I recently just finished The Snowball, one of the more recent biographies on Warren Buffet. The guy gets a lot of attention because he’s rich and has consistently proven himself to be one of the best capital allocators of our time. After finishing the book, I see why.
Mr. Buffet always worked his butt off, is really what I gathered from the book. I mean, it seems like he never really stopped working. Investing was always and always will be his passion. It’s clear that ever since he was young, Buffet always enjoyed “the game” of money.
One of the key insights I got from the book is that Warren Buffet has always, in a way, been wealthy, or at least very clearly on the path to wealth. As a young boy he rented out pinball machines, flipped Coca-Colas to his friends, and even bought stock in companies (in those days the barrier to entry for direct stock ownership was much higher, you had to know someone in the business and have a decent amount of capital to invest. Now you can just go online and buy $10 of McDonald’s on Loyal3 in 5 minutes with no commissions.)
After piling up a decent amount of savings, he worked for Benjamin Graham, the legendary value investor, for a time, and then he began his own investment partnership. This allowed him to leverage the assets of other people and get a nice cut of the profits he made that were above a pre-established benchmark. I like this incentive system.
Most people’s work is not like this – they show up, put in a set amount of time to do a set amount of work, and then go home and collect their paycheck. By establishing himself as the owner in a business with a scalable earnings model, Buffet was able to structure his affairs so that the better he got at investing, he benefitted in a multi-faceted manner.
1. By investing his own money well, Buffet’s portfolio grew quickly while minimizing risk.
2. By investing other people’s money well, Buffet got an ever-growing cut of the profits he made, which he then re-invested in his personal pile of assets.
It’s awesome because Buffet was able to focus intensely on developing a single skill set – investing in businesses – and reap rewards at different levels that exponentially grew his pile of assets. When he invested well for himself and his clients, he was able to attract more clients. When he invested well for his clients, he was able to take a larger profit for his personal investments.
Another important lesson I learned is that having the right partner will greatly accelerate your journey toward your goals. Buffet’s relationship with Charlie Munger demonstrates that two brilliant minds working together can indeed achieve extraordinary things. Both men knew a lot, and they acted as checks and balances on each other in order to avoid making big mistakes.
Charlie Munger was instrumental in helping transform Buffet’s mindset from buying “cigar butt” companies – simply looking at assets on the cheap – to buying companies of excellent quality that pounded out cash year after year. Although Benjamin Graham was Buffet’s earliest mentor and influencer, Munger’s friendship and partnership greatly added to his success.
To this day, Buffet works hard to build Berkshire Hathaway and increase its value. From interviews of him and reading about him, it really does seem like he “tap dances to work” and loves the game of investing and making money. By discovering what he wanted to do relatively early in life, and then devoting himself wholeheartedly to it, he achieved a level of success that few ever dream about.
I learned from this book that it is not enough to simply be smart and have a high level of knowledge about any particular area (such as investing), but to be able to continually grow your knowledge in many different areas and then execute well over long periods of time. Buffet got to where he is by applying sound investing principles over time, and gradually adding more and more money to his investments through the power of compounding.