Warren Buffett: Don’t Invest Just Because You Like the CEO
From Steve Jobs to Mark Zuckerberg, we tend to respect innovative leaders. Their entrepreneurial habits, instincts, and advice may be great, but when it comes to investing, Warren Buffett reminds us that slow and tenacity wins the race.
In his latest letter to shareholders, Buffett reminds readers of Jimmy Ling, the pioneering CEO who had tremendous success in the 60s with his company LTV. Buffett explains:
Ling’s strategy, which he called “project redeployment,” consisted of buying a large company and then spinning off its various divisions. In LTV’s 1966 annual report, he explained the magic that would follow: “Most importantly, acquisitions must meet the formula 2 plus 2 equals 5 (or 6) test.” The press, the public, and Wall Street loved that kind of talk.
However, Ling’s strategy ultimately failed, as did several of his companies, and he was fired from his position as CEO of LTV. The lesson Buffett says we should all learn from this?
More Jimmy Lings will show up. They will look and sound authoritative. The press will catch their every word. Bankers will fight for their business. What they say has “worked” lately. Their early adopters will feel very smart. Our suggestion: Whatever their line, never forget that 2 + 2 will always equal 4. And when someone tells you how old-fashioned this math is – zip up your wallet, take a vacation and come back in a few years to buy stock at low prices.
Of course, there is a bit of irony here that we kind of honor Warren Buffett in this way . But if you separate the person from their message, the message is still believable. Investments should be simple, stable and about the big picture, not daily valuation or quick returns. Basically, don’t put all your eggs in one basket because you like the head of that basket. For more information follow the links below.
Warren Buffett’s 50th Letter to Berkshire Hathaway Shareholders | Berkshire Hathaway via Business Insider