To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers. – Warren Buffett, 1989 shareholder letter
Every once in a while I have to remind myself of the basics – the things that I should have learned along the way.
Or, at least, have learned from other people.
The kind of thing you find, for example, in Warren Buffett’s shareholder letters.
The 1989 letter has a section titled Mistakes of the First Twenty-Five Years (A Condensed Version), which is where you will find the quote that starts this post.
Now, actually, the whole letter is filled with gems, so it’s probably worth just picking out a few.
..marrying for money – [is] a mistake under most circumstances, [but] insanity if one is already rich.
If you have a job or work with people you know then why would you throw everything away to start afresh somewhere else?
It’s one thing if nothing is working and you’re out of options – but in most cases, when you’ve invested time and effort building relationships you should think very carefully about changing them.
we simply don’t care what earnings we report quarterly, or even annually, just as long as the decisions leading to those earnings (or losses) were reached intelligently.
This sentence demolishes the target based approach that almost all managements use, especially those constantly watching what stock market analysts are going to say.
Targets are a waste of time.
Thinking hard and trying to make good decisions isn’t.
We only want to link up with people whom we like, admire, and trust.
The only sentence you need to remember when deciding to partner or work with someone.
what the wise do in the beginning, fools do in the end
Often a new product starts with a good idea.
Mortgage backed securities, for example, were all about giving investors exposure to the mortgage business – to the steady stream of payments and interest made by people buying houses.
That made sense and increased the number of mortgages available so more people could buy.
Until the market got out of control, issuing mortgages to anyone and selling the securities to everyone – ending with the financial crisis of 2008.
Another example – email in the beginning, spam now.
Promoters, after all, have throughout time exercised the same judgement and restraint in accepting money that alcoholics have exercised in accepting liquor.
When someone is selling something they will often say anything to get the deal through.
Very few deals are actually no-brainers.
Most of the time what’s happening is the time between the sale and the result is being stretched out – and people are hoping to make as much as possible in fees before the deals of the past catch up with them.
It’s a bit of a hollow existence, but I suppose the money they get fills the hole inside.
Time is the friend of the wonderful business, the enemy of the mediocre.
This is the antidote to the get-rich-quick potion, if you’re offered that sometime.
A business with good economics will grow over time, accumulating customers, profits and a reputation like a snowball getting larger as it rolls down a slope.
As will you, an individual, taking the time to be work on yourself and your career or business.
I suppose the example here is of the apprentice who learns a trade and then hones it over time – and in the end just cannot help becoming a master.
… in both business and investments it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult.
And this brings us round to the quote that starts and illustrates this post.
One kind of success is the big one – the gold medal at the Olympics or the stunning win at whatever television talent show there is on the box right now.
But, in those events there is only one winner – and they are feted because they cleared the biggest hurdles out there.
But everyone else is simply a loser.
And for those of us that will most likely end up in the latter category it’s much easier to the easy things.
The secret to success, it turns out, is not in overcoming obstacles but in getting rid of them altogether.
Take away the barriers and you will find it much easier to move forward.
And once you’re doing that, find a way to leverage the power of compounding.
That’s the final lesson of the letter – it all comes down to the rate of return you get from your investment.
Over time a series of small returns can deliver the same result as one big return – with the added bonus that the small return could very well carry on forever, while your one big chance may be the only one you have.
Perhaps the one thing to take away from this post is this sentence:
If your actions are sensible, you are certain to get good results