Buffett’s Success Results From A Lot More Than Good Stock Picking

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Roger Lowenstein is an admitted fan of Warren Buffett and a long time Berkshire Hathaway shareholder, but that doesn’t mean he isn’t spot on when he suggests that the Oracle of Omaha is an even better manager than he is stock picker. Lowenstein wrote an entertaining piece profiling Buffett as a manager in the May 1st edition of Fortune magazine.

Key factors in Buffett’s management style

The first hallmark of Buffett’s management style is his laser-like attention to capital allocation. As Lowenstein says, “for Buffett, adding a company to Berkshire is akin to adding a stock to an investment portfolio. But once he makes an acquisition, he almost never sells, and gives managers extreme autonomy.”

Another key factor for Buffett is making a conscious effort to eliminate unnecessary bureaucracy and trust your upper management. Of note, Berkshire Hathaway has no overarching standards that its over 60 operating units must adhere to, nor a huge budget with which to manage a conglomerate with over 340,000 employees.

Buffett also eschews typical corporate practices that he argues lead to short-term thinking. That means no earnings guidance, no big salaries and no stock options. Eighty-four-year-old Buffett is firmly opposed to stock options because giving execs large amounts of free shares disconnects the interests of those executives from the interests of ordinary investors. Also keep in mind Berkshire only pays its top execs a relative pittance. Buffett and partner Charlie Munger are paid $100,000 each and do not receive bonuses.

Three takeaways from Warren Buffett’s tenure at Berkshire Hathaway

In the conclusion of his article, Lowenstein highlights “three takeaways” from Buffett’s 50 years at the helm of Berkshire:

“1. Leave your managers alone — Managers at the 60-plus business units owned by Berkshire have a lot of autonomy, and that encourages them to stick around.

2. Bureaucracy must die — Extra layers of corporate decision-makers in budgeting, legal affairs, and public relations mean you’ll miss opportunities.

3. Don’t massage the stock price — Earnings guidance, stock splits, and spin-offs are short-term moves that do little or nothing for your shareholders in the long run.”

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