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Lesson #5: Stick To Your Guns

Article Overview: “You’re neither right nor wrong because other people agree with you,” says Buffett. “You’re right because your facts are right and your reasoning is right – and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else.”

Lesson #5: Stick To Your Guns

“You’re neither right nor wrong because other people agree with you,” says Buffett. “You’re right because your facts are right and your reasoning is right – and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else.”

Buffett made a career out of taking the road less traveled. He is a value investor; he spends his time looking for securities whose selling prices are lower than their intrinsic value. He ignores the stock market, instead choosing to look at the overall potential of a company in the long term. Claiming that his favourite holding period is “forever”, Buffett’s conservative nature has distinguished himself from other investors.

Despite having many followers, value investing still has its critics. Taking this road less traveled was not always easy for Buffett, who has endured years of ridicule for his investment decisions, particularly during the dot-come frenzy. In 1999, Berkshire Hathaway stock grossly under-performed and analysts claimed that Buffett’s career was over because he had missed the technology boom. Wall Street thought he had committed the biggest mistake of his career and wrote him off. That is, until the dot-com bust in the early 2000s when his strategy proved infallible. “It was a mass hallucination, by far the biggest in my lifetime,” recalls Buffett.

Time after time, Buffett has listened to his gut instinct – and his vast research – to inform his business decisions. When others were acting and reacting to the stock market, Buffett was standing strong in his decisions. “You do things when the opportunities come along,” he says. “If I get an idea next week, I'll do something. If not, I won't do a damn thing…Much success can be attributed to inactivity.” His strategy is admittedly simpler than most investors feel comfortable with, claiming, “I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.” But, there is genius in its simplicity.

Having the confidence to follow his instincts, however, never meant that Buffett was willing to make an irrational decision. Buffett knew when he was in trouble and he knew when to walk away from something. “One’s objective should be to get it right, get it quick, get it out, and get it over…your problem won’t improve with age,” he says. “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.”

Buffett knew that no matter what move he made he would always have his critics. He decided early on, however, that regardless of what anyone else said or did, he was not going to break his stride. “The important thing is to keep playing, to play against weak opponents and to play for big stakes,” he says.

By marching to his own beat, Buffett was able to surpass his competition. He wasn’t afraid to try something new. After all, “if past history was all there was to the game, the richest people would be librarians.”

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Article Tags: 2000s, berkshire hathaway, berkshire hathaway stock, buffett, business decisions, conservative nature, frenzy, gut instinct, holding period, inactivity, intrinsic value, investment decisions, mass hallucination, ridicule, simpli, stock market, technology boom, time after time, value investing, value investor



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