Warren Buffett Invests in the Business, not the Board

There are a lot of things that need to be taken into account when it comes to investing in a business. Not only the potential of the business but the current market, daily news, and trends. But, according to the Oracle of Omaha, the last thing you should be taking into account when you decide on investment opportunities is the leadership behind the company.

“If you’ve got a good enough business, if you have a monopoly newspaper, if you have a network television station — I’m talking of the past — you know, your idiot nephew could run it. And if you’ve got a really good business, it doesn’t make any difference,” Buffett said.

This goes completely in line with Buffett’s strategy for investing in common businesses that are simple and make him more money. After all, people come and go. If you have a fantastic business with terrible people running it, and the business is still halfway doing well, then you have a much better prospect than if you have a terrible business with brilliant minds making it somehow work. The moment those people are gone, the business is in trouble. You want a business that is going to succeed no matter who is at the helm. Then, find someone amazing to run it, and you’ve got a lasting investment that will easily pay for itself.

Noted investor Peter Lynch expressed the exact same opinion. “Invest in businesses that any idiot could run because someday, one will.”

Of course, that isn’t to say that buying a company with management that you can’t trust is something that Buffett would or does condone. In fact, one of his four criteria for selecting a business to invest in is whether or not he trusts the management. Charlie Munger, the VP Chairman of Berkshire Hathaway and Buffett’s partner, agrees.

“There are so many wonderful people out there, and there are so many awful people out there. And there are signs, like flags, waving over the awful people. And generally speaking, those people are to be avoided,” Munger said.

So, in conclusion, invest in the quality and potential of the business. While it’s important to take the leadership of the company into account, that should not be the only deciding factor in investing.

Leave a Reply

Your email address will not be published. Required fields are marked *