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Was Buffett really a one-in-a-billion genius?
The question is asked again and again: just what is it about Warren Buffett that makes him such a great investor? The question is asked so frequently, in the end one gets rather blasé about it. But, having recently read Malcolm Gladwell's book Outliers, I now see Buffett's success in a rather different light.
People talk about Buffett being a genius. They talk about him being one in a billion, never to be repeated: someone who was far, far out of reach from mere mortals like you and me. I beg to differ.
I draw a parallel with another Western icon, and an example from Gladwell's book -- the Beatles. What was the secret of their success? Was it genius that made them one in a billion? Well, let's dig a little deeper.
A hard day's night
In 1960 the Beatles were just a struggling high-school rock band, like thousands of others, when they were invited to play in Hamburg. Now, Hamburg was not a place of high-class music venues, but rather had an assortment of seedy nightclubs, sitting alongside strip clubs and other dubious nightspots.
In Hamburg, bands did not just play a one- or two-hour set. Instead, the club's formula was a non-stop show, where bands would play for hour after hour. And so Lennon, McCartney and co would play, and play, and play.
Often, they would play for eight hours at a time -- for seven nights a week. As they did so, they learnt new chords, new riffs, new vocal techniques and composed song after song. By the end of their time in the German city, they had played an incredible 270 nights.
Hamburg was the making of the Beatles. By the time they hit the big time, they had been playing together for 10,000 hours.
The 10,000-hour rule
After the interminable hours of hard graft, the Beatles were now the best band in the world. Were they one- in-a-billion geniuses, never to be repeated? No, the secret of their success was actually far more mundane and prosaic: it was simple, honest hard work.
Gladwell calls it the 10,000 hour rule: in every case of outperformance he has looked at, whether it be the Beatles, Bill Gates, even Mozart, these people were not born geniuses, as you might have assumed. Instead, they worked for around 10,000 hours to build up their experience and expertise. Such dedication and perseverance, and not some god-given ability, was what made them world-beaters.
Chewing gum, newspapers and Ben Graham
Now look at Buffett. The first few cents he ever earned were from selling packs of chewing gum at the age of six. By the age of 13 he was delivering newspapers, and he applied himself to it with a characteristic ferocious energy.
When he read Ben Graham's The Intelligent Investor in 1949, his relentless drive to make money found a new outlet. He threw himself into investing with incredible energy.
In those early years, Buffett learnt an immense amount about what made a good investor. He put in thousands of hours of hard work, investing his own money and that of his friends and family and creating his early partnerships.
Through this constant hard work he learnt about the fundamentals of value investing, the importance of a margin of safety, the qualities that make a great company -- indeed, all the skills that make a brilliant investor.
There is no such thing as innate genius
By the time he was investing through Berkshire Hathaway (NYSE: BRK-B.US), his hard graft had made him a world expert in investing, and it showed. His expertise enabled him to make some brilliant investment decisions, buying into companies such as the Washington Post (NYSE: WPO.US), Coca-Cola (NYSE: KO.US) and IBM (NYSE: IBM.US).
Of course, hard work was not the only ingredient: you also need a strong intellect, and a psychological make-up that fits with investing. But my point is that Buffett did not have some innate genius he was born with that made him a great investor.
No, Buffett had to work at it. Just like you; just like me; just like anyone who wants to make it in the world today. The secret of success in investing is the same as the secret of success in anything in life: sheer, honest-to-god hard work.
If you want another example of the fruits of hard work, just consider what's been happening on our doorstep these past few weeks: namely, the success of the British Olympic team. I'll leave the last word to a certain Mo Farah, after his stunning 5000m Olympic victory: "It's been a long journey, and grafting, and grafting. But, you know, anything is possible. So, for the people out there: it's just hard work and grafting".
Buffett's hard work has made him the greatest investor in the world. He has invested in many of the world's best companies.
