Why Management Matters (and Warren Buffett is so Awesome)
Finding new stocks to invest in isn’t easy, and it certainly isn’t fun. For an investor interested in fundamentals like myself, I like to take a look at a few things: recent performance, some numbers (P/E ratio, Earnings per share, the overall financial statements, etc.), recent news, and what other people are saying.
It’s very unscientific.
I also try to do some research on the person running said business. It’s usually pretty easy to read up on CEOs these days—where they’ve worked before and how they’ve performed in the past.
Since I’m a writer, I know that reading someone else’s writings gives unique insight into that person. But most of the CEOs out there don’t write their own stuff, they have a PR department handling that. And even when they do write something worth reading, it’s usually just a few paragraphs at the beginning of an annual report.
Which is usually all fluff.
And then you have Warren Buffett, who makes picking an investment easy by combining an impeccable track record, a quirky personality, and volumes of insightful, interesting letters.
The Buffett Shareholder Letters
Reading about financial topics is usually pretty dry, that’s why I enjoy Michael Lewis’ work so much: he manages to make just about any topic way more interesting than it deserves to be. The Big Short is a great recent example, but that’s just the way he rolls.
Warren Buffett’s shareholder letters are right up there in Michael Lewis territory. They are a fantastic commentary on the economy, the overall market, and Berkshire Hathaway itself. What other CEO has a whole book that compiles the wisdom from all these letters?
I was finishing up his 2010 letter today and it hit me how much easier it would be to find a company to invest in if all CEOs wrote with the clarity, sincerity, and honesty that pervades Buffett’s letters.
Nowhere else would you find a line like this mixed in with brilliant investment insight:
Our elephant gun has been reloaded, and my trigger finger is itchy.
Why It Matters Now More Than Ever
Being that Warren Buffett is in the business of investing in stocks and buying businesses, he has even further to go than your average CEO. There is a deep mistrust out there for all things “Financial,” especially stock pickers.
But Warren Buffett is above reproach. Why? He’s proven, over the years, that he will stick to his guns. He won’t take any shortcuts to make a little bit of extra money. How do we know?
We have 60+ years to look back on. His track record is spotless.
Management and Stock Picking
Usually I only give a little bit of weight to the management of a company when I consider a long-term investment. But after reading some of Buffett’s letter yesterday, I’m rethinking that mix. A business can have all kinds of problems, but if it has an honest, intelligent, capable CEO that has gotten results in the past, it can go a really long way.
At the time I bought my BRK.B B share (which cost over $3,000 before it split), it was a big commitment. I had very little money to spare.
Yet I found a way to bring the money together because of the man running the business. I’ve read enough of what he’s written and paid close attention to his track record to know this is a man I would gladly entrust my money to.
How often can you say that?
I own shares in Berkshire Hathaway B shares.
This story was included in the Carnival of Money