This article is authored by renowed author William Green.
Over the last year, I’ve had the privilege of interviewing many superb investors for my new book, The Great Minds of Investing, to be published on May 29. It features profiles and portraits of 33 renowned investors, including Warren Buffett, Charlie Munger, Irving Kahn, Howard Marks, Bill Ackman, Marty Whitman, Donald Yacktman, Mohnish Pabrai, Jean-Marie Eveillard, Bill Miller, Thomas Russo, and Joel Greenblatt. My partner in this project was Michael O’Brien, one of America’s preeminent photographers, who has spent the last five years creating stunning portraits of the legendary investors in this book.
What struck me again and again as I worked on the book was the profound influence that Buffett has had on many of the most successful investors of our time. By now, his influence may even have eclipsed that of Ben Graham. Here, then, are some of the many insights about Buffett that the investors in this book shared with me during our interviews. The goal, of course, is not merely to celebrate Buffett, but to learn from his extraordinary success.
In 1982, Thomas Russo was studying law and business at Stanford when Buffett came to address his business class. Russo was dazzled by the speed of Buffett’s mind, his “quirky delivery,” and his “deeply thought” ideas. From that day on, he has followed in Buffett’s footsteps, building a formidable investment record on the foundation of three crucial ideas from that revelatory lecture.
Russo, who has owned Berkshire Hathaway for about 33 years, favors managements that invest heavily for future returns even when this expense hurts their earnings in the short term. He describes this trait as ‘the capacity to suffer.’
First, Buffett explained one of the great benefits of buy-and-hold investing: You don’t pay taxes on your gains until you sell. The lesson, says Russo, was that you should “stretch your time horizon” to take advantage of this tax deferral. Second, assume that you will have only 20 great investment ideas in your lifetime — and, if that’s likely to be the case, bet big on your best ideas. Third, said Buffett, “You can’t make a good deal with a bad person.” In other words, take care to partner with managements that truly seek to serve their shareholders’ best interests.
Russo, who has owned Berkshire Hathaway for about 33 years, favors managements that invest heavily for future returns even when this expense hurts their earnings in the short term. He describes this trait as “the capacity to suffer.” No CEO embodies this quality more than Buffett. For example, he invested aggressively to expand Berkshire’s GEICO unit, even though it produced a reported loss of about $250 to bring each new policyholder onboard. His willingness to stomach these short-term losses enabled GEICO to attract millions of new policyholders, boosting Berkshire’s intrinsic value by about $20 billion.
As Russo told me, we tend to benefit in life when we “sacrifice something today” to “gain something tomorrow.” Buffett, the most patient and rational of investors, understands this principle perfectly.
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