How Warren Buffett Makes Good Decisions
Buffett has a strategy he uses to keep from making stupid mistakes. That is why we don’t find him on Twitter.
Warren Buffett is a notorious technophobe (not true, actually), yet he uses a noise-canceling device every day. It is a fake news filter called quality information or QI, for short. It happens to be a more reliable indicator of success than its better-known cousin, IQ.
While most of us react to popular news or social media by running off to join the nearest protest about unfairness, Buffett analyzes the facts and subjects them to his QI or quality information filter. In our interview, he said it was like “assigning myself the story to see what is going on.”
Information is gold to Buffett. It means he won’t get fooled by an algorithm whose purpose is to generate clicks or increase followers, not keep us informed. Although we may not be able to match his intelligence, any of us can adapt his filter.
He organizes his information sources into three buckets:
In our interview, Buffett said he reads more books and talks to more journalists than any CEO in America. Buffett also uses stock brokers, Wall Street gossip, social media, and national news are used as informants. They aren’t always reliable, but Buffett cancels out the static and the noise by relying on a wide range of sources before forming an opinion.
Buffett reserves the second rung of QI for experts or smart operators who help him understand a complex issue. He never relies on people who have an incentive to take a particular position. He only wants to hear from people whose goal is to discover, not disseminate.
Finally, when something is highly relevant, he turns to a partner to help him interpret it. Charlie Munger is his confidante of choice and whose incisive take can’t be bought, stapled or mutilated. You might think someone as long-lived as Buffett hardly needs a devil’s advocate. Munger is an insurance policy for those times when Buffett’s best instincts might fail. Black Swan proofing might be another description.
The story of how the two met is worth telling. In 1959. they were both invited to a dinner party, and it was love at first wisecrack: “We went to dinner and in five minutes, Charlie was rolling on the floor laughing — and I do the same thing. We were sort of made for each other,” Buffett told CNBC. The result is the most successful investing act in business history. “We’ve never had an argument in the entire time we’ve known each other, which is almost 60 years,” He added, “We always learn something” from each other and “have a great time together.”
Buffett's hierarchy of sources yields quality information or QI and it has made him the world’s most successful investor. If you were to ask his advice, he would say some sources are useful, others are dependable, and a few are wise and trustworthy. Use them as a tag-team, and let one confirm or cancel the other. If you get your information through social media, try looking at more reliable sources before you make up your mind. Find a life partner whose wisdom complements yours, as he has. Finally, use a wide variety of listening posts to discern rumors from reality. Otherwise, we risk falling into the trap of someone else’s algorithm. That is a lousy way to go through life, much less build a career or investment portfolio.