Top 5 Lessons Learned from Warren Buffett

“Everything I know about investing I learned from Warren Buffett.” – Bill Ackman, Pershing Square Capital Management

“While we have never met, you are one of the most influential people in my life.” – Jeff Totten, CEO of Evergreen Services Group, in a letter to Warren Buffett.

Warren Buffett stunned investors at Berkshire Hathaway’s annual shareholder meeting last weekend by announcing his retirement as CEO, a role he held for six decades. The initial shock felt by many of Buffett’s disciples, us here at Summitry included, quickly gave way to a deep gratitude for the priceless and timeless lessons he shared over decades on business, markets, and life.

As devoted students of Buffett, we’ve designed our investment philosophy and process around his principles. Powerful truths like “price is what you pay, value is what you get” and “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” are the bedrocks of our investment approach. Concepts such as margin of safety and economic moat are deeply embedded in our research process.

But these building blocks of our investment approach collapse under their weight if not reinforced with habitual and behavioral mental models that help us execute with discipline and stay the course even in the most turbulent times.

Lesson # 1: Keep it Simple S…..

“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”

“I don’t look to jump over seven-foot bars; I look around for one-foot bars that I can step over.” – Warren Buffett

Simplicity is underrated. Complex problems can appeal to many and solving them can impress others, but it doesn’t correlate with better outcomes. Life is complicated enough so we better look for simple ways to succeed. Complex ideas should end up in the “too hard pile”, and good judgment means this pile is growing.

Lesson # 2: Compounding Everywhere

“My life has been a product of compound interest.” – Warren Buffett

When reading this quote, many will think only of the financial meaning of the word “interest”, and for good reason. Compounding intrinsic value can produce lollapalooza outcomes. Berkshire Hathaway is a case in point: over Buffett’s tenure, the stock compounded at nearly 20% annually, resulting in a total gain of 5,502,284%.

But the phenomenon of compounding isn’t limited to finance. Equally impressive is the compounding of knowledge. Buffett’s life, once again, is a case in point. His late partner, Charlie Munger, described it best: “Warren has gotten to be one hell of a lot better investor over the period I’ve known him, so have I. So, the game is to keep learning. You gotta like the learning process.”

Innate curiosity, paired with an aptitude for learning, leads to the compounding of knowledge, improving pattern recognition and enabling better decision-making. For a firm like Summitry, learning becomes institutional, and knowledge compounds at both the team and firm level.

Lesson # 3: Independent Thinking

“While history teaches valuable lessons, the future demands fresh, independent thinking.”– Warren Buffett

We live in a noisy world. New information constantly pops on our screens and clutters our minds. It’s very easy to go down the rabbit hole of the day’s news and miss the important development amid a flood of insignificance. Having a process that allows for decluttering, and a space for independent thinking, is crucial for sound decision-making.

Lesson #4: Emotional Stability

“It is far better to have a person with emotional stability and the right temperament than someone with a high IQ or extraordinary technical skills.” – Warren Buffett

“Success in investing doesn’t correlate with IQ once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble.” – Warren Buffett

Work on your inner peace. Investors have different approaches to master their emotions, but there is no silver bullet. Process and discipline could help. Working in a team can sometimes balance extreme emotions. Ultimately, there is no one-size-fits-all solution.

Lesson #5: Know When to Quit

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” – Warren Buffett

Sometimes it makes sense to quit. Facing reality early and changing course is better than wasting efforts on a lost cause. Quitting is hard but it’s a valuable skill to have.

Final Thoughts

Success brings admiration. It’s rare when it also brings gratitude. Buffett has earned both. His extraordinary investment career made him the most celebrated investor to have ever lived. His unique ability to share worldly wisdom with clarity and humor over six decades made him the most celebrated teacher of our lifetime. For that we will be forever grateful.

Thank you, Warren Buffett!

Investing in securities involves the risk of loss. The securities identified and described do not represent all the securities purchased, sold, or recommended for clients’ accounts. The reader should not assume that an investment in the securities identified was or will be profitable.