Angie O'Grady: Warren Buffett's 9 Rules for Running a Business

michaelsogrady
Nov 12, 2014
2 min read

Warren Buffett's 9 Rules for Running a Business

By Adam Jeffrey at CNBC

Warren Buffett is legendary as an investor, but he's also an incredibly successful businessperson, too-a fact that sometimes gets lost in the millions of words that have been written about his advice on how to buy a stock. That advice can be summarized with a just a few words. Appearing on the CNBC-produced syndicated program "On the Money" last month, Buffett said , "If you own your stocks as an investment-just like you'd own an apartment, house or a farm-look at them as a business." Using that viewpoint, you shouldn't buy a stock simply because you think it will go up in price sometime soon. Instead, you should buy a piece of a business that you think will generate profits for a long time to come. That long-term perspective is also at the core of the business advice that Buffett has provided over the years. Here are some examples from his annual letters to Berkshire Hathaway shareholders.

1. Keep calm in the face of volatility.

Buffett writes that earnings gyrations "don't bother us in the least." After all, "Charlie and I would much rather earn a lumpy 15 percent over time than a smooth 12 percent."

2. Keep good company.

Berkshire has never split its Class A shares. As a result, one share currently costs almost $214,000. That discouraged people from rapidly moving into and out of the stock, and that's exactly the way Buffett likes it. He wants shareholders who share his long-term view. All the way back in 1979, he wrote, "In large part, companies obtain the shareholder constituency that they seek and deserve. If they focus their thinking and communications on short-term results or short-term stock market consequences, they will, in large part, attract shareholders who focus on the same factors." Read More Advice from Buffett's 30-year-old right-hand woman.

3. Keep your focus.

In that same letter, Buffett warns that even a great company can see its "value stagnate in the presence of hubris or of boredom that caused the attention of managers to wander." The result: a "sidetracked" leadership that "neglects its wonderful base business while purchasing other businesses that are so-so or worse." In this area, Buffett argues that "inactivity strikes us as intelligent behavior." In 1982, a year that saw a number of corporate deals, Buffett thought that in many of them, "managerial intellect wilted in competition with managerial adrenaline. The thrill of the chase blinded the pursuers to the consequences of the catch."