6 steps to COPY BUFFETT in your life and investing – our Diwali Gift to aspiring investors.

 31^st October 2021

6 steps to COPY BUFFETT in your life and investing – our Diwali Gift to aspiring investors.

Dear Fellow Travelers,

Namaste! Our post on Diwali days was well received and appreciated by many readers. Thanks a ton for the same. Today I am sharing the most important issue bothering the normal investors. They all want to be successful like Buffett but somehow, they get drifted away from one shore of the market to the other shore. In the end, they feel they are not lucky to make money from the market. Today I am sharing 6 techniques to copy BUFFETT in your life. They are easy to follow. This is our Diwali Gift to each of my readers.

1.   Kill busy work:  -

 

I know 90% of the people can’t stay doing anything. They want some or the other activities all the time. While Buffett has eliminated almost all of the obligatory CEO tasks from his schedule:

·       He never talks to analysts (Buffett estimates that 20% of the typical public CEO’s time is spent talking to Wall Street).

·       He rarely talks to the media.

·       He doesn’t attend industry events.

·       He has lived outside of NYC in Omaha, Nebraska for almost his entire career.

·       He barely attends any internal meetings like typical CEOs.

What’s important to see here is that these decisions don’t happen by accident. They require continually resisting immense social pressure. Late Dhirubhai and Mukesh Ambani have mastered this art in India.

We get insight into how Buffett deals with distractions and obligations via his personal pilot, Michael Flint. Buffett had shared his 3-step strategy for prioritization with Flint.

1.   First, Buffett had Flint write down his top 25 goals on a piece of paper. Go ahead and write your goals down now.

2.   Next, he had him circle the top 5. So far, nothing special.

3.   Finally, he had Flint take the 20 goals he did NOT circle and put them on an “avoid-at-all-cost” list. This is the step where you see Buffett’s true prioritization genius. At this point, most people would simply just focus on the top 5 goals and intermittently work on the rest of the goals. Not Buffett though. He advised Flint: “No matter what, these things get no attention from you until you’ve succeeded with your top 5.”

If I look at my experiences with normal investors for the last 30 years – I see they want to invest some money in shares / some to mutual funds / some to FDs / some to cryptos and some to property and gold. They want something out of everything. They don’t want to miss anything. They look at the AVERAGE return from all the assets and they remain AVERAGE for the lifetime.

Buffett’s strategy gets at a few fundamental truths:

·       20% of our priorities typically account for 80% of our results. Buffett’s top five priorities are 20% of 25.

·       The real threats to our time are not obvious distractions that we know are wrong. Rather, the real threats are the wolves in sheep’s clothing — activities that make us feel like we’re working hard, but that does not ultimately move the needle. Buffett’s three-step approach inoculates against these! Read this point as many times as you can and compare your daily activities.

·       The real challenge to prioritization is saying, “No!” It’s easy to say yes. What’s hard is saying no to busy work that gives you the satisfaction of checking an item off your to-do list — meeting an obligation to someone else, doing an easy task, writing an email.

2.   Only work with people you could see yourself working with forever

“If you can’t see yourself working with someone for life, don’t work with them for a day.” — Naval Ravikant

Similar to how Buffett audits his work activities, he also audits who he works with.

After working with us for 7 years – recently one of our clients has renewed his relationship with us for a LIFETIME. He said let us agree to work for a lifetime. Normally, we suggest all our clients work with us for at least 3 years. But many get distracted. Those who have stayed with us for 3 years have seen super changes in their life, that is our observation.

Buffett ONLY works with CEOs he trusts, who get results, and who he can see himself working with for decades. As a result, he does incredibly little negotiation and due diligence before he buys a company, and doesn’t actively manage the CEOs of the business he owns. Furthermore, he enjoys the conversations he has with the CEOs.

(Notice the word “trust.” Buffett has passed upon purchasing many companies with attractive financials who had CEOs he did not trust.)

Buffett applies the same criteria to the people on his team — many of them have been with him for decades.

