Building a Framework - Week 8: Buffett, Gardner, Miller and More
Happy Sunday!
Today we'll cover 7 lessons from last week.
(Reading Time: 5 minutes)
Let's dive in!
1. Three Business Tenants that Buffet Looks for in every Business He Owns
This week I stumbled onto a TIP Podcast based on The Warren Buffett Way by Robert Hagstrom. I am amazed at the thoroughness and simplicity of Buffett's approach. I want to create a comprehensive and straightforward framework, so I enjoy learning more about his process.
Buffett looks for businesses that are:
Simple and understandable
Have a consistent operating history
Have favorable long-term prospects
2. Buffett on Independent Thinking
I continued down the Buffett rabbit hole with an episode of Founders Podcast based on Buffett: The Making of an American Capitalist by Roger Lowenstein. The entire podcast is terrific, but Buffett's comments on the negative influence of a crowd stuck out.
Buffett isn't afraid to bet against the masses because he knows what he's looking for and has the patience to see it through. This is why I am taking the time to develop a unique framework.
3.Does the company have a purpose beyond making money?
At first glance, this might seem naive, but the best companies of our time have a purpose beyond making money. The purpose will drive every decision and be responsible for the success or failure of the business.
In this 5-year-old RBI podcast, David Gardner has an entertaining conversation with Roy Spence on the significance of purpose-driven business. They discuss several examples, including one on Southwest Airlines, to hammer home the point.
4. The Power of Deferred Gratification
It is rare for a week to pass when I don't revisit Richer, Wiser, Happier by William Green. The chapter on Nomad Investment Partnership is my favorite, and I included three Nick Sleep quotes below.
His thoughts on deferred gratification illustrate the benefits of having a framework. While the rest of the world focuses on short-term outcomes, we can build a process to maximize our returns and sleep better at night. If you haven't heard of Nick Sleep, I highly recommend learning more about him.
5. Ignore Wall Street
This is easy to say but hard to do. Sleep and Zakaria engineered their environment, making it difficult to pay attention to Wall Street pundits and short-term results. They focused on reading annual reports, visiting with management teams, and thinking independently about where the business would be in 10-20 years.
Can you design your environment to tune out the noise and focus on the long term? I’ll be writing more about this in the future.
6. Is it a new or emerging profit cycle?
When analyzing a new business, it's crucial to determine the stage of the profit cycle. Artisan Partners highlights the catalysts that drive profit cycles and the importance of thinking through them when building your framework.
The market could be undervaluing a catalyst that will accelerate profits. Understanding profit cycles can improve your process and help you spot winners early.
7. Lessons from a legend
I saved the best for last. Yesterday I highlighted seven takeaways from a seven-year-old interview with Bill Miller. Bill has made a fortune in the stock market and is famous for his contrarian views. The interview is a master class on investing and walks you through his process.
I am officially heading down the Bill Miller rabbit hole, so you can expect to see more appearances from him on Mastering Your Money.
That's all for this week! You can follow along daily on Twitter, or I'll see you back here next week. Thanks for reading!