Editor’s note: This article was first published in July 2022. Berkshire Hathaway’s share price of $436,000, which topped $500,000 earlier that year, is from July 2022.
For most companies, Berkshire Hathaway’s philosophy on hiring staff and running a business is hard to grasp. There’s no doubt that Warren Buffett and his partner Charlie Munger are not ordinary people. They are as unusual as they are brilliant. That has turned Berkshire Hathaway into the company with the most expensive shares in history. As I write these lines, each Berkshire share costs $436,000, and earlier this year it even passed half a million dollars per share.
At Berkshire, age and experience are valued above youth; integrity is valued above other skills; the human side is valued above financial gain. And make no mistake: it’s precisely this “intrinsic human” value that gives the company such a high financial value.
Part of Berkshire Hathaway’s philosophy as a company
It’s hard to teach a young dog an old dog’s tricks
For Warren Buffett and his partner Charlie Munger, the business sense that comes with age and experience is practically impossible to pass on to younger workers. That’s why Buffett and Munger don’t force anyone to retire at any age at Berkshire Hathaway. In their view, at 65 the journey has barely begun.
They believe age and experience can be far more important virtues than youth and enthusiasm when it comes to making money. However many master’s degrees and stock market courses you have at 30, and however clever you think you are for having ridden a couple of bull markets, you should never make the mistake of even hinting that you’re smarter than an 80-year-old investor with 50 years of experience behind him.
In fact, in recent years we’ve seen Warren Buffett’s investment judgement called into question because he stayed out of investments that were highly profitable for the new generation of young investors. Now that the tide has gone out, we can see that in the end the one who was right is, once again, the old, out-of-date investor. Investing hasn’t changed in the last 100 years. The game is the same. The only things that change are the hairstyles and the clothes of the new dreamers who think they know more than those who really do.
See also: Talent: are you born with it or is it made?
The problem today is that many young people are learning from, and taking advice from, people who should still be learning rather than teaching.
What a company should look for when hiring
When a company hires, it looks at three qualities: integrity, intelligence and energy. The most important is integrity, because without it the other two are worthless.
If you hire someone intelligent and energetic, that person can make a lot of money, but if they lack integrity they can’t be trusted, and you run the risk of some of your company’s money ending up in their own pockets.
Here’s Warren Buffett:
“If for some reason you have to hire someone who isn’t honest, at least make sure they’re lazy and as dumb as they come. That way they can’t do you much harm.”
Warren Buffett’s management style gives his managers complete operating autonomy. They’re free to run the business as if they owned it. And he couldn’t do it this way if they weren’t people of total integrity.
One day running a business beats 100 years of theory
As they say in military slang: “It’s all a game until someone fires back.” This applies to business as much as to investing. All those thousands of hours of reading and classes on how to analyse companies, when to invest in them and so on are put to the test on the day you have to face a drop of more than 50% in the share price of the companies in your portfolio.
When you have to face your own emotions, the real game of investing begins. As the saying goes, “a smooth sea never made a skilled sailor.”
Exactly the same happens in business. Dealing with manufacturing problems and holding on to customers is the line that separates the academic world from the real world of finance and business.
Warren Buffett gives the example of Rose Blumkin, the head of the Furniture Mart in Omaha, who led the business from victory to victory, decade after decade, on the front line. That’s why Buffett didn’t hesitate to hand her a surprise cheque for $40 million.
Again, Warren Buffett’s battle cry is “age and experience before youth and enthusiasm.” It’s this mantra that keeps Berkshire Hathaway’s cash register ringing year after year.
Manage rather than improvise: that’s the secret in business
A good manager doesn’t wake up one morning with a storm overhead announcing that costs must be cut and staff laid off. That executive has been resting on his laurels.
The time to get vaccinated isn’t the day after you catch the disease. One mistake made in business is taking decisions after the fact, that is, improvising as the situation demands. It’s true that the ability to improvise is an important skill in an executive, but if that executive is always improvising, it’s only because he’s a terrible manager.
Both Buffett and Munger believe that problems should be fixed before they appear. If costs have to be cut, it’s probably because they should never have been allowed to rise in the first place. Had things been done right from the start, there would be more powder kept dry to face a possible attack from the competition.
Here’s Warren Buffett:
“What would you think of a company whose management doesn’t keep a tight grip on its costs? Do you think that company will make a lot of money for its shareholders?”
Love for what you do
Love is important in Warren Buffett’s personal life, and he has built it into his business and financial philosophy.
Buffett only hires people who love what they do, because if they love their work they’ll treat others well, and those other people will love their work too. That’s why Buffett never demotes his managers for their mistakes. In fact, he encourages them not to get stuck on their mistakes.
Buffett has always said in public that he’s proud of all his senior management, and that helps him attract the best and brightest managers in the business world.
Here’s Warren Buffett:
“Love and respect are earned with love and respect. And that is the first step on the road to success in life.”
The importance of challenges at work
If you always got a hole in one, you wouldn’t take long to give up golf.
Warren Buffett knows that work has to be a constant challenge so that employees don’t lose interest. It boosts their self-esteem, encourages creativity and attracts the most valuable professionals. A job without challenges is boring and usually ends up attracting the least motivated workers. He also knows that for challenges to exist there has to be risk, because in business a challenge means making decisions, and decisions mean that a person may make mistakes.
That’s why part of Berkshire Hathaway’s philosophy is to create a working environment where employees are allowed to make the mistakes that come with success.
And these points sum up Berkshire Hathaway’s philosophy and that of its managers perfectly.
Some of the quotes in this article are taken from the book The Tao of Warren Buffett by Mary Buffett.
See also: Warren Buffett: the two things you need to succeed
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Featured image: Lectrician2, CC BY-SA 4.0, via Wikimedia Commons.
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