Sunday, January 04, 2009

Success Book Reviews: Warren Buffett and "The Snowball" Part 4

This is part 4 of a “review” of Alice Schroeder’s remarkable biography of Warren Buffett, "The Snowball”. Actually, this topic would be better categorized as part of my Success Secrets category, since, as always on this blog, my goal is to elucidate the behaviors, disciplines, and mental models of the most successful people. Part 1 is here. Part 2 is here. Part 3 is here.

Buffett Secret # 6 Stick to your Circle of Competence
Both Buffett and his lifelong sidekick Charlie Munger, arguably two of the smartest business minds on the planet, repeatedly emphasize that they themselves stick to a very few investment methodologies, and only work in business lines that they understand thoroughly. Why would they admit this? Why would this be important to know? Well, firstly, it takes years and years to be good at something. Trying to be good at too many things is not going to work. Also, simple business concepts are going to be easier to apply broadly than complex business concepts. Market dominance, for instance, is a simple concept . Semantic Web Asynchronous Transfer, for instance, is a complex concept.

Secondly, there are very few “snowballs” out there (meaning, a line of activity that produces consistent results that work repeatedly, and can be compounded over decades). So, if there is a line of activity that seems to be accumulating results in a “snowball-like” manner, you use that information to stick to what you are doing, rather than succumb to boredom or “master of the universe syndrome” and veer off-course.

Thirdly, you are less likely to be deceived by others if you thoroughly understand the potential of a business. This understanding is easier to achieve if you limit your "circle of competence" to simple businesses, as Buffett does. You can then bid intelligently, and to recognize when something is “too good to be true”. You thus avoid many meltdowns and bad decisions.

Buffett Secret #7: Focus for a lifetime
Buffett’s own description of his main “secret”, according to Alice Schroeder, is “focus”. You must be drawn obsessively to you main pursuit. It must dominate your waking and sleeping hours. "Love", "passion", "obsession", while not exactly the right words, convey the feeling of someone in the grip of a “virtuous circle”, where what he does not only works, but brings out the best in a person, and also captivates him, urging him higher and higher. Often, this type of success allows others to follow along and succeed as well. Berkshire stock turned many an average investor into a multi-multi-millionaire.

But focus is different from “focus for a lifetime” just as a driveway is different from an interstate. Do you have something that will keep you fascinated for decades? That makes you “skip to work” in the morning, as Buffet claims he does? Does the concept drive you to gain knowledge, hone skills, ask questions, and be the type of person that other people love to do business with? Will it make you the kind of person people feel safe with? Confident with? Sure of? Focus for a lifetime can, indeed, be the crowning achievement of a lifetime.

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1 comment:

Glenn Twiddle said...

Great blog. This is the kind of thing I aspire to with my new blog. Thanks so much and I'll be sure to give you a link in a post very soon. Great work and helpful content. My thanks,

Glenn Twiddle
Success Book Reports