Warren Buffet, who heads Berkshire Hathaway Inc, a holding company that is currently ranked the third most admirable company in the world, is one of the richest men in the world.
There are innumerable business lessons one can learn from his career as an investor, but five lessons that define his success are his beliefs in being strategic, staying humble, choosing potential, following a personal passion, and staying calm.
Business Lesson #1: Strategic Approach
Buffett’s management style is the quintessence of strategic thinking.
A classic illustration of this strategy is the way he has grown Berkshire Hathaway, originally a textile company, into a conglomerate holding company with a diverse number of top notch subsidiary companies.
These companies represent a wide industrial range. Included under the umbrella of Berkshire Hathaway are retail, service, manufacturing, finance, transportation, energy, utility, and insurance companies.
What all these companies have in common is excellent management and profitability. This is a clue behind Buffett’s enormous wealth: he knows how to strategically pick companies that dominate their industries.
Here are some of his rules when it comes to buying stock in highly successful companies:
- Focus on the value of business, rather than the stock price and risks.
- Look for companies that have developed a reputable brand.
- Choose companies that have a simple business model.
- The best picks are those companies that have a lot of debt, but also a good ROI. This ratio of low price (due to its debt), but high value (due to its performance) is a way to find potential winners.
- Forget what analysts are saying about the company or market trends and pay attention to the best time to buy (when the market is down).
- Researching competing companies is the best way to assess the potential of the industry.
- Don’t buy winners, but companies that have the potential to win if reorganized and restructured with a strong leader.
Business Lesson #2: Humble Approach
Ultimately, business is all about the ability to create meaningful relationships both within the business and between the business and competitors and the buying public.
One way to create good relationship skills is to have a personality that wins friends. Since Buffett is humble, he is approachable, builds goodwill, and creates an impact wherever he goes and whatever he does.
This modesty, however, is not an act; it’s a genuine philosophy. Buffett lives in the modest home he bought in 1958, drives his own car, and wears regular suits. (Although he says, jokingly, he buys expensive suits, but they just look cheap on him.)
Business Lesson #3: Professional Approach
Investing, like betting, is not always about picking up sure winners. The real money comes not from choosing the most successful business or selecting the fastest horse, it comes from picking the most undervalued company or the least appreciated race horse. By recognizing the value of a rough diamond, it is possible to bring out its full luster and getting a huge return on investment.
Since he does not buy the best companies, he does not have to pay full price. Instead, he finds companies that could be successful if they could overcome the constraints that keep them from excelling. Thus, Buffett’s professional eye focuses on identifying constraints and deciding what resources are necessary to turns things around.
Business Lesson #4: Passionate Approach
Buffett believes that you should do what you love. It’s critical to success. He believes that settling for less than your passion will cause you to do less work than is necessary to make a real difference.
Business Lesson #5: Calm Approach
Investing can become an emotional roller-coaster, with investors swayed by fear or greed. For this reason, Buffett has created a preternatural calm when approaching everything. This can be clearly seen when interviewed. He embraces the paradox of feeling passionate, yet staying detached and aware.
This emotional calmness has helped him make consistently good decisions.
Which of Warren Buffet’s business lessons do you feel is the most important for your success?
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