Warren Buffett is a robot
Warren Buffett is a robot
Who is he? What is his investing style? Why is it so hard to copy?
Welcome to the first issue of Witty Wealth. We are a weekly newsletter that comically analyzes stocks, the stock market, and the investors that have made their fortunes from it.
In this issue, we are diving into the legendary investor Warren Buffett.
Who is he?
If you’ve heard of him, you know he’s rich. ~70 billion dollars rich. The fourth richest person in the world. At 90 years old, he’s the success symbol for investing in stocks.
But really, Warren Buffett is not human. He’s a finely tuned wealth building machine. His laser like focus doesn’t let his emotions affect his judgement. He’s programmed to not care about what other people think.
That’s hard for us humans to do. Warren Buffett is a robot.
Did I just say that?
How did he make his money?
Dollar and a dream
Some backstory on Robot Warren. His mission since childhood has been to make money.
“It could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself.” - Warren Buffett
As a kid he was relentless with hustles. This mainly was door to door sales. He sold more things than grandma brings to thanksgiving. Gum, soda, peanuts, popcorn - you name it!
He was a delivery robot ahead of his time.
The major leagues
At age 11 he began to dabble in stocks. He realized he could make more investing than selling his time.
By investing and reinvesting earnings, his money could make money for him. This is known as compounding.
Warren injected the simple expectation of compounding into his veins. You can make eye popping amounts of money over time. Just not tomorrow. You need to be patient. Patient like WALL-E.
Robot Warren saw his mission through. His net worth followed the compounding path. Even though he’s been at it the past ~80 years, 95% of his wealth has been generated in the past 30 years.
(Source: The Hustle)
Some of his most famous investments include making billions of dollars in companies like American Express (1965), See’s Candy (1972), Coca-Cola (1988), Goldman Sachs (2008), and Apple (2016). He’s turned his holding company, Berkshire Hathaway, into an investing powerhouse.
How does he invest?
He thinks for himself
Some robots, like autonomous cars, are known for being able to move freely. Robot Warren is best at thinking freely.
That doesn't mean he is a genius. He just thinks for himself.
“The good news I can tell you is that to be a great investor you don’t have to have a terrific IQ... What you do need is the right temperament. You need to be able to detach yourself from the views of others or the opinions of others. You need to be able to look at the facts about a business, about an industry, and evaluate a business unaffected by what other people think. That is very difficult for most people.” - Warren Buffett
His parents would be proud with his answer to “If all of your friends jumped off a cliff, would you jump too?”
He follows an investing checklist
Like any droid, Robot Warren is programmed.
When deciding whether to invest, his sensors honestly evaluate his confidence in what he knows about three things:
himself
the company
the price of the stock
He only invests if he believes in all three. If not, he moves on to the next one.
Honest about himself
Robot Warren only invests in things he understands. He defines what he knows and only sticks to those areas. He refers to this as his ‘circle of competence.’
(Source: Farnam Street)
He slowly widens his circle over time. Until then, he’s not afraid to say “I don’t know.”
“There’s a whole bunch of things I don’t know a thing about. I just stay away from those.” - Warren Buffett
Honest about the company
Robot Warren only invests when he i) knows everything about the company and ii) believes it can be a great one.
To get there, he spends 80% of his day reading, often hitting over 500 pages per day.
Robot Warren devouring research
“Warren follows his own advice: When he invests in a company, he likes to read all of its annual reports going back as far as he can. He looks at how the company has progressed and what its strategy is. He investigates thoroughly...” - Bill Gates.
Warren on page 37 of Google
When he’s researching, he is trying to figure out “is this a great business?”
“You should invest in a business that even a fool can run, because someday a fool will.” - Warren Buffett
In a way, he wants these businesses to be robotic themselves. In future posts, we’ll get into what makes a great business.
Honest about the price of the stock
Robot Warren is a classic value investor. He only buys when the stock price is far below what it’s worth. His priority is to reduce his downside risk.
Robot Warren figures out what the price he is willing to pay and then waits for it to appear.
He explains his approach through interactions with an imaginary friend called “Mr. Market” (aka the stock market).
Mr. Market has emotional problems. Some days he is super optimistic and only offers high prices. Other days he’s depressed and only offers low prices. Don’t listen to him for advice, just use him for trades. If you wait long enough, Mr. Market offers you a chance to buy low and sell high.
Does roboticism bleed into his personal life?
Yes. Yes it does.
Robot Warren lives the opposite life we’d envision if we had his kind of money. He lives in Omaha, Nebraska, in the same house he bought for $31,500 in 1958. He spends his nights playing bridge, a card game that parallels investing.
He’s just as intense and removes distractions with bridge as he does with investing.
"You know, if I'm playing bridge and a naked woman walks by, I don't ever see her.” - Warren Buffett
From afar, his most relatable tendency is his diet. He loves cheeseburgers and cherry cokes.
Why is it so hard to be like Robot Warren?
Robot Warren has three skills that are tough for us humans to have:
Patience to wait for prices and results
Emotional stability to not chase hype nor fall for FOMO
Intensity to think for himself and remove distractions
Each of these are not natural! In theory, yes we can do it too. But in a world where we are constantly plugged in and the most dramatic news sources get our attention, inaction feels ten times harder than action.
Every month there is a new opportunity that is getting hyped up. Bitcoin...Tesla...Beyond Meat. Speculation is abundant.
We see the stock price quickly go up and up. Everyone and their mother is talking about it.
We want to look into it more, but we don’t know where to start. The more we wait, the more the price goes up.
We get FOMO and decide to join the hype train.
We see a couple days of gains and think ‘aw yiss, I’m gonna make a ton of money.’
Then the music stops. Shady stuff from the crypto community comes out. Elon goes off the rails. Alternative meat demand is questioned. The stock price tanks. You lose your monies.
Trading like this is the investing version of not using a condom. It’s exciting in the moment, but can bring much heavier regret.
How can we avoid getting burned?
The next time you buy or sell stock, remember Robot Warren. Even though he may live a lifestyle and have an investing approach we find boring, his track record doesn’t lie.
You can reduce your downside while still having fun. Mix and match what you like from Robot Warren’s approach with yours. We can call it ‘the cyborg.’
See you next week,
-
P.S. I’m on a mission to make Witty Wealth something you look forward to reading. Please reply to this email with any feedback you have.
P.P.S. If you loved this article, please forward it to a friend you think will like it too.
This is hilarious. Good stuff Anuj.