Amusing Tidbits From Warren Buffet and The Berkshire Hathaway Annual Report

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Amusing Tidbits From Warren Buffet and The Berkshire Hathaway Annual Report

 

My co-founder, Brian Halligan and I are both big fans of Warren Buffet.  Brian wrote an article a while ago on the HubSpot blog "Quick Insights From Buffet and Gates".  If you're a Buffet fan, like me, I encourage you to check it out.

Recently, I had the opportunity to skim through the Berkshire Hathaway annual report.  There were some really amusing insights in there.  It's refreshing to see even a large, successful organization like Berkshire Hathaway maintaining their personality and pragmatism in a document that for most companies is boring and watered-down.  My comments are in italics.

1.  We are also happy to buy small portions of great businesses by way of stock-market purchases.  It's better to have a part interest in the Hope Diamond than to own all of a rhinestone.

Venture Capitalists:  Are you really sure you just absolutely MUST have X% of that hot new startup?  Instead of making the investment you want, why compromise and do something else just because you can get 5-10% more?

2.  You only learn who has been swimming naked when the tide goes out.  [With relationship to the recent housing bubble]

This made me think about pre-revenue startups.  When the tide of funding goes out, and you have to start charging money, will your business model be naked?

3.  For the entire 42 years, our compounded annual gain in per-share investments was 27.1%. 

Ok, this isn't really amusing, but it is impressive.

4.  A truly great business must have an enduring "moat" that protects excellent returns on invested capital.  The dynamics of capitalism guarantee that competitors will repeatedly assault any business "castle" that is earning high returns.

I like to think of this in terms of a wall rather than a moat.  Build the wall that protects your companies interest from those that would take your profits away.  My simple strategy for building a great wall:  Step 1: Start building wall.  Step 2:  Add at least one brick to the wall every day.

5.  If a business requires a superstar to produce great results, the business itself cannot be deemed great.

Though depressing for us startup entrepreneurs that think the entire company revolves around us, it's true.  A truly great business should likely be able to run without the need for it's current founders or management team.  Of course, in the early days, this is rarely true.

6.  The worst sort of business is one that grows rapidly, requires significant capital to engender growth, and then earns little or no money.  Think airlines. 

This is very interesting.  A lot of the big infrastructure plays end up here.  You have to continually invest more and more money to get lower and lower returns.

7.  If his I.Q. was any lower, you would have to water him twice a day.

I felt guilty when I smiled at this, but had to admit it was funny.

8. From Bobby Bare's country song:  "I've never gone to bed with an ugly woman, but I've sure woke up with a few."

9.  Mitt Romney's wife Ann, when asked:  "When we were young, did you ever in your wildest dreams think I might be president?".  Response: "Honey, you weren't in my wildest dreams."

10.  Charlie and I are not big fans of resumes.  Instead, we focus on brains, passion and integrity.

If you had to solve for any three attributes when hiring, these are about as good as any.  Intelligence, Passion and Integrity.

11.  I've reluctantly discarded the notion of my continuing to manage the portfolio after my death -- abandoning my hope to give new meaning to the term "thinking outside the box."

12.  Queen from Alice in Wonderland:  "Why, sometimes I've believed as many as six impossible things before breakfast."

Hope you enjoyed these.  If you have other great Warren Buffet related quotes or insights, please leave a comment  We're always looking for more.

Posted by Dharmesh Shah on Mon, Mar 17, 2008

COMMENTS

" If a business requires a superstar to produce great results, the business itself cannot be deemed great."
Where's the line, though? If you have a business plan that any idiot could execute, then you have to spend all your time worrying about competition, IP, and advertising a unique selling proposition that you don't actually have. That is, to me, a lot of wasted effort and money.
Yet if you have a business plan that only the founder can execute, your truck number is 1. That can't be good either.
I remember they used to have this thing called "skilled labor"...

