Amusing Tidbits From Warren Buffet and The Berkshire Hathaway Annual Report

March 17, 2008

My co-founder, Brian Halligan and I are both big fans of Warren Buffet.  Brian wrote an article a while ago on the HubSpot blog "Quick Insights From Buffet and Gates".  If you're a Buffet fan, like me, I encourage you to check it out.

Recently, I had the opportunity to skim through the Berkshire Hathaway annual report.  There were some really amusing insights in there.  It's refreshing to see even a large, successful organization like Berkshire Hathaway maintaining their personality and pragmatism in a document that for most companies is boring and watered-down.  My comments are in italics.

1.  We are also happy to buy small portions of great businesses by way of stock-market purchases.  It's better to have a part interest in the Hope Diamond than to own all of a rhinestone.

Venture Capitalists:  Are you really sure you just absolutely MUST have X% of that hot new startup?  Instead of making the investment you want, why compromise and do something else just because you can get 5-10% more?

2.  You only learn who has been swimming naked when the tide goes out.  [With relationship to the recent housing bubble]

This made me think about pre-revenue startups.  When the tide of funding goes out, and you have to start charging money, will your business model be naked?

3.  For the entire 42 years, our compounded annual gain in per-share investments was 27.1%. 

Ok, this isn't really amusing, but it is impressive.

4.  A truly great business must have an enduring "moat" that protects excellent returns on invested capital.  The dynamics of capitalism guarantee that competitors will repeatedly assault any business "castle" that is earning high returns.

I like to think of this in terms of a wall rather than a moat.  Build the wall that protects your companies interest from those that would take your profits away.  My simple strategy for building a great wall:  Step 1: Start building wall.  Step 2:  Add at least one brick to the wall every day.

5.  If a business requires a superstar to produce great results, the business itself cannot be deemed great.

Though depressing for us startup entrepreneurs that think the entire company revolves around us, it's true.  A truly great business should likely be able to run without the need for it's current founders or management team.  Of course, in the early days, this is rarely true.

6.  The worst sort of business is one that grows rapidly, requires significant capital to engender growth, and then earns little or no money.  Think airlines. 

This is very interesting.  A lot of the big infrastructure plays end up here.  You have to continually invest more and more money to get lower and lower returns.

7.  If his I.Q. was any lower, you would have to water him twice a day.

I felt guilty when I smiled at this, but had to admit it was funny.

8. From Bobby Bare's country song:  "I've never gone to bed with an ugly woman, but I've sure woke up with a few."

9.  Mitt Romney's wife Ann, when asked:  "When we were young, did you ever in your wildest dreams think I might be president?".  Response: "Honey, you weren't in my wildest dreams."

10.  Charlie and I are not big fans of resumes.  Instead, we focus on brains, passion and integrity.

If you had to solve for any three attributes when hiring, these are about as good as any.  Intelligence, Passion and Integrity.

11.  I've reluctantly discarded the notion of my continuing to manage the portfolio after my death -- abandoning my hope to give new meaning to the term "thinking outside the box."

12.  Queen from Alice in Wonderland:  "Why, sometimes I've believed as many as six impossible things before breakfast."

Hope you enjoyed these.  If you have other great Warren Buffet related quotes or insights, please leave a comment  We're always looking for more.

Written by Dharmesh Shah

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