As the Dow inches closer to 20,000, let’s take a break from all-Trump-all-the-time news and consider one of the top beneficiaries of the market rally, Warren Buffett. The price of a share in his company, Berkshire Hathaway, yesterday hit $250,000 for the first time. Over the past 51 years the stock has appreciated at a 21% annual rate, a performance that is beyond mind-blowing. For every $1,000 an investor put into Berkshire back in 1964, he or she would have almost $45 million now. As to how he has done it, most people say simply that he’s the world’s greatest investor. He may well be, but that’s only part of the answer. The overlooked angle on Buffett is that he has also been an extraordinarily successful manager, and that’s the angle of greatest interest to business leaders.
What can we learn from Buffett the manager? Berkshire owns several businesses outright – Burlington Northern Santa Fe, See’s Candies, Geico, Precision Castparts, and many others – so he’s in charge of how they’re run. His management principles aren’t complicated, yet they are rarely followed. Among the most important:
-Don’t even try to manage a fundamentally bad businesses. So simple, yet how many leaders torture themselves in a doomed effort to make a miserable business perform? One of Buffett’s most famous lines is “With few exceptions, when a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”
-Judge managers as human beings first. Buffett buys few of the companies that are offered to him, and one of his first screens is the nature of the people who run it, since he has no interest in trying to replace them. He wants them to be “likable, talented, honest, and goal-driven.” Such people often turn out to be excellent managers. Plus, he believes life is too short to work with people you don’t like.
-Pay for performance like you mean it. Unlike most employers, Buffett offers managers unlimited incentive bonuses. He sets the pay of the CEOs of his companies, and from year to year their pay can vary by a factor of 20 or 30. Such swings are far too extreme for most companies, but with properly constructed incentives Buffett sees no reason to discourage managers from swinging for the fences.
-Price aggressively. Buffett is remarkably hands-off in overseeing his businesses, but he often likes to take charge of pricing. That’s because most CEOs are too timid, scared of tanking their business by pricing too high. Buffett, managing a portfolio of businesses, is willing to take greater risks. And he repeatedly finds that a company can get away with higher prices than its managers think.
Many years ago, Buffett told Fortune’s greatest writer, Carol J. Loomis, that when it came to managing, “what we do is not beyond anybody else’s competence. I feel the same way about managing that I do about investing: It’s just not necessary to do extraordinary things to get extraordinary results.” He’s effective on a historic scale because, as with investing, hardly anyone else is willing to do those ordinary things.
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What We’re Reading Today
Next up at Exxon
As secretary of state-designate Rex Tillerson prepares for confirmation hearings, Exxon Mobil must name a new CEO, presumably president Darren Woods, who was already positioned as heir apparent. Tillerson was set to retire in March at age 65. Woods has risen steadily through the ranks since joining Exxon in 1992. Fortune
Tech leaders to meet with Trump
Top tech names including Amazon’s Jeff Bezos, Microsoft’s Satya Nadella, and Facebook’s Sheryl Sandberg have agreed to join today’s meeting on technology’s relationship with a Trump administration. The encounter could be awkward, since many in tech loudly opposed Trump. A major topic will likely be jobs. NPR
Google’s autonomous car project is now a business
Called Waymo, it will become a standalone company run by CEO John Krafcik within Google’s parent, Alphabet. After leading the development of self-driving technology, the unit is in catchup mode as other tech firms and carmakers push aggressively ahead. Wired
Wells Fargo sanctioned again
Regulators say Tim Sloan‘s company isn’t ready for a hypothetical bankruptcy. Major banks must now maintain “living wills” detailing how they’d manage business failure without a bailout. Regulators concluded Wells must simplify its legal structure and determine how different units of the bank could continue without a parent company. The bank must resubmit plans by March 31 and is banned from international expansion until then. Los Angeles Times
Building Better Leaders
To move from dreamer to entrepreneur…
…stop talking and preparing, and start making your dream happen. Entrepreneur
To get over a bad mistake…
…first admit that you’re human and that mistakes will happen. Then write each mistake down, says Concordia co-founder Matthew Swift. He does it so he can review his response to the error with a clear head. Fortune
Managing without a CEO
The $4-billion DPR Construction company manages through a committee to avoid the turnover that comes from CEO departures. But decisions aren’t made quickly. WSJ
Decisions and Responses
Hedge funds predict Trump’s next target
Before president-elect Donald Trump‘s tweet admonishing Lockheed Martin for the F-35’s costs, the stock had already fallen. Insider trading was suspected, but it appears hedge funds may have used analytical tools to predict which company he would bash next. Clues came from Trump’s previous tweets and statements. Fortune
Aleppo cease-fire collapses
A deal that for safe evacuation of citizens broke down as Syrian fighters resumed attacks on the rebel-controlled city. Syrian President Bashar al-Assad and rebels had agreed to a truce, brokered by Turkey and Russia, that would enable evacuations and put Aleppo back under Syrian government control for the first time since 2012. Thousands of citizens remain in the besieged city. WSJ
Philippine President admits to killing drug suspects “personally”
Rodrigo Duterte says that as mayor of Davao City, he would drive around looking for suspected drug dealers in order to kill them. “In Davao, I used to do it personally,” said Duterte. “Just to show the guys that, if I can do it, why can’t you?” His call for extrajudicial killings by police has been linked to over 5,900 deaths in less than six months. CNN
Up or Out
Hertz Global Holdings has named Kathryn Marinello CEO, succeeding John Tague. CNBC
Brendan Iribe has stepped down as Oculus CEO to focus on a personal computer division within the company. Fortune
Fortune Reads and Videos
Trump’s cabinet picks could defer millions in taxes…
…when they divest their stock holdings in order to serve in the administration, as required by law. Combined, the group could defer hundreds of millions of dollars in taxes. Fortune
Pfizer calls for ideas on how tech can improve…
…the lives of patients suffering from metastatic breast cancer. The winner of the contest will receive $100,000. Fortune
Kohl’s will stay open for 107 hours straight…
…through Christmas Eve. It’s not quite the 170 hours that it reached last year. Fortune
A hacked mobile app from Quest Diagnostics…
…has left the medical information of 34,000 people exposed. Fortune
Quote of the Day
“And (I’d) go around Davao with a motorcycle, with a big bike around and I would just patrol the streets and looking for trouble also. I was really looking for an encounter so I could kill.” — Philippine President Rodrigo Duterte, admitting to killing suspected drug dealers while mayor of Davao City. CNN