Monday, January 2, 2012

WARREN BUFFET’S LESSONS FOR THE NEW YEAR

My banker friends tell me 2012 is going to be a tough year. They are already chasing down defaulters, slowing down on lending and bracing themselves for layoffs and branch closures.

Banks are normally a good indicator of where the economy is going. And then you have to love a democracy KACITA last week gave banks an ultimatum to stop charging higher interest on running loans that were contracted before the rate increases (a fair request) and vowed to stop paying UMEME bills because they are too high and they don’t like the distributors contract. They have given government 10 days to respond after which they will shut their shops in protest. Maybe the opposition should also stop paying taxes because they don’t like the government regardless that they use our roads, enjoy police protection of life and property. Actually if KACITA really wanted to make appoint they should draw up a list of protesting traders sending to UMEME asking them to come and disconnect them and take away their meters.

Anyway that aside I thought I would reharsh a column form March this year. These were excerpts from the world’s best investor Warren Buffet, who over the last nearly 50 years has built a company, Berkshire Hathaway which is valued at three times the economy of the East African community.

He is talking about America but looking to the New Year – one will call for serious belt tightening for everybody, the lessons are very applicable in Uganda.

On the economy,

“Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and a Civil War – remains a live and effective”



On Managing managers/companies,

“At Berkshire, managers can focus on running their business: They are not subjected to meetings at Headquarters nor financing worries nor Wall Street harassment. They simply get a letter from me every two years and call me when they wish….. There are managers to who I have not talked in the last year, while there is one with whom I talk almost daily. Our trust is in people rather than process. A “hire well, manage little” code suits both them and me”

“Berkshire’s CEOs come in many forms. Some have MBAs; others never finished college. Some use budgets and are by-the-book types; others operate by the seat of their pants. Our team resembles a baseball squad composed of all-stars having vastly different batting styles. Changes in our line-up are seldom required.”


On Corporate culture,

“Cultures self propagate …. Bureaucratic procedures beget more bureaucracy, and imperial corporate palaces induce imperious behaviour. … As long as Charlie (Munger, vice-chairman) and I treat your money as if it were our own, Berkshire’s managers are likely to be careful with it as well.

“Our compensation programs, our annual meeting and even our annual reports are all designed with an eye to reinforcing the Berkshire culture, and making it one that will repel and expel managers of a different bent. This culture grows stronger every year, and it will remain intact long after Charlie and I have left the scene.”

On Investment,

“You can be highly successful as an investor without having the slightest ability to value an option. What students should be learning is how to value a business. That’s what investing is all about.”


On corporate governance, (in letter to his managers)

“The priority is that all of us continue to guard Berkshire’s reputation. We can’t be perfect but we can try to be. As I’ve said in these memos fro more than 25 years: “We can afford to lose money – even a lot of money. But we can’t afford to lose reputation – even a shred of reputation.” We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter.”

“Sometimes your associates will say “everybody else is doing it.”… It is totally unacceptable when evaluating a moral decision. Whenever somebody offers that phrase as rationale, in effect they are saying that they can’t come up with a good reason. If any one gives this explanation, tell them to try using it with a reporter or a judge and see how far it gets them.”

The 26-page letter is devoid of illustrations and graphics but still makes for compelling reading.

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