Warren Buffett is a huge sports fan.
Buffett has been a lifelong follower of Nebraska football, he is buddies with Lebron James and Cleveland Cavs’ owner Dan Gilbert, he once starred in a short video with Flloyd Mayweather, and he recently offered $1 million a year to any Berkshire Hathaway employee who manages to correctly predict the Sweet 16 teams of the March Madness NCAA basketball tournament. Warren Buffett even owns a minor league baseball team.So it’s no surprise that Warren Buffett, the greatest investor of all time, recently hung out with Tom Brady, arguably the greatest quarterback of all time.
Warren Buffett and Tom Brady
The context of the meeting was unclear, but based on Tom Brady’s Instagram photo caption, Buffett probably gave Brady investing advice over some Dairy Queen ice cream.
Comparing Warren Buffett and Tom Brady is fair. Both are regarded as examples of greatness in their respective fields. However, the better comparison is probably between Warren Buffett and Brady’s head coach, Bill Belichick.
Warren Buffett and Bill Belichick
Warren Buffett’s name actually came up recently when Robert Kraft theorized why Bill Belichick (now with 5 Super Bowl rings and 2 more as an assistant coach) might not retire anytime soon. “You see Warren Buffet and Rupert Murdoch, they’re in their mid-eighties and performing in a pretty high level, so we’re going to keep Bill healthy,” Kraft said at the NFL owners’ meeting in late March.
But the similarities between Buffett and Belichick actually run much deeper than age and longevity. Here are 5 ways the greatest investor of all time and the greatest football coach of all time are alike:
1. They Were Precocious Kids
Bill Belichick’s father, Steve Belichick, was a highly respected college football coach. He was “by all accounts a brilliant coach, an exceptional teacher, and arguably the best and most professional scout of his era,” writes the late historian David Halberstam in his 2012 biography of Bill Belichick, The Education of a Coach. “No one, it was said, could scout another team and break down their film quite like Steve Belichick.”
So, naturally Bill was was obsessed with football about as soon as he could walk. He started hanging around his dad’s practices by the time he was six. He learned how to break down film by the time he was nine. And he would fill his school notebooks with diagrams of football plays, instead of with math and history notes.
Warren Buffett, similarly, was obsessed with investing for as long as anybody could remember. Buffett was already investing in the stock market when he was 10; he bought a 40 acre farm when he was 14 for $1,200 using his own savings; and by the time he finished college, he had accumulated $9,800 in savings (the equivalent of almost $100,000 today).
2. They Are Compulsive Learners
In his book Superforecasting, Phillip Tetlock identifies what he calls “perpetual beta” as the single most important trait shared by the world’s most accurate forecasters. This is “the degree to which one is committed to belief updating and self-improvement.” Just like a software program might be released as a “beta” version that is not yet perfected and is continually updated and improved based on feedback from users, people with a “perpetual beta” mindset are always looking for feedback from others and from the world around them and are constantly trying to improve themselves. They way you do this is through reading and learning.
Bill Belichick has always been a compulsive learner. In The Education of a Coach, Belichick tells Halberstam:
“One of the things I had working for me was that I knew how to learn.”
Likewise, Warren Buffett is a reading machine and an information sponge. Buffett reads 500 pages a day (and used to read 1,000 pages a day when he first started his career!). And his business partner and Berkshire Hathaway vice chairman Charlie Munger’s secret? Go to bed smarter than when you woke up.
3. They Value Temperament over Intelligence
Bill Belichick is one of the steeliest sideline football coaches ever. This is something that fans have watched season after season. While opposing coaches seem to self-destruct under the pressure of intense championship games, Belichick has always been able to keep his cool, assess the situation, and put his team in the best position to win the game.
As Halberstam recounts:
“That totality of his knowledge, the great depth of it, would manifest itself… in his being so good a game coach; he excelled not just in preparation before a game, but also while the game was actually going on. He was much more analytical than most other coaches, and he never lost that analytical ability, not even in the most tense moments of a game. … With the game on the line and thousands of people screaming away, often in hostile venues, Belichick did not lose his cool; he could always somehow manage to step back and take a cold look at what the other team was doing and what his own team had tried, and then figure out what he needed to do in terms of instant adjustments. That… became a kind of Belichick trademark: the ability to adapt his game plan even as the game was being played out, and not to be sucked in by the emotions of it.”
The traits described above are very similar to the traits that lead to successful value investing. Warren Buffett has always been able to keep his cool, whether it was when internet stocks were going through the rough in the late 1990s and everyone was calling him a “has been” and “past his prime”; or in 2008-2009, when everyone thought the world was going to end except for Buffett, who was able to double down and make some incredibly attractive investments.
