Home Value Investing 3 Important Leadership Lessons You Can Learn From Warren Buffett

3 Important Leadership Lessons You Can Learn From Warren Buffett

Peter Drucker once said that management is doing things right, but leadership is doing the right things. Well Warren Buffett is definitely a leader.

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Warren Buffett is also a great business mind, one of the wealthiest businessmen in the world, and known as the Oracle of Omaha. But what makes him really special is his ability to stick to his values and beliefs even in the face of world-wide criticism.

Buffett credits much of his skill in investing in businesses to his mentor Benjamin Graham. It is true indeed that he learned his analytical skills and investment purchasing philosophy from Graham. But Ben Graham could not have prepared him for the incredible and unbelievable road Warren Buffett has had to navigate as a business leader.

It truly is his ability to take correct actions when times are tough that has allowed him to take Berkshire Hathaway from near certain bankruptcy to being one of the most respected names in insurance and investing today. Please note that this is a stock that is currently trading for nearly $300,000 per share. A closer examination will reveal 3 leadership lessons we can all learn from Warren Buffett and use in our lives.

1. Go Against the Grain

Warren Buffett has made his success by sticking to his values and investing his money in areas that fly directly in the face of intense market pressures to follow the crowd. For example:

  • Buffett invested heavily in the Washington Post in 1973 when the US was heading into a crisis stemming from the OPEC oil cartel and the Vietnam War backlash. Even after suffering another 25% drop in the stock price, he sat still, while the rest of Wall Street hit the panic button. Some 40 years later the original $10 million investment was worth well over $1 Billion.
  • In the mid-1960’s Warren Buffett bought 5% of American Express stock after the company took a major beating on Wall Street when it was held liable for $60 million in a lawsuit. Buffett correctly estimated that, although the news surrounding the company was gloom and doom, the underlying business was stable. His $13 million investment in AMEX was 40% of his partnership capital. He was literally “betting the house” on his assumption.
  • Berkshire Hathaway bought a seasonal candy store called See’s Candy for $25 million in 1972. The company was only making net income of $4.2 million per year and prospects were not great for the economy. Of course, we know now that he was right in his projections because it has been reported that this little candy company has produced over 1.5 billion dollars in profits for Warren Buffett since he bought it.

Results like these would give any money manager confidence to blaze his own trail, but neither Warren Buffett nor Berkshire Hathaway management had a track record of this type of success at the time. It is probable that most fund managers would have looked at these investments as the height of poor decision making.

At the very least, the investments he was making were considered “unattractive” because everyone know that “conglomerates”, buying the “Nifty 50”, and “momentum” investing were what the “In Crowd” was doing. This trait of “going against the grain” of popular delusions is a sure sign of inherently strong leadership qualities.

2. Face Failure Head-On

If any one of the three above-listed stellar stock purchases had truly gone south, the very size of the purchases compared to the rest of the capital under Warren Buffett’s command could very well have caused a severe crisis of investor confidence. This could have led to the demise of Berkshire Hathaway.

Luckily, the story ends happily.

This does not mean that Warren Buffett’s ability to pick winners has been perfect. In his letter to Berkshire Hathaway stockholders, he details the results of all investments made on behalf of the investors.

He unabashedly discusses the good, the bad, and the ugly. This trait of sharing his failures openly and publicly is a sign of real strength and leadership qualities.

For example, Warren Buffett openly admits that his purchase of a small, under-performing textile mill that, by all accounts, was going to be finished off by a surge of cheap Chinese textile manufacturing was one of his biggest failures. That mill was called Berkshire Hathaway.

Buffett learned a lesson from the headache he received from buying it, stating “If you get into a lousy business, get out of it” per Forbes. One could also add the following proverb to describe his reaction to buying Berkshire, “When life gives you lemons, make lemonade!”.

Buying a dying business in a dying domestic industry and pivoting the business to eventually make it one of the most successful entities on earth takes an incredible amount of grit, determination, and talent. Sure, Warren Buffett by his own admission made a costly error, but his clear vision for success led the business out of a death spiral and into the upper echelon of success.

3. Be Humble

In the late 1990’s, Berkshire Hathaway was conspicuously absent from the tech sector where even unsophisticated day-traders were creating gigantic wealth almost overnight. When critics started to circulate the opinion that Warren Buffett was causing his investors to miss out on the wealth being created, he openly stated that he didn’t “invest in businesses he could not understand” and he flat out admitted that he simply didn’t understand high tech business models.

It is unimaginable that anyone else with such a high public profile would have basically admitted to the world that he couldn’t understand something, even if this was indeed the case.

