“Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.”
Often we tend to focus too much on intelligence and too little on integrity.
“I divide my officers into four classes as follows: The clever, the industrious, the lazy, and the stupid. Each officer always possesses two of these qualities.
Those who are clever and industrious I appoint to the General Staff. Use can under certain circumstances be made of those who are stupid and lazy. The man who is clever and lazy qualifies for the highest leadership posts. He has the requisite nerves and the mental clarity for difficult decisions. But whoever is stupid and industrious must be got rid of, for he is too dangerous.”
I think that the ones you really have to watch are the intelligent and industrious ones. They do not have time to stop wondering whether their goal is sensible or not, and being intelligent, they have means to push towards their goal much further that dumb and lazy will ever be able.
Since we have intelligent vs stupid, I assume industrious is given as the opposite of lazy. So industrious really means hard working.
And hard working can be dangerous. Very, very intelligent workaholics are responsible for some of the most expensive, least efficient work I've ever seen. No matter how hard and difficult, and too complicated things get, they just roll up their sleeves and go to work. And using their super intellect, they can manage it. But everyone else is hurt by that.
Maybe you thought industrious meant inventive, or creative. But if it means only hard working. Then intelligent and hard working is a dangerous combination. Often successful but at a huge cost. Smart and lazy is just as often successful, but without those huge costs.
When smart and lazy people get hard work, they think of ways to make it easier. That's where we get the old saying that civilization advances only thanks to lazy people. Hard working people just put up with however hard or inconvenient work is, lazy people get creative.
The earliest evidence located by QI appeared in January 1933 in a periodical called “Army, Navy & Air Force Gazette” based in Great Britain. A passage attributed to German General Kurt von Hammerstein-Equord described the placing of officers into four classes.
> Often we tend to focus too much on intelligence and
> too little on integrity.
Maybe because integrity is virtually impossible to objectively evaluate for a candidate who you've got limited time to assess (aside from some extreme examples perhaps).
I guess you could incorporate some sort of formal integrity test [1] into your hiring process but my impression is that those are costly and controversial. Do companies actually use them...?
I agree. Integrity is mostly subjective. It has two meanings:
1. the quality of being honest and having strong moral principles; moral uprightness.
2. the state of being whole and undivided.
Some Christians would consider anti-homosexuality as a model for integrity, and how can you argue with that? They in fact are protecting integrity of the Bible. They are at least honest about it.
When something is said, it needs to be put in correct context. What Warren Buffet was talking about probably meant loyalty, honesty, and consistent work ethnics and attitude. It should be clearly stated in order to have an objective measurement.
Also, I find organizations putting Integrity as part of their motto distasteful. I don't know, maybe I just don't like any kind of mottos... These things are just generically "good." They don't mean shit when just posted on the wall. Might as well post something like "I'm good, trust me" or "don't be evil." I agree with Mitt Romney - corporations are people. He's right. Both are inherently hypocritical. Never trust what a person says, even yourself, do good and be good. Actions speak the loudest. Seriously, fuck those posters! I hate them so much.
> Also, I find organizations putting Integrity as part of their motto distasteful.
If you have to officially state that integrity is something you value, you've already lost.
That it was part of a scummy company's "values statement," after they "merged" with my great company -- selling the deal to shareholders on a CEO deal they broke after a year, and then breaking up the company and selling it all off to float their drowning businesses -- was PARTICULARLY galling.
Maybe because integrity is virtually impossible to objectively evaluate for a candidate who you've got limited time to assess
I would go even further and say that it's virtually impossible even over long periods. As a graduate from a military academy, the ostensible goal was graduating "Leaders of Character" with significant emphasis on "integrity" and "honor." I walked away feeling that the program did not perfect the evaluation.
At the end of the day it's usually a "gut feel" as much as I hate that, and the perceptiveness of the screener really is pivotal.
An integrity test works exactly once. The first time you do it, you can see the candidate for who he is. Pass, fail... you've measured it.
Then, other candidates learn of the integrity test. And they try to game it. They see you drop the wallet, they make a point of giving it back regardless of what their true impulse might be.
So I don't think you can effectively test for these things, unless you hire so rarely that word never really spreads.
Haha! Got a chuckle out of the Wikipedia link. Sounds like pseudo-science (obviously if he answers that his favorite color is red and not blue he's some sort of shifty klepto!).
