6 Lessons from the University of Berkshire Hathaway | Corey Wrenn & Daniel Pecaut
Overview
This book is a compilation of notes from more than 30 years of the famous Berkshire Hathaway Annual Shareholder Meetings. The meetings develop from small, one-hour meetings to weekend-long celebrations that could last half a day. The authors, Pecaut and Wrenn attended those meetings and carefully wrote down the notes from each one of them. It is not an exaggeration to claim this book is the condensation of thirty years of wisdom. The book not only includes lessons and advice given by Munger and Buffett but also humor and jokes during the meetings. I have been a big Munger and Buffett fan and this book satisfies my cravings for their wit and wisdom. Throughout the entire book, there are lessons on investing as well as on life in general, and some themes and topics that consistently re-appear, which I will be talking about in the later section. In brief, I would highly recommend anyone to give this book a read to understand how the greatest investors think and approach life.
Score: 4.75/5
Who should read it: Anyone who is interested in investing or just want to get into the minds of Buffett and Munger
Lessons
1. Be Greedy When Others Are Fearful. Be Fearful When Others Are Greedy.
This is one of the most famous quotes by Buffett and I see it as one of the most important rules when I invest in the stock market. Buffett wants to remind people to always be mindful of their investments and do not blindly follow other people’s trends. This lesson especially holds true in the stock market. When everyone is throwing money into a stock because it is “expected” to go up in value, as a self-aware investor, you should question the validity of this prediction and make your decisions independent from the hype. On the other hand, when stocks are dramatically falling and everyone is taking out their investment, it would be the perfect time to invest because the stocks are cheaper than ever and, with the same money, you are able to afford more shares that would eventually go up in value. I can confirm the truth in this statement through my personal experience. Right after the federal reserve lowered the interest rate to 0% and the stock market hit the circuit breaker four times, I put a lot of money into buying diverse stocks and was able to make up the amount I lost during the plunges fairly quickly.
2. Learn to Swim Against the Current
This is similar to the previous lesson. The best swimmers learn to swim not with the waves but against it so they can perform better when the waves are actually against them. In another word, everyone is a good investor when the market is going up, but only when the market goes down can we tell the differences between a great investor to a mediocre investor. It is nearly impossible to predict the trend with 100% certainty, therefore, it is best to learn to handle situations that are going against your will. This lesson is not only applicable to investing. In life, there are always trends that people are following and destroyed when the trends go astray, so it is crucial to learn to navigate independently in the volatile marketplace.
3. Invest In Yourself and Know Yourself
A common theme that Buffett and Munger repeatedly emphasize is the importance of lifelong learning. This ties back to the lesson of “swimming against the current.” When the market is going down, or prices are inflated, the best way is to increase your intrinsic value through education and therefore increase your earning power. Combined with the power of compound effect, your knowledge will grow exponentially to face the worst scenarios. One of the best ways to invest in yourself as through reading, as Buffett suggests. He claims he had read all the books on investing in the Omaha Public Library by the age of 10 and the compounded knowledge helped him to achieve the success he has today.
Even if you have become a very knowledgeable person like Buffett, you should always stay in your circle competence. In other words, you should know what areas are you good at and try to stay within them. Buffett jokingly says that the best way to beat Bobby Fisher is to not play chess with him. Even though Berkshire Hathaway eventually steps into technology stocks, something Buffett tries to avoid previously, it is still a piece of good advice to keep in mind.
4. The Simple Rule for Happy Life
Munger and Buffett are both more than 90 years, but they are still in the business and are still happily doing it. What is their key to happiness? The answer is surprisingly simple: work on what you love with people who you admire. It is so simple yet so powerful in giving a direction toward a fulfilling work-life. The “work on what you love” part is pretty self-explanatory since there is no better feeling than earning money by practicing your hobbies. The later part, the “with people you admire” part is a bit more difficult. By having someone who you truly appreciate and can learn from work alongside you, you not only have the ability to improve yourself but also can work toward a common goal, like Munger and Buffett partnering up to build one of the most successful investment companies in the history.
5. The Key to Successful Investing
Some may argue the most critical factor in investing is intelligence and some may argue the most important factor is the P/E ratio. While all of the factors are important, Munger and Buffett the most crucial factor is temperament. In fact, Buffett goes as far as claiming that if he were to teach business school, his class would only cover two topics: how to value a business, and how to think about market fluctuation. Buffett believes that market fluctuations are there to help you, not to influence you. It is critical to have your own independent thinking and make separate judgments from the trends when the market is volatile. The previous lesson “be greedy when others are fearful, be fearful when others are greedy” is about temperament in investing.
6. Important Qualities of The Best Leaders
When asked what are the most important traits of a good manager, Munger and Buffett list three: intelligence, energy, and integrity. Moreover, they believe the last trait, integrity, is more important than the previous two. Another interesting point that they bring up is lust. They believe lust could potentially destroy a company, especially when lust is common among the managerial level. People would be jealous of each other’s earning and try to raise theirs somehow, which make others jealous, and the negative feedback loop continues. Sooner than later, the companies would have extremely high paying managers but extremely low paying workers. Another aspect is the ability to think long term. Munger and Buffets believe that when business is pressured by investors, they would try to maximize their short term profit even though such action might sabotage the long term profit.
