Warren Buffett’s Obsession with Simplicity
When you love what you do, making money is easy
Doris Eleanor Buffett (not named for FDR’s wife as her father campaigned against him) was sitting in the kitchen at a table covered in a plastic floral print. She glanced across at Bertie and wondered aloud, “What does chasing rabbits mean anyway?” Bertie stopped over that morning as she did every morning for a piping hot mug of coffee. She didn’t have a clue. Not that Doris expected an answer. When your life savings are in the hands of a friendly local stockbroker who cracks jokes and happens to be your brother, the news that he’s quitting is a shock. Her mood turned foul after reading his letter, so she picked it up and reread it.
“It begins with ‘Dear Investors,’” she sniffed. “By that, he means his sisters,” she continued:
“I will never be able to put sustained effort if I don’t stop chasing an investment rabbit all my life. The only way to slow down is to stop.” — Warren
The Buffetts had bad days, as all families did. Growing up, Doris’s mother was ‘nervous,’ or what we now call depression, and the children had to avoid her wrath. Then her family moved to Washington, D.C., from Omaha. Her brother barely got over that. Maybe it made Warreny, as she called him, a bit different.
The Buffetts were well off by most people’s standards but didn’t like to show it. Neither did neighbors. Up and down the block, it was the same. Every three years or so, you buy a used car of the same brand. By doing so, you only had to pay a mechanic to change the tires. The main focus was on the job, savings, family, and religion. Fun was friends. That’s what made the letter so strange.
The problem was money.
“Can’t he be normal for once,” Doris questioned. Buy and sell stocks? Who wouldn’t be happy doing that?” Her voice sank into a low grumble, her expression lost in rising steam from a mug with the words “best mom” emblazoned on the front. There was a twin with the “best dad.” Bertie drank from that one. “It’s just like him, always thinking,” Bertie added. Doris chimed in, “overthinking more like it.” So they sat there. Wondering. What next? Curly cigarette smoke rings rising from a nearby ashtray expressed mutual bewilderment.
Overthinking Again
At 39, her stockbroker younger brother was wise beyond his years. For reasons that will be evident, he developed a theory that the stock market was a kind of casino, only the gamblers were a bunch of manic depressives. One day they folded; the next they bet the ranch. It caused him to question why they never made any money. Then he found the answer.
He saw that our brain grows faster than our bank account when we start to learn. It’s a process called “compounding of wisdom.” And in the story, the more you know, the more your capacity for intelligent decision-making increases in the same way interest builds in a savings account. One good decision makes you smart. Two, and you’re wise. But make several in a row, and you’ll be called brilliant.
Theoretically, like fine wine, he reasoned that brains grow more complex as we age. We begin to think clearly about how the world works if we slake our thirst for knowledge from a larger cask. By broadening our intellectual horizons, we deepen our appreciation of things, including how companies are managed. It is why his perspective began to shift, giving rise to clever, occasionally outlandish notions about money, his profession, and even love. Now he was about to take the most unusual course of action yet. It was risky as hell, which is why it was so ironic. He was abandoning a job that gave him wealth and status to find a profession that would liberate him to do other things than go after wealth and status, which ironically would give him more wealth and status than he had ever dreamed.
The Quitter
In their eyes, he wasn’t a loser, but he wasn’t exactly a winner. Not in any department.
Money mattered to the family only as they had enough to pay for children’s college, a lovely house, and a decent Oldsmobile. They didn’t worship at the altar of material things. Each winter, a new scarf was about the size of the discretionary expenses. A pair of gloves was the standard anniversary present. On holidays, they would dress up to dine at Gorat’s, the local steak house, where they shared funny stories. The wine was ordered from the bottom of the price list. If you requested a T-bone, you took the leftovers home for the dog.
They wouldn’t think of being involved in get-rich-quick schemes, and if you mentioned trading stock market options, they would say, “I’m not sure that’s legal?” But quitting a good job was unheard of. You did that if you were sick or pregnant. Although Warren Buffett was neither, that is how rumors can start to circulate.
Doris’s first thought was, “What do I do? Fair enough, she said. He gave two years’ notice, but she never took him seriously. No one ever did after he dropped out of Wharton and was turned down by Harvard. From the moment he started building his small network of family and close friends, he was just a hardworking, sometimes overly bright young man without a great future. In their eyes, he wasn’t exactly a winner, so he was chronically underestimated.
But that was about to change.
Zen Capitalist
“Easy, safe, profitable, and pleasant…”
In 1967, two years before the letter arrived, Warren Buffett informed his investors that he was no good at multitasking: “I have flunked this test completely.” But the desire to control his life wasn’t over: “I will never be able to put sustained effort if I don’t stop chasing an investment rabbit all my life. The only way to slow down is to stop.” He concluded with an ambiguous comment: “I am likely to limit myself to things which are reasonably easy, safe, profitable, and pleasant.”
What was going on here? It may have been the hippie era of the 60s, but whoever heard of an investment guru doing safe and easy things? What did pleasant have to do with it, too? Does the Harvard Business School, which rejected Buffett, teach courses in Pleasant Business Practices 101? It sounded like collecting bottle caps.
In the future, Buffett would simplify his investment options to never wake up to an unpredictable catastrophe that wiped out his sister’s life savings. He knew the lessons of the Great Depression and the Second World War. Markets have no morals. They take you for a ride and dive like a seagull without warning.
Do No Harm
After watching the stock market for several decades, he realized only one rule made sense. It was called Murphy’s Law which warns us that anything that can go wrong will go wrong. From now on, Buffett thought to himself, he would invest in things where nothing could go wrong. A mantra flashed like a neon light — never lose money someone else earned through hard work. He couldn’t bear hurting people who entrusted him with their life’s savings.
An ethos dating back to Albert Einstein drove his new idea. The famous physicist said, “make things simpler but never simple.” Buffett agreed, but to make things simpler, he had to change his approach. That meant resisting the buy and sell button to avoid churning, the unintentional crime of most portfolios. He was achieving stability while growing value seemed like a contradiction. He sought a new model. It turned into ‘value’ investing, an approach that ironically would require more effort than ever before.
It meant he had to quit.
Ultimately, pivoting to a new business model would make his family richer than discovering oil in their backyard. The source of the windfall was not an email from a Nigerian prince but his decision to shut down a private investment fund and do something so different from what he had ever done before — managing hundreds of thousands of employees — people thought he had lost his mind.
The reality was he was playing the odds like he did when he collected bottle caps at eight years old.