Integrity also means different things to Warren Buffett than it does to other people. Ripping someone's face off in a business transaction is a desirable quality to Warren Buffett.
> Integrity also means different things to Warren Buffett than it does to other people. Ripping someone's face off in a business transaction is a desirable quality to Warren Buffett.
From the letter Gates was talking about (I've read about the 1st 1/3 of it over the last couple of days), integrity would be why Warren Buffett bought a major insurance company on a handshake and a one page document. No pre-audit. No financial review.
He trusted the guy.
In my opinion, that's the same definition of integrity everyone else uses.
I don't know which deal you are talking about but Buffett likes quick handshake deals because the longer he waits the more likely the seller will retain professional M&A advice and therefore raise the price (to something more fair for the seller).
One of Buffett's proudest achievements was paying pennies on the dollar for an immigrant's bootstrapped furniture business.
"Let’s look first at insurance, Berkshire’s core operation. That industry has been the engine that has
propelled our expansion since 1967, when we acquired National Indemnity and its sister company, National Fire &
Marine, for $8.6 million. Though that purchase had monumental consequences for Berkshire, its execution was
simplicity itself.
Jack Ringwalt, a friend of mine who was the controlling shareholder of the two companies, came to my
office saying he would like to sell. Fifteen minutes later, we had a deal. Neither of Jack’s companies had ever had an
audit by a public accounting firm, and I didn’t ask for one. My reasoning: (1) Jack was honest and (2) He was also a
bit quirky and likely to walk away if the deal became at all complicated.
On pages 128-129, we reproduce the 11⁄2-page purchase agreement we used to finalize the transaction.
That contract was homemade: Neither side used a lawyer. Per page, this has to be Berkshire’s best deal: National
Indemnity today has GAAP (generally accepted accounting principles) net worth of $111 billion, which exceeds that
of any other insurer in the world."
Correct me if I'm wrong, but I believe this is specially prevalent on the financial industry. It seems it's specially easy to make a lot of money in the short term if you're exceptionally intelligent and don't have integrity in the way -- but then you better hit home run quickly, because this potential doesn't last long. That's a hallmark of Buffet's success: he's in it for the long run.
Sorry for the dumb question but I think I'm having a hard time parsing and understanding the quote.
> And if you don’t have the first (integrity), the other two (intelligence and energy) will kill you. If you hire somebody without integrity, you really want them to be dumb and lazy.
I don't follow the logic there at all. I think I get the gist of what he is saying (without integrity, intelligence and energy don't matter) but I don't follow how he got to that conclusion. Can you explain it better?
If they don't have integrity, then intelligence + energy makes them "dangerous" to your company. Think Frank Underwood (House of Cards).. Smart and ambitious, but out to improve his own position, often at the expense of the nation (or company).
If you hire someone who doesn't have integrity, you want them to be dumb and lazy to limit the damage they can cause.
He's saying that if someone does not have integrity, it's better that's they're dumb and lazy so they accomplish less and cause less harm. The tacit assumption is that someone without integrity will make decisions and act on them in ways that hurt the company.
I had a chance to read the letter - I went from knowing nothing about Buffet's businesses to knowing a lot, very quickly.
On a related note, I wonder if Gates writing this praise was spurred by something, maybe some news about Buffet. He's relatively senior (84), and has been running Berkshire for a while now. Maybe he's getting ready to give up the reins.
In fact, he builds up the reputation his menagerie of "very experienced people" to run individual businesses - I wonder how they will run things when Warren isn't around.
While you're at it, take some time to check out the Berkshire Hathaway site. It directly services what they're trying to do: provide investor information.
Criticism was valid. Why not name a successor? Otherwise, the Economists's review read more like a critique of Yellow Submarine - I mean, "Worst Beatles Album" is hardly a critique, and more of a "worst of a great bunch" type of commentary.
"Both the board and I believe we now have the right person to succeed me as CEO – a successor ready to
assume the job the day after I die or step down."
He talks about this in lots of annual letters. Reality is that Berkshire Hathaway undoubtedly has (a perception of) the lowest bus factor of any holdings group and Buffett has been priming for years to prevent shares tanking when he inevitably passes or steps down.
Aside: to those who enjoyed reading this annual letter I recommend "The Essays of Warren Buffett" — an arranged collection of edited previous letters by theme (though they are all also freely available online).
