Warren Buffett is one of the greatest investors of all-time.
Carlson Capital's Double Black Diamond Fund returned 85 basis points net in August, bringing its year-to-date net return to 4.51%. According to a copy of the fund's September update, which ValueWalk has been able to review, its equity relative value and event-driven strategies outperformed during the month, contributing 131 basis points to overall P&L. Double Read More
But his wisdom runs much deeper than just investing.
Warren Buffett is also an incredible businessman and manager, and it’s really these qualities – in addition to his investing skill – that’s helped him build Berkshire Hathaway into one of the largest and most profitable companies in the world.
But despite what most people think, he didn’t do it alone.
How has Warren Buffett been able to build such a formidable team, and in turn such a successful company?
The secret lies in what Warren Buffett looks for in people when he hires them: integrity, intelligence, and energy.
Warren Buffett’s 10% Sermon
Warren Buffett loves to teach. The following is a “sermon” that Buffett has often gives to MBA students when he comes talk to them – including first at the University of Florida (download a transcript of Buffett’s full lecture here) and again later at the University of Georgia. Here Warren Buffett breaks down why those three qualities are so important:
Play one game a little bit with me for just a minute…
I’d like for the moment to have you pretend I’ve made you a great offer, and I’ve told you that you could pick any one of your classmates – and you now know each other probably pretty well after being here for a while. You have 24 hours to think it over and you can pick any one of your classmates, and you get 10 percent of their earnings for the rest of their lives. And I ask you, what goes through your mind in determining which one of those you would pick? You can’t pick the one with the richest father, that doesn’t count. I mean, you’ve got to do this on merit. But, you probably wouldn’t pick the person that gets the highest grades in the class.
I mean, there’s nothing wrong with getting the highest grades in the class, but that isn’t going to be the quality that sets apart a big winner from the rest of the pack. Think about who you would pick and why. And I think you’ll find when you get through, you’ll pick some individual – you’ve all got the ability, you wouldn’t be here otherwise. And you’ve all got the energy. I mean, the initiative is here, the intelligence is here throughout the class. But some of you are going to be bigger winners than others.
And it gets down to a bunch of qualities that, interestingly enough, are self-made. I mean it’s not how tall you are. It’s not whether you can kick a football 60 yards. It’s not whether you can run the 100 yard dash in 10 seconds. It’s not whether you’re the best looking person in the room. It’s a whole bunch of qualities that really come out of Ben Franklin, or the Boy Scout codes, or whatever it may be. I mean, it’s integrity, it’s honesty, it’s generosity, it’s being willing to do more than your share, it’s just all those qualities that are self-selected.
And then if you look on the other side of the ledger, because there’s always a catch to these free gifts and genie jokes. So, you also have to – and this is the fun part – you also have to sell short one of your classmates and pay 10 percent of what they do. So, who do you think is going to do the worst in the class? This is way more fun. And think about it again. And again, it isn’t the person with the lowest grades or anything of the sort. It’s the person who just doesn’t shape up in the character department.
We look for three things when we hire people. We look for intelligence, we look for initiative or energy, and we look for integrity. And if they don’t have the latter, the first two will kill you, because if you’re going to get someone without integrity, you want them lazy and dumb. I mean, you don’t want a spark of energy out of them. So it’s that third quality. But everything about that quality is your choice.
You know, you can’t change the way you were wired much, but you can change a lot of what you do with that wiring. And it’s the habits that you generate now on those qualities, or those negatives qualities. I mean the person who always claims credit for things they didn’t do, that always cuts corners, that you can’t count on. In the end those are habit patterns, and the time to form the right habits is when you’re your age. I mean it doesn’t do me much good to get golf lessons now. If I’d gotten golf lessons when I was your age I might be a decent golfer.
But, someone once said “the chains of habit are too light to be felt until they’re too heavy to be broken.” And I see that all the time. I see people with habit patterns that are self-destructive when they’re 50 or 60 and they really can’t change then, they’re imprisoned by them. But you’re not imprisoned by anything. So, when you write down the qualities of that person that you’d like to buy 10 percent of, look at that list and ask yourself, is there anything on that list I couldn’t do?
And the answer is there won’t be. And when you look at the person you sell short, and you look at those qualities that you don’t like, if you see any of those in yourself – egotism, whatever it may be, selfishness – you can get rid of that. That is not ordained. And if you follow that, and Ben Franklin did this and my old boss Ben Graham did this at early ages in their young teens, Ben Graham looked around and he said, “Who do I admire?” And he wanted to be admired himself and he said, “Why do I admire these other people?” And he said, “If I admire them for these reasons, maybe other people would admire me if I behave in a similar manner.” And he decided what kind of a person he wanted to be.
And if you follow that, at the end you’ll be the person you want to buy 10 percent of. I mean that’s the goal in the end, and it’s something that’s achievable by everybody in this room. So that’s the end of the sermon.
How to Get a Job from Warren Buffett
If you want to get a job from Warren Buffett, you just need to show him that you have three things: integrity, intelligence, and energy.
The intelligence component is obvious – you need the mental capacity to do the job. But as Buffett points out in his sermon, there are many smart people around (Buffett even notes that every one of the MBA students he was speaking to were already smart enough to succeed). But the person “who you would want 10% of” isn’t necessarily the person who gets the highest grades.
In fact, Buffett has made this point several times:
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
“If you are in the investment business and have an IQ of 150, sell 30 points to someone else.”
Having energy is also an obvious choice. (Don’t worry, this doesn’t mean you have to be someone who is jumping up and down all day – Buffett clarifies that by energy he means someone who takes initiative). Clearly, you can’t succeed if you’re lazy. You have to take initiative, you have to be entrepreneurial, and you have to make things happen – either for yourself or your company.
Integrity is the missing piece of the puzzle. If you want to become someone who Warren Buffett would hire, this is the most important quality that you should develop.
Think about it. Would you want to work with someone who is intelligent and driven, but who doesn’t have integrity? Of course not! In fact, that is probably the absolute last person you would want to work with (*ahem*…ever hear of Slytherin?). Buffett jokes that if someone doesn’t have integrity, then at least you want them to be dumb and stupid.
The best part about this quality is that it’s completely self-selected.
You can’t control your height, your looks, or how fast you run. But you can completely control whether or not you have integrity, if you’re honest, if you’re generous, and if you’re willing to do more than your fair share.
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Everyone wants to hire and work with smart people. So intelligence is often a baseline requirement to do any job.
The next step toward a successful hire is finding someone who is driven and shows initiative. Warren Buffett isn’t the only person who does this. Famous fellow value investor Mario Gabelli says that he looks for PHDs: people who are “poor, hungry, and driven.” Even legendary basketball coach Rick Pitino looks for PHDs too.
What I love about Warren Buffett is that he specifically looks for a third key intangible – integrity. Without it, intelligence and energy don’t matter (and can actually be harmful). And I’m fairly certain that it’s Buffett focus on integrity and reputation – and not just on intelligence, energy, and profits – that has helped him and Berkshire Hathaway become so successful.
Do you look for integrity, intelligence, and energy when hiring people? Do you think Buffett is missing any key qualities? Share your thoughts in the comments section below (or just say hi)!