Warren Buffett business lessons

In an interesting interview on CNBC, Becky Quick talked with Warren Buffett about a lesson he learned from a bad mistake he had made in business. He talked about buying Berkshire Hathaway, a cheap stock in a lousy business–the textile industry. His lesson was that if you get in a lousy business, you should get out of it. To be a good manager, you must buy a good business.

Warren Buffett Business Lesson: Buy good at a fair price rather than cheap at a bargain price.

As Buffett explained:

Degree of difficulty counts in the Olympics. It doesn’t count in business. Now, you don’t get any extra points for the fact that something’s very hard to do. So you might as well just step over one-foot bars instead of trying to jump over seven-foot bars.

But his lesson goes deeper. Buffett bought the stock because he was promised that he could tender his shares for 11.50, yet when the offer was given “in print,” he was offered 11 3/8. So for being misled 1/8 of a point, instead of selling his stock in a lousy business, he bought  control of the company and fired  the individual who lied to him.

Maybe there’s another lesson from this mistake. Buffett made a bad business decision because he was angry about being deceived by the company management. Sometimes, anger can lead to bad decisions; it’s best to examine the impact of your actions, if you can, by moving the anger aside.

We try to make decisions based on rational factors, but so often, it’s the emotional factors that govern what we do.

Warren Buffett Business Lesson: Be aware if you are making a business decision based on revenge or anger. It may not be the best decision.

It’s okay to use emotion in one’s decision making–often it can be good; just be aware if you are acting out of revenge or anger because as Buffett says,

When a manager with a reputation for brilliance, meets up with a business with a reputation for bad economics, it’s the reputation of the business that remains intact.