But those who looked deeper into this quote soon realized that Warren Buffett was really saying that NO ONE should have been able to understand what was happening. The reason is because the world was in the grip of a bubble and many did not realize it, just as many people in Holland did not understand how the price of their oh-so-precious tulip bulbs were truly determined in the 1600’s.

In the end, the lessons learned from the Great Tulip Mania of 1637 were largely forgotten by the majority as will the lessons from the Dot Com bubble. However, great leaders will take time to survey the entirety of the landscape instead of just analyzing the trees in front of them. This is precisely what Berkshire Hathaway did for its investors during that time of frenzy.

Summary

In conclusion, one can learn a great deal from observing the actions of Warren Buffett. In particular, his ability to examine, ignore, or discard popular public opinion if they do not agree with his values and principles are traits that define true leadership. The ability to stand pat in the face of unrelenting public criticism cannot be underestimated. Anyone who can do this will truly earn the title “Leader”.


Author Bio: Kevin Monk is a Financial Advisor and also the founder of the website Retire By 37. There you can find advice on how to evaluate yourself, find your most valuable qualities and work on them. That’s the key to success and to – why not? – retiring by 37.

Article by Vintage Value Investing

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Ben Graham, the father of value investing, wasn’t born in this century. Nor was he born in the last century. Benjamin Graham – born Benjamin Grossbaum – was born in London, England in 1894. He published the value investing bible Security Analysis in 1934, which was followed by the value investing New Testament The Intelligent Investor in 1949. Warren Buffett, the value investing messiah and Graham’s most famous and successful disciple, was born in 1930 and attended Graham’s classes at Columbia in 1950-51. And the not-so-prodigal son Charlie Munger even has Warren beat by six years – he was born in 1924. I’m not trying to give a history lesson here, but I find these dates very interesting. Value investing is an old strategy. It’s been around for a long time, long before the Capital Asset Pricing Model, long before the Black-Scholes Model, long before CLO’s, long before the founders of today’s hottest high-tech IPOs were even born. And yet people have very short term memories. Once a bull market gets some legs in it, the quest to get “the most money as quickly as possible” causes prices to get bid up. Human nature kicks in and dollar signs start appearing in people’s eyes. New methodologies are touted and fundamental principles are left in the rear view mirror. “Today is always the dawning of a new age. Things are different than they were yesterday. The world is changing and we must adapt.” Yes, all very true statements but the new and “fool-proof” methods and strategies and overleveraging and excess risk-taking only work when the economic environmental conditions allow them to work. Using the latest “fool-proof” investment strategy is like running around a thunderstorm with a lightning rod in your hand: if you’re unharmed after a while then it might seem like you’ve developed a method to avoid getting struck by lightning – but sooner or later you will get hit. And yet value investors are for the most part immune to the thunder and lightning. This isn’t at all to say that value investors never lose money, go bust, or suffer during recessions. However, by sticking to fundamentals and avoiding excessive risk-taking (i.e. dumb decisions), the collective value investor class seems to have much fewer examples of the spectacular crash-and-burn cases that often are found with investors’ who employ different strategies. As a result, value investors have historically outperformed other types of investors over the long term. And there is plenty of empirical evidence to back this up. Check this and this and this and this out. In fact, since 1926 value stocks have outperformed growth stocks by an average of four percentage points annually, according to the authoritative index compiled by finance professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College. So, the value investing philosophy has endured for over 80 years and is the most consistently successful strategy that can be applied. And while hot stocks, over-leveraged portfolios, and the newest complicated financial strategies will come and go, making many wishful investors rich very quick and poor even quicker, value investing will quietly continue to help its adherents fatten their wallets. It will always endure and will always remain classically in fashion. In other words, value investing is vintage. Which explains half of this website’s name. As for the value part? The intention of this site is to explain, discuss, ask, learn, teach, and debate those topics and questions that I’ve always been most interested in, and hopefully that you’re most curious about, too. This includes: What is value investing? Value investing strategies Stock picks Company reviews Basic financial concepts Investor profiles Investment ideas Current events Economics Behavioral finance And, ultimately, ways to become a better investor I want to note the importance of the way I use value here. It’s not the simplistic definition of “low P/E” stocks that some financial services lazily use to classify investors, which the word “value” has recently morphed into meaning. To me, value investing equates to the term “Intelligent Investing,” as described by Ben Graham. Intelligent investing involves analyzing a company’s fundamentals and can be characterized by an intense focus on a stock’s price, it’s intrinsic value, and the very important ratio between the two. This is value investing as the term was originally meant to be used decades ago, and is the only way it should be used today. So without much further ado, it’s my very good honor to meet you and you may call me…

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