6.  Always invest for the long term.  Business application:  Your goal is to create long term shareholder value, so plan and operate your business in a way to achieve this goal. Note that Mr. Buffett uses the word “always,” which is a very strong word.  For me this is real wisdom.  I see far too many business leaders make short term and medium term decisions which appear to make sense, but really do not.  I agree with Mr. Buffett because, ultimately, all that really matters is the value created in the long term.

7.  It is not necessary to do extraordinary things to get extraordinary results. Business application:  You don’t always have to be the best.  You can win big even if you are a little better than your competition.  This is an excellent concept.  Too many companies spend too much time and money trying to be perfect, when all they really need is to stand above their competitors.  CyberRep operated in an industry with “C” players, and I always told our team that we would be successful if we were merely “B+” players.  It worked.

Thanks for reading.  Please comment below and let me know which concept resonates with you…and please sign up for my Blog too.  You can find the signup box in the right column of my Blog’s Home Page.

Featured image courtesy of trackrecord licensed via creative commons.

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8 thoughts on “More Business Advice from Warren Buffett

  1. 3. Be fearful when others are greedy and greedy only when others are fearful. This is too true. When I had my construction company and saw everyone running to get in on the first phase of a development, my interest was peaked. The whole sub-division would sell out in hours. Those who bought would then sell their contract for a nice profit once phase one broke ground. This, to me, was absolutely crazy. Who in their right mind would be as naive to pay an additional $XX,XXX more for a property just 3 months after someone else without any improvement? Furthermore, who would think this could continue!? Admittedly, I drank the juice and entered the market, cautiously. But once I felt like I, and everyone else, was being too greedy, I jumped ship.

    I read rule #3 as if you have to be fearful, but not oblivious. If there is money to be made, do it cautiously and watch the way things are going very carefully. You can’t time markets, but you can certainly see when you others are being too greedy. And, as a perfect case with Cramer from Mad Money, never trust the news!

    • Thanks Masoud. The real art is being able to gauge when people are greedy and when they are fearful. Where is the peak and the trough of each emotional wave. Not easy! Mr. Buffett has done amazingly well being a contrarian investor and practicing #3. As for Jim Cramer, he’s a smart, successful and popular figure, but I think he is more entertainer than anything else. Caveat emptor!

  2. 7. It is not necessary to do extraordinary things to get extraordinary results.

    You don’t always have to be the best. You can win big even if you are a little better than your competition. This is an excellent concept. Too many companies spend too much time and money trying to be perfect, when all they really need is to stand above their competitors. CyberRep operated in an industry with “C” players, and I always told our team that we would be successful if we were merely “B+” players. It worked.

    While I can relate to the entire blog, I would say that #7 is most important to me. We are a small business that has had lots of turnover with employees. We were looking for the A+ and getting C employees. I have since learned that we can be just as successful with C employees and they can become the A+’s we so desparately want. Thank you and I look forward to your next blog!

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