Last Saturday, Warren Buffett disclosed that he will retire at year-end as CEO of Berkshire Hathaway, the world鈥檚 largest conglomerate.
Buffett, 94, has tended to his flock of millions of everyday investors for six decades as CEO of Berkshire.
Buffett is perhaps best-known for his stupendous net worth of $168 billion (U.S.), a recent estimate.
That鈥檚 a shame, because the most important thing about Buffett is his gift to investors, managers and owners of freely dispensed business wisdom, usually delivered in folksy humour.
鈥淵ou should invest in a business that a fool can run, because someday a fool will,鈥 Buffett said.
With no disrespect intended to the managers of Apple, Coca-Cola, Kraft Heinz, American Express, Benjamin Moore, BNSF Railway and Dairy Queen聽鈥 among the more than 300 companies Berkshire owns or in which it is a major investor聽鈥 those are such durable enterprises that they can survive the occasional not-so-good CEO.
Buffett avoided enterprises that chased fads or suddenly got religion about sound management practices.
鈥淲henever I read about some company undertaking a cost-cutting program, I know it鈥檚 not a company that really knows what costs are all about,鈥 Buffett wrote in one of his must-read annual letters to Berkshire shareholders.
鈥淭he really good manager does not wake up in the morning and say, 鈥楾his is the day I鈥檓 going to cut costs,鈥 any more than he wakes up and decides to practice breathing.鈥
Buffett鈥檚 formula has been to pay top dollar for superb companies, keep their owner/managers in place, and leave them alone. He has befriended many of his CEOs.
鈥淚n an age of fraying loyalties, he turned investments into relationships, almost into a social contract,鈥 Buffett biographer Roger Lowenstein wrote in “Buffett: The Making of an American Capitalist” (1995).
Buffett has been wary of financial engineering, as pervasive today as it was in the 1970s when he laid the foundation of his fortune by acquiring undervalued companies during a prolonged bear market.
鈥淭he reaction of weak management to weak operations is often weak accounting,鈥 Buffett said. 鈥淭he Yanomamo Indians employ only three numbers: one, two, and more than two. Maybe their day will come.鈥
Buffett is renowned as a 鈥渂uy-and-hold鈥 investor.
鈥淚f you aren鈥檛 willing to own a stock for 10 years, don鈥檛 even think about owning it for 10 minutes,鈥 Buffett said.
By staying invested in a stock, Buffett hasn鈥檛 missed out on sudden upturns in its value, which are impossible to time. So, his preferred period for owning a stock is 鈥渇orever.鈥
Which requires homework in making investments with minimal downside risk and limitless growth potential, and that need little subsequent attention.
Buffett has counselled against overdiversification, in personal investing and corporate expansion. Many is the enterprise that has come to ruin with acquisitions outside its realm of expertise, or with too many acquisitions to keep track of.
鈥淚f you have a harem of 40 women, you never get to know any of them very well,鈥 Buffett said.
That, of course, argues against Buffett鈥檚 own conglomerate. Berkshire owns a sprawling network of U.S. natural gas pipelines and BNSF, America鈥檚 biggest railway, and it makes jewelry, bricks, house paint and Dilly Bars.
Conglomerates have been out of favour for decades. That鈥檚 among the reasons the Wall Street Journal鈥檚 front-page headline on Sunday was 鈥淲hy there will never be another Warren Buffett.鈥
Wall Street expects Buffett鈥檚 hand-picked successor, Greg Abel, a Berkshire vice-chairman, to focus on getting even better returns from Berkshire鈥檚 existing investments rather than scouting for new ones as Buffett has ceaselessly done.
Abel, 62, an Edmonton native and University of Alberta grad, has been running Berkshire鈥檚 non-insurance businesses for several years.
Buffett has sat out several investing manias. Two years prior to the dot-com bust in 2000, Buffett said, 鈥淚f I taught a class, on my final exam I would take an internet company and ask (my students), 鈥楬ow much is this company worth?鈥 Anyone who would answer, I would flunk.鈥
Buffett has called crypto 鈥渞at poison squared鈥 and labelled derivatives 鈥渨eapons of mass wealth destruction.鈥 He has taken modest flings with both, however.
A profitable regard of Buffett is to do as he advises, not what he actually does.
Buffett has repeatedly broken his own rules. For instance, in the late 2010s he bought banks and airlines, which he had warned investors against buying. He then dumped them in the early months of the pandemic when their value cratered, locking in his losses and breaking his buy-and-hold rule. Which was a multibillion-dollar mistake because the stocks recovered.
On the weekend, Buffett restated his intention to donate his entire fortune to charity.
And that is consistent with an observation Buffett made in a 1994 interview.
鈥淎ll these people who think that food stamps are debilitating and lead to a cycle of poverty, they鈥檙e the same ones who want to leave a ton of money to their kids.鈥
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