Warren Buffett Says This 1 Simple Habit IsThe Key To Success Here Are 19 Times He Did It In Public
But does he practice what he preaches?
When I shared this quote from Buffett here on Inc.com a few years back, I included one key example of when Buffett had in fact lived up to his own advice.
No matter how good the opportunity might seem, he told the CEOs of the various Berkshire Hathway-owned companies, if they're asked for an introduction to him, he'd like them to decline:
Longtime readers will know that I'm a long on Buffett and Berkshire.
In fact, I took all of the annual Berkshire Hathaway annual shareholder letters going back decades, put them in a single document, and analyzed the heck out of the language Buffett used and the lessons he taught – and even the stories he told repeatedly, before he realized they'd all be available on the Internet.
Now we have another opportunity: The chance to scour these decades of accumulated wisdom, running longer than War and Peace and find the times Buffett talked about things he always says no to.
Here are 19 of the most illustrative. All quotes come from the combined version of the shareholder letters, unless otherwise noted:
1. No matter how tempting, he says no to acquiring a business if management isn't in place
"From time to time we will be able to purchase 100% of businesses meeting our standards. We never expect to run these companies, but we do expect to profit from them."
2. He says no to paying much attention to annual fluctuations
"We never take the one-year figure very seriously. After all, why should the time required for a planet to circle the sun synchronize precisely with the time required for business actions to pay off? Instead, we recommend not less than a five-year test as a rough yardstick of economic performance."
3. He says no to 'trust but verify'
When we purchased 90% of [Nebraska Furniture Mart], NFM had never had an audit and we did not request one; we did not take an inventory nor verify the receivables; we did not check property titles. We gave Mrs. B a check for $55 million and she gave us her word. That made for an even exchange.
4. He says no to going to wherever he might die (Metaphorically, but probably also literally)
"Our Vice Chairman, Charlie Munger, has always emphasized the study of mistakes rather than successes, both in business and other aspects of life. He does so in the spirit of the man who said: "All I want to know is where I'm going to die so I'll never go there."
5. He's said no to dying industries
This is a sad story that I've told here before, but I think it's a valuable one. In short, Berkshire Hathaway began as a New England textile company, not unlike the one that originally drew my ancestors from Ireland.
Eventually, Buffett kept the corporate structure but ditched the textiles: "Although much improved ... the textile business never became a good earner, not even in cyclical upturns."
6. He says no to taking big risks
"An owner must weigh upside potential against downside risk; an option holder has no downside. I'll be happy to accept a lottery ticket as a gift – but I'll never buy one."
7. He says no to short-term predictions
"Common stocks, of course, are the most fun. [But] we have no idea – and never have had – whether the market is going to go up, down or sideways in the near – or intermediate term future."
8. He says no to bargains
"My first mistake, of course, was in buying control of Berkshire. Though I knew its business – textile manufacturing – to be unpromising, I was enticed to buy because the price looked cheap. In a difficult business, no sooner is one problem solved than another surfaces - never is there just one cockroach in the kitchen."
9. He says no to good deals with bad people
"After some other mistakes, I learned to go into business only with people whom I like, trust and admire.... We've never succeeded in making a good deal with a bad person."
10. He says no to the idea of retiring
"Given the managerial stars we have at our operating units, Berkshire's performance is not affected if Charlie or I slip away from time to time. But, Berkshire is my first love and one that will never fade: At the Harvard Business School last year, a student asked me when I planned to retire and I replied, 'About five to ten years after I die.'"
11. He says no to worrying about missing opportunities he doesn't understand
"Typically, our most egregious mistakes fall in the omission, rather than the commission, category. That may spare Charlie and me some embarrassment, since you don't see these errors; but their invisibility does not reduce their cost.
In this mea culpa, I am not talking about missing out on some company that depends upon an esoteric invention (such as Xerox), high-technology (Apple), or even brilliant merchandising (Wal-Mart). We will never develop the competence to spot such businesses early."
12. He says no to lying to himself
"Managers thinking about accounting issues should never forget one of Abraham Lincoln's favorite riddles: 'How many legs does a dog have if you call his tail a leg?" The answer: "Four, because calling a tail a leg does not make it a leg.'"
13. Never says no to passing up good companies
"Our discussion will be confidential. We are never going to lose our appetite for buying companies with good economics and excellent management."
14. He says no to the idea of splitting Berkshire's stock
As I write this, the price of a single share of Berkshire class A stock is just over $450,000, or a bit above the median price of a house in the United States. Yet, Buffett won't split the stock.
15. He says no to holding onto cash (usually)
"At yearend, we held more than $15 billion in cash equivalents [in 1998]. But it's better to have the money burning a hole in Berkshire's pocket than resting comfortably in someone else's. I will never risk getting caught short of cash."
16. He says no to selling Berkshire stock
"Additionally, I will keep well over 99% of my net worth in Berkshire. My wife and I have never sold a share nor do we intend to."
17. He says no to buying things because they appreciated in the past
"I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it."
18. He says no when he's tempted to lie to himself
"Periodically, financial markets will become divorced from reality – you can count on that. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is – zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices."
19. He says no when asked to enter a negotiation without knowing the other side's price
"We hope to buy more businesses that are similar to the ones we have and we can use some help. But, we don't want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown."
I'm sure we can find quite a few more examples; Buffett is such an iconic fount of modern wisdom that I've put together an entire free-to-download ebook about him: Warren Buffett Predicts the Future.
But don't ask him to compile his own examples. I'm confident that's another thing he'll say no to.
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