3.   Keep things super, super simple

Buffett has cut out nearly all of the bureaucracy in his company. Berkshire Hathaway’s portfolio companies have nearly 400,000 employees, but its actual headquarters has only two dozen employees or so.

Buffett’s personal life is also very simple. He lives in a modest home (the same one he has been in for 60 years), and he only spends $100,000 per year personally.

As we grow in our careers, in our companies, and in our lives, it’s extremely easy to add complexity. In fact, it’s the norm.

As you get more profit, it’s normal to hire more employees. As you earn more money, it’s normal to spend more and more.

What’s truly powerful and unique is to keep things simple. That takes effort and skill. And, that is part of Buffett’s genius.

It’s odd to say this, but one of the world’s richest people may also be one of its biggest minimalists when you compare the lifestyle, he could live to the one he chooses to live.

4.   Focus on a few, high-quality bets

Warren Buffett only makes a handful of investments per year.

I remember when I first heard this, I was shocked. “How can the wealthiest investor in human history do so few deals?”

William Thorndike gives us the answer to this question in his book, The Outsiders: -

“Buffett believes that exceptional returns come from concentrated portfolios, that excellent investment ideas are rare, and he has repeatedly told students that their investing results would improve if, at the beginning of their careers, they were handed a twenty-hole punch card representing the total number of investments they could make in their investing lifetimes. As he summarized in the 1993 annual report, ‘We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort level he must feel with its economic characteristics before buying into it.”

In short, Buffett says:

“The trick in investing is just to sit there and watch pitch after pitch goes by and wait for the one right in your sweet spot. If people are yelling, ‘Swing, you bum,’ ignore them.”

5.   Focus on long-term bets

Buffett holds his bets for extraordinarily long periods.

According to investor William Thorndike, author of The Outsiders: -

“He has held his current top five stock options for over twenty years on average. This compares with an average holding period of less than one year for the typical mutual fund. This translates into an exceptionally low level of investment activity, characterized by Buffett as “inactivity bordering on sloth.”

The above facts are very important for all those F&O traders who want to hold their position for a day or less than a day.

Buffett applies a similar concept to investing in the knowledge that will pay him back forever. In his Biography, his biographer comments on what she learned from him:

“The things you do learn and invest in should be knowledge that is cumulative so that the knowledge builds on itself. So instead of learning something that might become obsolete tomorrow, like some particular type of software [that no one even uses two years later], choose things that will make you smarter in 10 or 20 years. That lesson is something I use all the time now.”

Buffett is not alone in thinking long-term.

Sam Altman, the president of Y Combinator, the largest accelerator in the world, refers to long-term thinking as “one of the few arbitrage opportunities left in the market.” Jeff Bezos measures the success of new programs over seven-year time frames, while most other public companies think in three-month increments.

6.   Avoid the technology bandwagon

One would think that the greatest investor of all-time stays on top of the latest technologies in order to stay up-to-date.

Interestingly, the opposite is true. Here are a few examples:

·       He has never had a computer at his office

·       He has never used a stock ticker

·       He does not have a smartphone

These unique choices show a few things about Buffett:

·       Buffett is very clear on what data he needs to know in order to make an investment.

·       He is confident enough in his thinking that he is willing to NOT do what is popular.

·       He proactively removes potential distractions from his environment rather than depending on willpower.

I see many guys are having 2 smartphones with 4 sim cards in the same. I am always wondering how come they will speak to all the 4 people if at all they call him together on all his 4 numbers. Recently, I met a professor who was having 4 smartphones. Two in the back pockets of the pant and 2 in the front pockets. This is a simple example of complicating life.

What NEXT?

These are the 6 sure-shot ways to copy Buffett in your life and investments. This is our DIWALI gift to all our serious readers who wants to scale up new highs in their life in the coming year and more.

I wish you and your family a Happy and Healthy Diwali Festival.

Have a great time.

Follow me on Twitter @hiteshmparikh /  WhatsApp - +91-9869425399.

Live With Passion…Invest With Passion.

 

Hitesh Parikh