posted on Monday, March 17, 2008 at 3:18 PM by Jay Levitt


From BH's last annual..."Be fearful when others are greedy and greedy when others are fearful." Pretty good model for explaining the failure/success of companies before and after the burst of the bubble in 2000.
Not particularly insightful, but easily my favorite Buffett quote (also from the last annual)..."After you've flown NetJets, returning to commercial flights is like going back to holding hands."

posted on Monday, March 17, 2008 at 4:12 PM by Paul


Regarding 1st comment :
Warren Buffets invest after he finds a Hope Diamond. Venture capitalists invest very early stage when the carbon form has not taken a definitive form. It could turn out to be a Diamond or Coal.

posted on Monday, March 17, 2008 at 7:03 PM by Devang


Dharmesh, perhaps you could elaborate on the wall building/brick laying in a future post?

posted on Tuesday, March 18, 2008 at 1:52 PM by Sara


Isn't the secret of a business in its combination of resources working together successfully over time? The last part is critical because someone with more cash might be able to accumulate the same resources - but they will have to spend the time to get the resources working together.
The reason why superstars are a menace is that a) take them away and the business collapses - so it is a weak combination and b) the weaker parts never learn to work well together.
The line is the working team.

posted on Wednesday, March 19, 2008 at 4:46 AM by Jo


Was it Buffet who said "Don't sh*t where you eat"? I think he was talking about Wall Street. Or maybe it was don't eat what you ___. In that case, he was talking about Bear Stearns. BTW, have you seen Alan Greenspan's new social network? http://alangreenspan.ning.com

posted on Friday, March 21, 2008 at 6:28 AM by chrisco


If you hand me a gun with a thousand chambers, a million chambers in it, and there's a bullet in one chamber and you said "Put it up your temple, how much do you want to be paid to pull it once?" I'm not going to pull it. You can name any sum you want. Because it doesn't do anything for me "on the upside, and I think the downside's fairly clear."
From the florida video. (wrote about it at http://blog.investraction.com/2007/06/buffet-on-risking-what-you-shouldnt.html)
From his 2007 speech:
"You may recall a 2003 Silicon Valley bumper sticker that implored, “Please, God, Just One More
Bubble.” Unfortunately, this wish was promptly granted, as just about all Americans came to believe that
house prices would forever rise."
"There’s no
rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so:" (VCs unfortunately are bound by this rule)

posted on Monday, March 24, 2008 at 10:52 AM by Deepak Shenoy


My favorite Buffet comment : to paraphrase..He violated the Noah rule. Predicting rain doesn't count, building arks does

posted on Tuesday, May 20, 2008 at 4:10 PM by stephen


My simple strategy for building a great wall: Step 1: Start building wall. Step 2: Add at least one brick to the wall every day. 
 
That's a dumb strategy. If you start out in a business that's inherently a commodity business, you're probably not going to be able to turn it into a business where you can have that kind of sustainable competitive advantage. If that's what you're looking for (and it shouldn't necessarily be, but it obviously has to be if you want to get bought by Buffett), you should start by making sure that you're going into a business where such an advantage can exist. 
 
Though depressing for us startup entrepreneurs that think the entire company revolves around us, it's true. A truly great business should likely be able to run without the need for it's current founders or management team. Of course, in the early days, this is rarely true. 
 
That's certainly true from Buffett's perspective, since what he's looking for is to put capital into the business and get profits out of it. But it's not necessarily the case for a customer, who wants to put purchase orders into the business and get products or services out of it (with value as much in excess of what they're paying as possible), or for a worker, who wants to put work into the business and get salary and self-actualization out of it, ideally with as few peptic ulcers and sleepless nights as possible. These different stakeholders are all trying to extract value from the business, and they are somewhat in competition with one another; a business that's great for some of them (airlines are great for the pilots, and some of them are great for the customers and business travelers too) is rarely going to be great for the others. In particular, competitive advantages that are based on “key employees” tend to result in the fruits of those advantages going to the employees, not the investors, which is exactly what Buffett is complaining about.

posted on Saturday, September 20, 2008 at 12:23 AM by Kragen Javier Sitaker


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