Warren Buffett: Invest in people not businesses

American business magnate Warren Buffet is one of the world’s most successful investors. With a net worth of $82 billion, he is the third richest person in the world, as of July 2019.

The chairman of the conglomerate holding company Berkshire Hathaway since 1970 revealed the secret to success was to invest in people, rather than in companies. As a noted philanthropist, he has pledged to give away 99% of his fortune to worthy causes. Encouraging billionaires to donate half their wealth, he cofounded The Giving Pledge in 2009, with Microsoft founder Bill Gates.

Born in Omaha, Nebraska, in 1930, to Howard and Leila Buffett, after his father was elected to the United States Congress in 1942, the family moved to Washington DC.

Child entrepreneur
Buffett was always interested in becoming an entrepreneur. At the age of seven, he reportedly hired a book from the Omaha public library called One Thousand Ways to Make $1,000. He spent much of his youth running small businesses, as a side-line to school.

Among his early ventures he could be found selling chewing gum, bottles of Coca-Cola, golf balls and magazines door-to-door. He made extra cash working in his grandfather’s grocery store and he also delivered newspapers. In his senior yearbook, it said under his picture, “Likes maths, a future stockbroker.”

He submitted his first income tax return in 1944, at the age of 14! In 1945, he and a friend bought an old pinball machine for $25 and placed it in a local barbershop. With the profits, they bought more machines and installed them in three different Omaha barbers’ shops. Within 12 months, they had sold the business for $1,200.

Further education
Buffett wanted to skip college to go straight into business after finishing high school, but his father wouldn’t let him. After graduating from the University of Nebraska with a Bachelor of Science in Business Administration, he was rejected by Harvard Business School, so attended the Columbia Business School at Columbia University instead.

Earning his Master of Science in Economics in 1951, he completed his education at the New York Institute of Finance. He wanted to work on Wall Street, but his father dissuaded him, so he worked as a stockbroker in Omaha instead. He also worked as a teacher at night classes at the University of Nebraska Omaha, teaching investment principles to students who were mostly around twice his age.

After working for investor and economist, Benjamin Graham, for $12,000 a year, Buffet learned a lot from his tough boss.

Investments
By the time Graham retired and closed the business, Buffett had managed to amass life savings of more than $174,000 – enough to launch his own business, Buffett Partnership Ltd. He invested 35% of his assets in Sanborn Map Company, which published detailed maps of US cities.

Thanks to his business acumen, he earned a 50% return on investment in only two years. By 1960, following the same route, Buffett was operating seven partnerships. He became a millionaire in 1962 and merged the partnerships into one company.

He then invested in Berkshire Hathaway (a textiles firm at the time) and by 1965, he had launched a takeover of the company. By 1985, he had closed down the remaining mills, after deciding that entering the textiles industry had been the worst decision he had ever made.

He also invested in a Baltimore department store, Hochschild, Kohn and Co, acquired stock in the Washington Post Company and ABC, purchased a stake in Salomon Inc and invested in the PetroChina Company Limited.

He began buying stock from The Coca-Cola Company in 1988. Eventually, he bought up to 7% of the company for $1.02 billion – this was one of Berkshire Hathaway’s most lucrative investments, making Buffett a billionaire by May 1990.

Invest in people
Attributing his meteoric rise to success to employing the right people, despite his amazing aptitude for business, he realises he can’t run a company on his own, further acknowledging that his most important task is to invest in people.

In a letter to Berkshire Hathaway shareholders, he said, “The right players will make almost any team manager look good,” and added, “If each of us hires people who are bigger than we are, we shall become a company of giants.” By “bigger”, he means hiring skilled professionals and specialists, who have more experience in their roles than the people doing the hiring.

Explaining his approach by using the analogy of managing a golf team, he said, “If Jack Nicklaus or Arnold Palmer were willing to play for me, neither would get a lot of directives from me about how to swing.”

Treat staff well
He says his main job is to take on and retain “outstanding managers” who are able to run his various operations – oh, and “not getting in their way”. He believes a company doesn’t hire smart people so you can tell them what to do.

Having “able managers of high character” running the individual businesses in which they specialise means he “still has time for an afternoon nap” because he can leave them to it. He advises, it’s time to “look around you” if your business is struggling to achieve sustainable growth.

Now aged 89, Buffett still lives in Omaha and Berkshire Hathaway has significant shares in some of the world’s biggest brands. The company wholly owns Dairy Queen, Duracell, Fruit of the Loom, GEICO, Helzberg Diamonds, BNSF, Lubrizol, Flight Safety International, Net Jets and more.

It also owns 26.7% of the Kraft Heinz Company, 9.9% of Wells Fargo, 9.4% of The Coca-Cola Company, 7.6% of American Express, 6.8% of the Bank of America and 5.22% of Apple. Wow!

Why not aim high, like Warren Buffett? Effective communication and collaboration is the key to success and the great coworking environments at the Headspace Group can really help make things happen.

 

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