Buffett's annual letter to Berkshire Hathaway shareholders is a classic of business wisdom. Buffett's words inspire.
When legendary investor Warren Buffett, widely known as the Oracle of Omaha, published a memo to the management of Berkshire Hathaway (a list of people he called “The Stars”) he introduced this insightful and inspired line:
“The five most dangerous words in business perhaps…”
More importantly, if you were among those managers, you may have been encouraged to see that memo arrive in your email.
Over the years, his words of wisdom, Berkshire Hathaway's annual letter to shareholders, and his views on stocks and sectors have made him a favorite of many types of investors.
He is the CEO who has led an S&P 500 company the longest.
He bought his first shares at age 11. At only 21 years old, Buffett's net income was $20,000.
It took more than 13 years to become a millionaire and more than 33 years to become a multimillionaire at the age of 55.
And at the end of 2000, Buffet was the richest man in the world.
In 2011, then-President Barack Obama awarded him the Presidential Medal of Freedom for his philanthropic contributions.
His basic idea of buying quality stocks at a discounted price was the first major life lesson for many value investors.
The five most dangerous words mentioned in the memo were “EVERYONE IS DOING IT.”
Let's understand what he meant in this memo.
Warren Buffet in his memo said that –
“So, in Berkshire, let's start with what's legal, but always stick with what we would feel comfortable publishing on the front page of our local newspaper, and never move forward simply based on the fact that other people said it.” They are doing”.
Well, for every company, entrepreneurship entails high-level risks that are surrounded by money and possible influences.
Peer pressure increases under the influence of high risk and high stakes.
This causes many entrepreneurs to end up following the crowd instead of following their conscience.
Warren has guided everyone to maintain their character and person.
He once cited “It takes 20 years to build a reputation and five minutes to ruin it”.
He always focused that every startup owner should develop their full potential and constantly thrive to become a better version of themselves.
Therefore, if you want to avoid the “everyone is doing it”, Sit down and think about your core values, your moral compass, and refuse to stray from that path.
“Your attitude on these matters, expressed both by behavior and words, will be the most important factor in developing your company culture. And culture, more than rule books, determines how an organization behaves. –
Innovation is predominant and the most important part of entrepreneurship.
Every entrepreneur must cultivate a culture that promotes honest innovation with good leadership.
What I have observed is that many employers set higher standards for themselves than they feel comfortable setting for their employees or their company.
Law firms convey that more than rule books, this culture will only determine how your organization will behave in the long term.
Additionally, this will help your organization grow under the corporate culture it so desperately needs.
Prefer not to compromise on innovation and promote it as much as you can to strengthen your reputation.
Warren highlights in his memo in a final note that:
“Someone is doing something today in Berkshire that you and I would be unhappy about if we knew about it. That's inevitable: We now employ more than 200,000 people, and the chances of that number getting through the day without bad behavior occurring are zero.
But we can have a huge effect in minimizing such activities by jumping on anything immediately when there is the slightest whiff of impropriety.”
He emphasized that as growth and success is achieved, someone will do something that is not up to par.
Of course, we are not Google and as humans we can make mistakes.
Furthermore, perfection is not attainable.
So, as an entrepreneur, your job is to guide your team and help them get back on track after a mistake.
But you may be wondering how leadership can minimize these types of activities.
Well, jumping right into anything isn't going to work.
Therefore, if you want to ensure that everyone else does, induce greater effort to return to excellence.
I know you can't erase all the mistakes.
But you can help minimize its negative impact with your good judgment and experience.
This will make you a strong and successful businessman.
Finally, among his words he mentioned that:
“Many banks and insurance companies have suffered profit catastrophes after relying on that reasoning. Even worse have been the consequences of using that phrase to justify the morality of the proposed actions. So far, more than 100 companies have been caught up in the stock options scandal, and the number is sure to rise.”
Warren Buffet has a well-deserved reputation. He has never believed in doing anything he is not comfortable with.
He adopted this policy even after becoming CEO of Salomon Brothers following a scandal that threatened to sink the company.
But to be honest, others never continue with this behavior as they think they can get away with it.
Just remember the case of the Hewlett Packard board of directors, even after the details of the criminal scandal came to light, they allowed Patricia Dunn to remain on the board.
Although Dunn eventually resigned, the council members who showed such terrible judgment are still there.
So, every investor should follow Mr. Buffett's example.
Companies that follow a good structure and perform well should receive a valuation premium.
Those that fail, such as Hewlett Packard, should be monitored and traded at a discount to offset the risk of future scandals.
The main point to remember here is that others will never change if you can't stand behind your work.
A strong moral affinity will help encompass your character and reputation.
Never get carried away by higher benefits or a higher valuation.
Stay true to your values and never think that you can get away with anything and no one will know.
Last but not least, apply your immense knowledge and skills. Put in countless hours of hard work and perseverance with the passion within you.
At the end of the day, your main objective should be to offer the best version of yourself as an entrepreneur.