It's all part of the image. Buffett gets a lot of miles out of the (authentic or not) aww-shucks folksy homespun image. He can do questionable deals and still not have his integrity questioned, and it's disarming in negotiations, in which, Buffett is as tough as they come.
The image is a funny mix of contrasts. In the 90s, he was living in a $100-200k home that he had lived in for 30 years and drove a pickup truck or crown Vic. But he travelled in a Gulfstream!
A website is a marketing operation. BerkshireHathaway don't really need to do marketing because they're more a legal entity for the purpose of organising things efficiently rather than a business with customers.
There has been a lot of talk recently of him naming Charlie Munger as his successor. I think this letter may have been a handoff of sorts. He may make a specific announcement at the meeting.
I find the letter interesting as it contrasts so much with our Tech industry: mature vs. unproven, simple vs. complicated, sound past vs. promising future. It looks like the complete opposite of VC-influenced business.
Even so, I believe there are takeaways. If we're building startups which have yet to prove themselves, it's still good to have a long term view. I'm reminded of Jack Ma's vision to build a company that lasts 99 years. Ma and Buffet's risks are—I believe—not pure chance but well calculated. Something I'm trying to improve personally but have a ways to go…
Yes, that was indeed remarkable. The inflated valuations, the self-interest of those that get paid in those transactions - I'd love to read something as insightful as Mr. Buffet has written, only for the tech sector.
I don't think they are really comparable to be honest.
If you look at the type of businesses that BH is involved in, it's things that have "book value," in other words tangible assets that can be inventoried, depreciate and are generally considered durable goods. In "Tech" the vast majority of assets are human capital and it is too "fickle" and companies are very easily supplanted for the really long game that BH plays. Notice that the "tech" they do own is in things like IBM
Coke for example is a big asset of BH that falls slightly outside of this because the bulk of what makes Coke - Coke, is it's brand. But even still, it has a massive industrial capacity.
Couldn't disagree more. His story about building BH into a powerhouse centered on valuing things at more than just book value (notably, See's Candy, which was one of their first amazing investments, which he was worried about purchasing for 3x net tangible assets, but notes that it was only because he wasn't yet skilled at Munger's investment style yet). One of the durable advantages he looks for is having a strong brand (as he says in the letter) -- Coke is not that atypical an investment for them.
His reason for being largely extremely-low-tech is that he loves to understand the businesses he invests in really, really well (probably his big competitive advantage), and by his own admission, he doesn't really understand tech.
That part of the letter seemed unsatisfying to me. Perhaps there's some obvious backstory here I'm unaware of (I never heard of See's Candy), but all the letter says is that it had a big and strong competitive advantage, without bothering to say what that was. Brand? I can't think of many other candidates beyond some amazing one-off deal with suppliers. It's a chocolate company. How powerful can the brand really be? Why would their brand be so much better than any others? And why was it so obvious to Buffet that this brand was great yet apparently not to anyone else? This story doesn't really tell us anything about his investment strategy at all.
IIRC, in Snowball, he mentions that the competitive advantage of See's was that it was exceptionally good quality candy. I don't remember the details very well, but it's likely that he realized that with better management and marketing, they could produce far more value than the company cost at the time.
Right, the brand thing is what I was trying to drive at as being a large factor for purchase decision outside of just tangible assets.
I have also read enough of Buffet to know that while he likes to put on the hat of gump old man, he has teams of people who he relies on for things he "doesn't understand" - and we aren't talking about nuclear technology here.
Especially if you are making brand decisions, Google is a huge brand, and the technology is not esoteric nor is the business model. The difference though is that google is software based, while IBM is hardware. At least that's how it has historically been...I am curious what BH will do as IBM moves toward more software/people centered.
> Yet Mr Buffett’s 50th letter to shareholders is an exception, serving to muddy rather than clarify, for two reasons. First, because it does not tackle the questions that hang over Berkshire’s conglomerate model and its durability. Second, because of the uncharacteristic coyness with which Mr Buffett and his partner Charlie Munger —respectively aged 84 and 91—discuss how or when they will give up their jobs.
Did this guy not read the letter? Because Buffet spends a lot of time discussing why he thinks his version of the conglomerate model works and will continue to work. You can disagree with his reasoning, but he certainly discusses it at length.
