Why Warren Buffett’s Virtues Are More Important Than His Investment Advice
The old man shows us there may be more important things than getting rich.
It’s easier to stay out of trouble than get out of it, don’t follow trends, don’t play with derivatives, be greedy when others are fearful, be fearful when others are greedy—The Sage, The Oracle of Omaha, The Greatest Investor of Our Generation has imparted an impossibly large volume of investment wisdom upon us over the past few decades.
While there is an overspill of advice regarding the 92-year-old legend’s investment strategy, I believe the virtues that he lives by are pieces of his success that are often overlooked.
Let’s get something straight. Patience in an investing context, as in waiting patiently for your money to compound is not a virtue—it is a strategy. Similarly, confidence, as in being confident on your bets, is not a virtue—that too is a strategy. What I am referring to is moral virtue which has no bearing on technical investment strategy. The type of virtue I am referring to are behaviors that we typically hold in high moral regard, behaviors that exhibit one’s high moral standards.
In temporarily taking our eyes off the investment strategy that leads Berkshire Hathaway and looking at the virtues that lead Buffett’s life, it may help us not only become better people, but also better investors.
Frugality
By now, nearly everyone gets the gist. The 7th richest person in the world chooses to live in the same house he bought in 1958 for $31,500 ($250,000 in today’s dollars), drives the same old car to work, sends his children to public schools, and gets breakfast at McDonalds with change his wife gives him.
Buffett lovers love to repeat these facts to others, but how many of us choose to live the same way? How many Buffett-ites revere him, preach his song, but fail to live even closely to his modest lifestyle? How many reap the winnings of investment in Berkshire and turn around to spend it frivolously? I am guilty of all of these, many of us are. Omaha might as well be Baselworld 2, just try counting how many Pateks, APs, Vacherons, and Rolexes you see worn by folks buying <$10 souvenirs at the Oriental Trading booth on the trade floor—your head will spin.
Greater than learning how to grow your wealth through the man is a lesson in how to spend it modestly. Thoreau famously said: “That man is the richest whose pleasures are the cheapest.” Buffett is somehow both. He is literally monetarily rich, but also metaphorically rich in Thoreau’s sense. For us, it may be more important to learn how to spend intelligently, before learning how to earn intelligently. If you master the former, you may never need the latter.
When it comes to frugality, Buffett absolutely outclasses his peers. He wears an expensive Rolex “Presidential” watch which clocks in at about ten thousand dollars. But Jeff Bezos commissioned an outrageous $42M “10,000 Year Clock” to be built in a “hollowed-out mountain in Texas.”
The house he lives in is so unassuming and unremarkable you can stand in his driveway as many do every year in May. Good luck getting close to Bill Ackman’s $90M penthouse which spans the 75th and 76th floor on Manhattan’s Billionaire’s Row. Ackman, when asked about the purchase in an interview said, “I thought it would be fun.”
Frugality in of itself may not be a virtue. But, as we will see, if the saving is for the purpose of a greater good, it may become one. That said, if frugality was a sport, Buffett is standing at the top of the podium, above, even, many of us.
Humility
If you ask Buffett about how to get rich, he’ll likely answer with a pick from his inventory of Buffett-isms. He may just tell you to read Poor Charlie’s Almanack—it’s basically all in there. But if you were to ask him why he is rich, he would answer that it was because he had won what he calls the ovarian lottery.
In the 1997 shareholder’s meeting, Buffett described exactly what he and his partner Charlie Munger had won in this lottery:
“When we were born, the odds were over 30 to 1 to being born in the United States … just winning that portion of the lottery is an enormous plus … we wouldn’t be worth a damn in Afghanistan … We won it partially by being born male … We won it by being white, no tribute to us it just happened that way … And we won it by being wired in a certain way which we had nothing to do with.”
Buffett acknowledges not only winning in the sense of being born with certain talents, but also crucially that those talents happened to be extremely valuable in the era he lives in.
Consider an analogous example: What if 18-time NBA All-Star Kobe Bryant was born 100 years earlier? That is before the popularization of basketball and before multi-million dollar NBA paychecks. His natural talents of being born tall and agile with a flair for throwing leather balls into circular hoops likely wouldn’t get him very far. The world at that time just didn’t value that talent or skill.
With regard to his talent in valuing companies, he says:
“Is that the greatest talent in the world? No, it just happens to be something that pays off like crazy in this system.”
In another statement he elaborates further:
I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate’s distribution of long straws is wildly capricious.
The question asked in the meeting was whether he felt the capital gains tax at the time was fair. Buffett answered by discussing the ovarian lottery and (exhibiting his truly multidisciplinary learning) by bringing up political philosopher John Rawls’ famous “veil of ignorance” thought experiment. He concluded (after talking for 10 minutes) that the tax was “just about right.” He felt that the tax helped those who were losers of the same ovarian lottery he had won, through no merit of his own. Charlie answered that it should be slightly lower. It seemed the two finally had something they disagreed about.
There are many successful folk who merely verbalize their humility by being self-deprecating or hijack a false sense of humility to use as motivation. But Buffett lives this virtue. Taxes may only appear too high and unjust if one believes luck played no role in their wealth, if they believe their success was entirely their own doing. Believing this makes taxes feel like nothing more than theft.
Buffett understands that his success is not entirely his own doing, that there were many lotteries won big and small along the way. This understanding, I posit, is true humility: Paying your taxes, not out of reluctant obligation, but out of an understanding that it is the bare minimum you can do for those who weren’t, aren’t, and may never be as lucky as you. Here, again, Buffett outclasses nearly all of his peers, many of whom lead companies that, by the year, find increasingly creative loopholes to avoid paying the taxes they owe.
