Warren Buffet’s snowball: one of my “Aha moment”
Sometimes, when I read a book, it strikes me. And it gives me the will to stop everything else I am doing to write about it. About how it resonates with me.
Warren Buffet is one of the businessmen I like the most. He is a big inspiration for how to conduct my life. Reading his biography, “The Snowball” was for me what entrepreneurs could call an “aha” moment.
Elon Musk’s biography was one of this moment. Here is an other.
Warren’s passion
Young Warren Buffet was obsessed about stocks and making money.
He did not love money in itself. Making money was a way to be independent. It was a consequence of him being right and understanding things faster than everyone else.
In 1940, Warren was 10 years old. One day he went to the library and found a book that hooked him. The book was titled “a thousand ways to make $1000”. And he discovered a concept that would have a deep impact on its future businesses and life: “the compounding effect”. The idea is easy to understand.
Let’s assume you start with $1000 in your pocket and you grow it by 10% every year:
- In 5 years you will have $1600
- In 10 years almost $2600
- In 25 years it becomes more than $10 800
It was the perfect picture that showed him how a small amount of money could be turned into a fortune over time. Like a snowball that grows when you roll it across the lawn.
Making money was a game for Warren. He was always looking for new opportunities. When he was 16, he accumulated through little jobs more than $2000. That would be worth around $53 000 in today’s money. He kept track of everything and was always trying to improve himself and the technique he used.
Buffet used to read almost everything he found about the stock market. He had only little interest in formal education and schooling. He was an avid learner and considered himself self-taught. An autodidact.
He got rejected from Harvard. This failure turned out to be an other pivotal episode of his life. He joined Columbia where one of the teachers was Benjamin Graham. Maybe the best investor of the world at that time.
Warren read, again and again, Graham’s famous book “The Intelligent Investor”. This book mesmerized him: “It was almost like he found a God” said one of Warren’s housemate. Buffet immediately embraced the Value Investment Theory that was explained in the book and used it throughout his entire life. He almost knew it by heart.
Value Investment Theory is about buying stocks that appear to be underpriced. Added to some lessons he drew when he was younger, it helped him to shape the main rules he used to run his business, at Berkshire Hathaway:
- Warren consciously stays in what he calls his “circle of competences”. The things he knows. This is why he didn’t invest in any Tech Companies. Because he doesn’t deeply understand them.
- Warren only relies on his “inner scorecard”. He does not let public opinions interfere his opinions and judgments. “Would you prefer to be considered the best lover in the world and know privately that you’re the worst — or would you prefer to know privately that you’re the best lover in the world, but be considered the worst?”
- Spend less than you earn. This one seems particularly trivial. But it is the foundation of the compounding effect. Warren saw every dollar as 10 dollars someday. As an other snowflake for his snowball.
- And the most important one: Focus on the long run. Everything worthwhile takes time. The compounding effect does only work if you are patient and ready to turn down short-term benefits.
Keep the flame burning
Today, Warren Buffet is 86 years old. His net worth is 78.7 billion $ (2nd wealthiest person in the United States) and the investing firm he created, Berkshire Hathaway, is the 4th company that has the most value in the world.
“Balzac said that behind every great fortune there is a crime. That’s not true at Berkshire Hathaway”. — Warren Buffet
I know it may sound creepy and deja vu. But passion is what can drive us to accomplish such incredible things.
Why ? Because passion is what keeps us running when it’s hard. Passion is what keeps the flame burning. Passion is what keeps us committed to our long term goals even if everything is against you.
Of course, most of us don’t have this high level of commitment or love for a particular subject.
But we have to look actively for it. Follow our heart. Don’t try to shut our passions down because of some pragmatism or false realism.
Like Buffet did during his youth when he always tried to earn some money, the key is to create habits. To divide our long-term ambition into short-term habits and improvement. In the end, all the small snowflakes and everyday progress turn into a big snowball.
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