Dr Ajibola Awolowo
I have had the pleasant privilege of speaking with various investing professionals from various walks of life. Some have affluent backgrounds while others have humble beginnings. One common thread they all have however, is that they have had to learn the trade. There is not even one of them who was born with special analytic or investing skills. They all had to work under seasoned investors, read or learn on the job. We all need teachers or mentors.
I have also trod a similar path. My first teacher was a simple and small book that I saw in a friend’s house. Out of boredom, I picked it up and read the first few pages. I was hooked. That book changed my life. It lit a fire in my heart that still burns till today. Its title? The Richest Man in Babylon by George Clason.
That book not only opened by eyes to the world of finance but it also led me down the rabbit hole of passionate reading. A few books down the line, I noticed a recurring name in many books about investing. That name was Warren Buffett. I started wondering about who this gentleman was. What was so special about him that almost everyone seemed to hold him in such high regard? This was how my relationship with my most revered teacher was born.
Today, my library is filled with books about Warren Buffett. Each book shows a different side of him and I learn something new with each piece of information I encounter about him. These books were however written by others. The few chances I get to read or hear directly from him are through his annual letters/ Sessions at the Berkshire Hathaway annual meetings and the very few interviews that he grants. His latest interview was with Charlie Rose, a talk show host/ television journalist, and I would like to share a few lessons I learnt from one of my latest encounters with my teacher.
Warren Buffett is a 91-year-old man that loves what he does and loves the people he does it with. He is famously quoted as saying he tap dances to work every day. He can afford to do this because he is passionate about investing and he is one of the richest men in the world. This thought makes me question if I really love what I am doing. The journey to financial independence is travelled along a long, lonely road. The only way to keep your sanity and enjoy the journey is to be truly passionate about what you do. It is not too late to change course if you are constantly second guessing yourself.
Warren Buffett started investing at age 11. This sounds unbelievable but that’s not even the most amazing thing about him. Before he bought 1 single unit of shares in any company, he had read every book about investing in both his father’s library and in the Omaha public library. This begs the question, how much of reading about investing do you and I engage in? Don’t give the excuse of having a day job because you certainly can create time for anything that is important to you. For people who have children, we need to introduce them to saving and investing. It is not too early or late to do this.
The most mind-boggling thought about Warren investing at age 11 was what he bought. He bought 3 units of City Services Limited at $114.75 each. This was in 1942 and I’m quite sure that there would have been other companies selling at a lower price. Warren realised earlier than most of us ever do, that the number of units you buy matters only a little. The quality of the company you buy matters most.
Rather than chase penny stocks that, most times, end up being worthless, buy quality companies even if all you can afford is a few units only. Penny stocks may be more volatile and may give you the impression that you can make a quick buck in them. You should not forget, however, that on the other side of returns is risk.
In the interview, Warren acknowledged that he makes a lot of mistakes. Nobody is immune to making a mess of things occasionally. We need to forgive ourselves, learn from them and move on with a determination to not repeat that mistake. Doing the same thing multiple times while expecting a different outcome each time is a reckless way to live. Identify behaviours or patterns that prevent prompt achievements of goals and change them.
There are few investors who have the longevity and results of Warren Buffett so it is wise to follow his advice. In the interview, he opines that the key to investing success is not having a high IQ but having the right orientation. This orientation sees investing as buying companies and not stocks. It also focuses on the long term rather than weeks or months. He stated that the only question he asks himself when buying any company is, will this company be bigger and better in 10 to 20 years? As simple as this question sounds, it is quite difficult to sincerely answer. No one has a crystal ball that predicts the future. However, if we look carefully at each company, the signs of longevity, sustainable profitability and future growth will always be there. If we only buy companies that we can answer in the affirmative for, our long-term returns will dramatically improve.
Hearing Buffett talk about how he spoke to a group of 12 doctors who were in their 30’s about investing with him at the inception of his investing partnership made me think about taking risk. 11 of them chose to invest $10,000 each while 1 declined this opportunity. Investing $10,000 in 1957 with an untested and unproven money manager was a huge risk.
The 11 doctors that invested went on to become multi-millionaires. It is best to take financial risks while one is young. This way, if things go awry, you can always fall back on your source of primary income. I wouldn’t expect a retiree to invest in startups or ventures that haven’t proven their worth over time. Always make sure you have a safety net.
“There are decades when nothing happens and there are weeks when decades happen” – Vladimir Lenin. In talking about this quote, Warren emphasized that, as investors, we must have the inertia to do nothing most of the time but have the momentum to move quickly and decisively when opportunities crop up. Sitting in cash or cash equivalents for periods of time when opportunities are scarce may look like a bad strategy in the short term but this liquidity becomes priceless when the clouds gather.
Life throws many curve balls our way. Every seemingly negative situation feels like a setback at the time but in retrospect, we get to see the positive outcomes from them. Buffett said, “Asides sickness and death, everything I thought was bad at the time has turned out well”. We must learn not to fret about the daily ups or downs we experience. Keep your gaze fixed on the big picture.
Probably the greatest lesson from Warren is for us to build our reputation and integrity just as we build our wealth. There are certain opportunities that will only come our way if we have an impeccable character and integrity. A perfect example of this was during the 2008 financial crises when Warren, through Berkshire Hathaway, bailed out Goldman Sachs and made a huge profit from the deal in the long run. His reputation, integrity and financial backing of the failing bank was able to restore public confidence in the bank.
In all, Warren Buffet is a flawed and imperfect human. This, however, should not prevent us from learning from him. As an eager student, I look forward to the many more positive lessons will still be disseminated from him. I press on daily hoping that one day, the student will surpass his teacher.
To watch the interview, you can follow this link https://charlierose.com/videos/31221 or search for “Charlie Rose interview with Warren Buffett” on your browser.
Dr. Ajibola Awolowo can be reached via this email: valuenigeriawithajibola@yahoo.com.
Thanks so very much. Highly insightful. Really it’s never too late to start.