Just as it would be folly to claim one deserved to win the Powerball if one did, it’s possible one cannot claim they truly deserved every dollar of their wealth. Buffett recognizes the hidden forces behind his own success which in turn empowers him to visualize the hidden forces behind other people’s misfortune.
This sense of empathetic perception, I believe, is worth multiples more than any skill in picking stocks.
Justice
Buffett’s concept of the ovarian lottery is in reference to Rawls’ magnum opus: Theory of Justice. Kudos to him for his feminist naming approach by giving credit to women’s ovaries, as Rawls only called the same concept the “natural lottery.”
In his work, Rawls observes that this natural lottery determines the distribution of goods throughout society. It’s hardly difficult to see how profoundly unequal this natural distribution is. Just as you sit in your cushy air-conditioned apartment wasting company time reading a silly Medium article written by a silly 24-year-old, by day’s end nearly 8,500 children will die of undernutrition. This is still happening every single day in 2022—it’s happening as you read this sentence.
However, interestingly, Rawls argues that the unequal nature of this natural distribution is not an injustice.
“The natural distribution is neither just nor unjust; nor is it unjust that persons are born into society at some particular position. These are simply natural facts.”
But:
“What is just and unjust is the way that institutions deal with these facts.”
While it is a grave tragedy that thousands of children starve every single day, Rawls argues that the real injustice lies in our decision not to act. Most of us are bearers and perpetuators of this injustice on a near daily basis.
In 2006, Buffett signed onto The Giving Pledge, a commitment to give away at least 99% of his wealth to charity¹. In Rawls’ eyes, charity is not merely an act of kindness—rather it accords to the far higher virtue of justice.
Moral philosopher Peter Singer echos this sentiment in his landmark essay Famine, Affluence, and Morality in regard to giving to charity:
“To do so is not charitable, or generous. Nor is it the kind of act which philosophers and theologians have called “supererogatory” — an act which it would be good to do, but not wrong not to do. On the contrary, we ought to give the money away, and it is wrong not to do so.”
Buffett’s pledge is not about generosity, positive press, or to milk his ego. It is out of a sense of justice. We can tell this because, like in the 1997 shareholder’s meeting, he acknowledges the role of luck and chance in his statement. When a sense generosity is the rationale for giving, it is a supererogatory act: good to do, but not wrong not to do. It is merely a kind thing to do. When the acknowledgement of personal good fortune is the rationale for giving, it is out of righting a wrong, out of justice for those who were not bestowed with the same good fortune. It is more than kindness, it is a duty.
Few others who signed the pledge also acknowledge luck as a rationale for giving. Dr. Mo Ibrahim, Jonathan M. Nelson, the Zegar Family and the Sobrato family are among the few who do.
Buffett’s pledge teaches us not the benefit of generosity, but the virtue of justice. By defying the plague of intergenerational wealth² and committing nearly all of his wealth to helping those who, through no fault of their own, lost the same ovarian lottery—he is acting in no other way but justly.
The Missing Piece In Buffett’s Success
There is no doubt we will continue to learn how to invest from Buffett. The listicle mill will continue to churn piece after piece about his advice. But as he nears his 92nd year, it may be time to look more closely not at how, but why he’s chosen to the live the way he does.
Arguably, there is no investor with a comparable track record to his. And why is that? There was never a secret formula to his success. His story and strategy is subject to hundreds of books, articles, blogs, podcasts, videos, documentaries, and college lectures. It’s all out in the open. You can even ask him directly at the shareholder’s meeting.
The reason it is so hard to emulate his returns is that we are missing a crucial part of his investment strategy: the moral virtues he lives by. Exclusively copying his investment strategy in a technical sense is only part of the picture. To ignore the way he lives his life outside of investing would be to miss a vital part of the complete strategy.
The integrity with which he conducts business, the purposeful frugality of his lifestyle, the humility he walks with, and the justice he enforces³—you can master Graham’s dizzying Security Analysis, you can burn every annual letter into your skull, but without these virtues, you ain’t getting close. Many who are far brighter have tried.
The most important lesson Buffett may have taught us, lying in plain sight, is that enriching your moral life may be the best way to enrich your wallet.
Thank you for reading. My site is www.markchan.co. I answer all comments and questions.
FOOTNOTES: DISCLAIMERS AND CAVEATS
¹It needs to be said that there are a myriad of problems related to non-profits, foundations, and charities. Buffett’s own son Peter who runs a foundation bankrolled by his father has himself talked and written about the problematic non-profit industrial complex. There is also the issue of how private charities are in a way despot philanthropy, as in large sums of money are deployed undemocratically and solely to the wishes of wealthy individuals. They may choose to contribute to their already-loaded multi-billion-dollar-endowed tax-evading private alma mater for example. That is, where social services funded through taxation may have reached the people who need it most.
²Buffett did not really avoid the “plague of intergenerational wealth,” as 1% of his income is still an extraordinary amount. He gave each of his children $1B to start charitable foundations of their own. They are more than set for life. Of course, it’s easy for someone to say “I’ll only leave 1% of my wealth to my children” if that 1% is literal billions, but among his peers he is still well above them. You do not need to be a billionaire to act on this principle. It holds true even at a comparably minuscule scale.
³I realize I am contributing to somehow super popular act of praising disgustingly wealthy entrepreneurs and business owners in a time where they realistically could use a lot more criticism. Buffett is not an angel, but the point I am getting at is compared to his peers, he does extremely well. There are some who avoid taxes and don’t give a dime to charity—they’d rather be literally buried with their wealth. This in no way justifies everything bad about him I’m missing. But if we are to use our evenings and weekends to criticize, we should go after those doing the bare minimum or nothing at all. If all bajillionaires acted the way Buffett did, the broken system would still be in tact, but we would advance many steps in the right direction. For now, he’s a good example we can only hope more will follow.