Here are some great value investing quotes about temperament:
- “Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffett
- “The investor’s chief problem – and even his worst enemy – is likely to be himself.” -Ben Graham
- “Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.” -Ben Graham
- “A lot of people with high IQs are terrible investors because they’ve got terrible temperaments.” -Charlie Munger
“Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffett – Click To Tweet
“The investor’s chief problem – and even his worst enemy – is likely to be himself.” – Ben Graham – Click To Tweet
4. They Avoid the Trappings of Success
As John Maxfield from The Motley Fool points out, even when Belichick began to gain fame and attract notoriety, he eschewed the trappings and distractions of success. He shut out the noise and focused only on the signal, to use Nate Silver’s description from The Signal and the Noise.
Belichick has always driven unpretentious cars, avoided celebrities, and dressed simply. He’s always shown a wariness towards the media (one of his longest interviews happened when he went on a rant about Microsoft Surface tablets). From The Education of a Coach:
“He was completely dedicated to fighting off the virus caused by too much ego, all too aware of what it could do to his dominating purpose — playing championship-level team football.”
Warren Buffett is famously frugal. For years, he drove the same old 2001 Lincoln Town Car (with license plate “THRIFTY”) before upgrading to a 2006 Cadillac, he lives in the same house he bought in 1958 for $31,500, and he doesn’t wear expensive suits. One time when Buffett was visiting China with his friend Bill Gates, he offered to buy Gates lunch from McDonald’s – using a bunch of McDonald’s coupons he had brought with him from home!
By avoiding the trappings of success that usually drag their peers down (mansions, yachts, expensive clothes, fancy parties, etc.), Buffett and Belichick have been able to free themselves to concentrate on what they do best – investing and coaching – without the influence of others or their own egos.
5. They Play the Metagame
Finally, both Warren Buffett and Bill Belichick have been so successful because they’ve re-written the rules of their respective games in their favor. In other words, the both play the “metagame.”
The metagame means playing a different game than your competitors. It’s a stretegy that involves understanding the structural or unconscious reasons that things are the way they are.
Here is an interesting section in an obscure book called The Raiser’s Edge that explains the concept of a metagame:
“The metagame is this psychological game that exists among players, involving adjustments – adjustments based on how an opponent is likely to interpret a given set of actions. Better players adjust their strategies and styles to those of particular opponents, always analyzing how the opponents are playing in terms of how the opponents believe they’re playing.
Maintaining a well-balanced strategy, while deciphering your opponents’ strategies, is the key to the metagame. If you comprehend the concept of the metagame, accurately perceive the flow of your table and then tournament, and stay alerted to and aware of current strategy trends, you’ll be able to successfully mix up your play when considering your image and that of your opponents. In return, your game will be highly unpredictable and difficult to read, which should be your ultimate goal.”
Here’s an example of how Bill Belichick plays the metagame. Last year, Belichick traded away one of the team’s best defensive players, Jamie Collins, early in the season. As The Farnam Street Blog points out:
“While Belichick never came out publicly to say the reasons Collins was traded, he effectively traded one of the teams best players for nothing. Very few coaches would have traded away a star for nothing. Belichick, was playing a version of metagame. He was able to do something that was for the good of the team that would be controversial in the media. A strategy that almost no other coach could get away with.“
In other words, Bill Belichick was able to make a decision that was unpopular over the short-term but beneficial over the long-term because he’s removed the constraints (e.g. the need to please the media and fans, the need to get GM approval, etc.) that other coaches are often faced with.
Warren Buffett plays the metagame through his acquisition strategy. Buffett usually takes public companies private. This allows managers to make decisions that make long-term economical sense, rather than striving for short-term gains in order to appease Wall Street.
Buffett also has publicly promised that he will never sell a business that he has bought unless it has very bad labor issues or if it continues to lose money without any prospect of improvement. This makes Berkshire Hathaway a very attractive acquirer for multi-generational businesses who want to see their family legacies (i.e. businesses built by their parents or grandparents) live on.
The combination of these factors – (i) the promise not to sell and (ii) the ability for managers to focus on the long-term without facing the scrutiny of Wall Street – allows Buffett to acquire companies for a lower price than competing investors – who usually compete in auction processes where they often end up bidding up the purchase price.
In summary, Warren Buffett and Bill Belichick have been so successful because they were able to identify, early on, the constraints that other investors or coaches are faced with, and they were able to create and execute strategies that capitalized on those structural disadvantages.
Article by Vintage Value Investing