Second, there have been rumors that Buffet is planning to give up control soon, perhaps at this shareholder meeting. Even if he doesn't, it's not clear that it matters. The final word on asset allocation may come from him, but he is surrounded by people essentially making those decisions for him (as he basically implies in the letter).
Nowhere in this do I get the impression this guy actually read the FULL letter, beyond the first part (meaning beyond page 21).
Best quote ever:
"With the acquisition of Van Tuyl, Berkshire now owns 9.5 companies that would be listed on the Fortune 500 were they independent (Heinz is the 0.5). That leaves 490.5 fish in the sea. Our lines are out."
Sounds like the successor will be a woman from the wording in the letter. First Mr. Buffett uses "he" and mentions that it's used to avoid strange sentences. When describing the ideal candidate it switches to "he or she" and and when talking about the fact that they have a successor it switches to "person".
That pattern is pretty typical when talking about women but not wanting to give it away from my experience of playing online warewolf (so yeah huge grain of salt needed there)
Edit: Seems like Mr. Munger mentions Mr. Jain and Mr. Abel, both male. I think I'll stick with my initial impression though :P
If it's the 30 year old secretary coordinating the shareholder meeting I'm quitting school and pulling a Chris McCandless.
Otherwise, going to be a very interesting thing to watch. Mr. Buffet's love of economic moats will likely help ensure that his successor will not be in a Ballmer-type position.
Genuinely curious, wouldn't EBIT be a more conservative number than EBITDA? Not that it matters in tech, as I assume Depreciation and Amortization are almost nil.
> Your venue for shopping will be the 194,300-square-foot hall that adjoins the meeting and in which
products from dozens of Berkshire subsidiaries will be for sale. If you don’t get your shopping done on Friday, slip
out while Charlie’s talking on Saturday and binge on our bargains.
I love how Warren and Charlie, at 84 and 91 respectively, still bust each other's chops like they're college roommates.
The Acquisition Criteria on page 23 are quite interesting; definitely a stark contrast from most tech acquisitions. I especially like #5: "Simple businesses (if there’s lots of technology, we won’t understand it)" and #2 "..future projections are of no interest to us.."
I remember everyone saying how his "old thinking" was failing in the late 90s. Having grown up and studied the market as a kid in the 80s, I was on Warren's side (plus he was someone I admired). Sure enough, that "internet economy" blew up.
I eagerly await this next implosion too. Billions for companies that make nothing. Well rich people need to park their money somewhere. Just don't be the last one holding cards.
> The fact is that I gave Berkshire stock to the sellers of Dexter rather than cash, and the shares I used for the purchase are now worth about $5.7 billion. As a financial disaster, this one deserves a spot in the Guinness Book of World Records.
Two comments about this:
I don't think Buffet has a good concept of financial disaster. Having or not having an extra $5b today makes little difference to the scale of Buffet's and Berkshire Hathaway's wealth. This does not materially change their financial position and cannot have precipitated a crisis situation.
Does Buffet really begrudge the fact that somebody else got rich from a fair deal? Perhaps I am misreading this section, but I feel very disappointed by this.
He amassed that fortune by paying that kind of attention to detail. He keeps his fortune by paying that kind of attention to detail. All great artists are great because of attention at the macro- and micro-level. To you it's disappointment. To him it's a missed opportunity because of a bad decision. An opportunity missed, whether great or little, is something the man clearly dislikes.
Buffett's letters are always full of praise for his CEOs, and self depricating notes about his own errors. He's aiming for a folksy humility, reminding us that "the world's greatest investor" still makes genuine mistakes. The book of world records line is meant to be funny.
> I don't think Buffet has a good concept of financial disaster.
Buffett's brain is not wired like the rest of us. He even takes losing small amount of money very seriously.
I remember watching Buffett's old video where he bought a gas station when he was young and then sold it as loss of $2000. He said that that the opportunity cost on that money is about $6 billion in early 2000.
I do not think that's the point. For Buffet, allocating capital perfectly is extremely important.
I used to read his letters regularly until a couple of years ago. In all his letters, he always seemed to blame himself for investing in bad companies. But at the same time, gave all the credit for profits to his CEOs. IMHO, there is a lot of humility in that.
“Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.”
Often we tend to focus too much on intelligence and too little on integrity.
http://www.goodreads.com/quotes/76790-somebody-once-said-tha...