Edited Article by Prabhat Sakya
http://www.fool.co.uk/news/investing/2012/08/20/buffett-the-beatles-and-success-in-investing.aspx
The question is asked again and again: just what is it about Warren Buffett that makes him such a great investor? The question is asked so frequently, in the end one gets rather blasé about it. But, having recently read Malcolm Gladwell's book Outliers, I now see Buffett's success in a rather different light.
People talk about Buffett being a genius. They talk about him being one in a billion, never to be repeated: someone who was far, far out of reach from mere mortals like you and me. I beg to differ.
I draw a parallel with another Western icon, and an example from Gladwell's book -- the Beatles. What was the secret of their success? Was it genius that made them one in a billion? Well, let's dig a little deeper.
A hard day's night
In 1960 the Beatles were just a struggling high-school rock band, like thousands of others, when they were invited to play in Hamburg. Now, Hamburg was not a place of high-class music venues, but rather had an assortment of seedy nightclubs, sitting alongside strip clubs and other dubious nightspots.
In Hamburg, bands did not just play a one- or two-hour set. Instead, the club's formula was a non-stop show, where bands would play for hour after hour. And so Lennon, McCartney and co would play, and play, and play.
Often, they would play for eight hours at a time -- for seven nights a week. As they did so, they learnt new chords, new riffs, new vocal techniques and composed song after song. By the end of their time in the German city, they had played an incredible 270 nights.
Hamburg was the making of the Beatles. By the time they hit the big time, they had been playing together for 10,000 hours.
The 10,000-hour rule
After the interminable hours of hard graft, the Beatles were now the best band in the world. Were they one- in-a-billion geniuses, never to be repeated? No, the secret of their success was actually far more mundane and prosaic: it was simple, honest hard work.
Gladwell calls it the 10,000 hour rule: in every case of outperformance he has looked at, whether it be the Beatles, Bill Gates, even Mozart, these people were not born geniuses, as you might have assumed. Instead, they worked for around 10,000 hours to build up their experience and expertise. Such dedication and perseverance, and not some god-given ability, was what made them world-beaters.
Chewing gum, newspapers and Ben Graham
Now look at Buffett. The first few cents he ever earned were from selling packs of chewing gum at the age of six. By the age of 13 he was delivering newspapers, and he applied himself to it with a characteristic ferocious energy.
When he read Ben Graham's The Intelligent Investor in 1949, his relentless drive to make money found a new outlet. He threw himself into investing with incredible energy.
In those early years, Buffett learnt an immense amount about what made a good investor. He put in thousands of hours of hard work, investing his own money and that of his friends and family and creating his early partnerships.
Through this constant hard work he learnt about the fundamentals of value investing, the importance of a margin of safety, the qualities that make a great company -- indeed, all the skills that make a brilliant investor.
There is no such thing as innate genius
By the time he was investing through Berkshire Hathaway (NYSE: BRK-B.US), his hard graft had made him a world expert in investing, and it showed. His expertise enabled him to make some brilliant investment decisions, buying into companies such as the Washington Post (NYSE: WPO.US), Coca-Cola (NYSE: KO.US) and IBM (NYSE: IBM.US).
Of course, hard work was not the only ingredient: you also need a strong intellect, and a psychological make-up that fits with investing. But my point is that Buffett did not have some innate genius he was born with that made him a great investor.
No, Buffett had to work at it. Just like you; just like me; just like anyone who wants to make it in the world today. The secret of success in investing is the same as the secret of success in anything in life: sheer, honest-to-god hard work.
If you want another example of the fruits of hard work, just consider what's been happening on our doorstep these past few weeks: namely, the success of the British Olympic team. I'll leave the last word to a certain Mo Farah, after his stunning 5000m Olympic victory: "It's been a long journey, and grafting, and grafting. But, you know, anything is possible. So, for the people out there: it's just hard work and grafting".
Buffett's hard work has made him the greatest investor in the world. He has invested in many of the world's best companies.
Edited Article by Prabhat Sakya
http://www.fool.co.uk/news/investing/2012/08/20/buffett-the-beatles-and-success-in-investing.aspx
