I recently re-watched Warren Buffett’s HBO documentary “Becoming Warren Buffett”. I initially watched it, I think, in 2018. I really liked it but I didn’t set any next actions. It only inspired me ephemerally.
On a recent weekend, I decided to re-watch the film. This time around, I had already started to do things in line with the documentary itself – partially read The Intelligent Investor and completed 3 other books on finance and entrepreneurship (The Richest Man in Babylon, Africa’s Business Revolution, and Digital Kenya) and bought a couple of equity shares of Kenyan companies.
Below are my takeaways from the film. I highly recommend any aspiring investor or businessman to watch it.
Warren Buffett is an American investor, businessman, and philanthropist. He is one of the most accomplished investors in the world. Forbes estimates his net worth at 100.4 USD billion. He has pledged to give away all of his fortune to charities and foundations (including Bill and Melinda Gates Foundation and the ones started by his children).
As a child, he enjoyed playing with numbers. As a teenager, he told his sister that he would be a millionaire by the age of 35. He filed his first tax returns at 13.
He hated manual labor (and generally being employed). He hated a short stint at his uncle’s grocery store and another short stint owning a petrol station where he was forced to wash cars. He loved working for Graham. He actually doubled his money every year during the stint at Graham-Newman Partnership.
He attended Columbia Business School for a graduate degree in economics. After he heard that lecturers Benjamin Graham (the author of the cult classic The Intelligent Investor) and David Dodd were teaching at the institution, he wrote a personal letter to the former requesting to join. Hilariously, in the letter, he wrote that he thought the lecturer was dead. Initially, he had been rejected at Harvard.
Originally, Buffett was a technical investor. He learnt a lot from horse tracks where he learnt handicapping. The Intelligent Investor was a pivotal book for him.
Buffett is against Bitcoin and cryptocurrency allegedly because of two main reasons, namely;
- They don’t meet all the characteristics of money – they are not a durable means of exchange.
- They don’t have intrinsic value. Buffett primarily invests in companies that are undervalued, produces stable and recurring cash flow, and has the ability of increasing in book value.
His two rules of investing are:
- Never lose money
- Never forget rule number 1
Buffett lives frugally. He lives in a house he bought in 1958 for $31,500, drives his own car, and paid most of the people who worked for him by sharing his stock ideas. He even worked out of a bedroom for over 10 years.
He attributes a huge part of his success to attending a Dale Carnegie’s course on public speaking that he attended early in his career. This reminds me of a challenge I took back in 2018 to help raise funds to expand ROCK KENYA’s computer laboratory. ROCK KENYA is a Kibera-based high school and college scholarship program.
He believes that you don’t have to be critically smart to make a lot of money. You just need to be patient.
He strives to be a better teacher. This reminds me of my friend and great teacher, Jay Larson.
At a dinner organized by Bill Gates Sr., when asked “what factor do you feel has been the most important in getting to where you’ve gotten in life?” he replied (and Bill Gates Jr. confirmed) with “focus”. They both said the word at the same time.
It takes 20 years to build a reputation and 5 minutes to ruin it.
Warren Buffett
Compound interest. In the documentary film, Buffett explains how powerful compound interest is. He references Albert Einstein who said that compound interest might be the eighth wonder of the world. He goes ahead to give a classic example of a king and one of his subjects who had invented a game he couldn’t stop playing, chess. He loved the game so much that he wanted to reward the inventor. He asked the inventor to name a price. Below is the reply of the inventor:
I am a simple man of few wants. My needs are a few. Give me one grain of rice for the first square of the chessboard, two for the second, four for the third and so on. Each square having double the number of rice than the previous square. This is all I ask of thee, O generous king.
The king was offended by his subject’s answer. He was expecting a completely different answer. He therefore demanded the inventor to be given his grains of rice soonest and leave his eyesight. The minister who was supposed to give out the grains of rice took days trying to collect the grains and hand them over to the chess inventor. The king was frustrated by the delays and demanded the minister to appear before him immediately. When asked why he is taking so much time, the minister replied:
We are still trying to procure the required number of rice to fill the chessboard, Your majesty. We have sent people far and wide to collect rice but we still haven’t been able to procure enough rice.
The required amount of rice was a record high and had never been produced in the history of mankind.
That’s the story of the power of compound interest.
Circle of competence. Lastly, in the documentary, he explains one of his investing principles, circle of competence. Take an example of a base baller keenly equipped with his bat. Instead of trying to hit as many balls coming his way, he only focuses on the ones he knows for sure he is going to hit (his circle of competence).
Through experience and study, we build knowledge in some areas of life more than others; some people are great at designing houses while others at cooking. Trying to do everything often leads to failure. Trying to do things you are experienced in or have studied extensively about often leads to success.
Buffett only focuses on areas he is competent in and ignores the rest. That’s why his holding company, Berkshire Hathaway, never invests in companies it doesn’t understand. Due to this, some of the hottest tech companies that have been here less than a decade ago don’t make it to his radar because he doesn’t fully understand them.
Thanks to Insight for proofreading and tying up this piece.
