Wednesday, October 12, 2011

Warren Buffet's words of wisdom...

“The chains of habit are too light to be felt until they are too heavy to be broken.” – Warren Buffet

An excerpt from the book “The Tao of Warren Buffet”  written by America’s favorite businessman that reveals one of his many secrets of success… 

This is Warren quoting the English philosopher Bertrand Russell, because his words so aptly describe the insidious nature of bad business habits that don’t become apparent until it is too late.  Such as cost cutting after your business is in trouble, which should have been done long before you even got to the doorsteps of danger.  The business that becomes bloated with unnecessary expenses in times of plenty is the business that will sink when things turn for the worse.  This propensity to delude oneself also tells you a lot about the management that let the business become bloated with expenses in the first place.  It is best to consciously check where all your habits are taking you long before you get there.  If you don’t like the direction in which you are headed, the time to change course is before you find your ship sinking the a sea of troubles. 

This is what happened to Warren with the Benjamin Graham inspired investment strategy of buying bargain stocks that were selling below book value regardless of the nature of the company’s long term economics.  This was something Warren was able to do with great success during the 1950’s and early 1960’s.  But he stayed with this approach long after it wasn’t viable anymore – the chains of habit were too light to be felt.  When he finally woke in the late 1970's to the fact that the Graham bargain ride was over, he shifted over to a strategy of buying exceptional business at reasonable prices and then holding them for long periods- thereby letting the business grow in value.  With the old strategy he made millions, but with the new one he made billions. 

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