#47 - The Warren Buffett Diet
Cherry Coke and The Circle of Competence
Warren Buffett is one of the world’s richest people and best investors. Yet he’s also flawed, just like the rest of us. A lot has been written about his success, so this note looks at a few of his shortcomings and quirks, as detailed in Alice Schroeder’s book The Snowball: Warren Buffett and the Business of Life.
Strengths and weaknesses are inexorably linked. One of Buffett’s greatest strengths is his unwavering focus. He is always reading, thinking, and learning about business. On his honeymoon, a road trip from Nebraska to California, Buffett packed his car with Moody’s Manuals and ledgers. His friends sometimes joked that he was really married to Berkshire Hathaway and that he couldn’t recognize his children. One of his wife’s friends referred to her as “sort of a single mother.” Over time, Buffett’s attitude would shift:
But he had been shocked into realizing the truth of Susie’s insistence that sitting in a room making money was no way to spend a life; he began to see what he had missed. While he was friendly enough with his kids, he hadn’t really gotten to know them. The reality behind the jokes (“Who is that? That’s your son.”) meant that he would spend the next few decades trying to repair these relationships. Much of the damage could not be undone.
While Buffett is a brilliant investor, his skills around the house leave much to be desired. It’s unclear if he could boil water or fry an egg. From The Snowball:
Once, when she [Susie] was nauseous and asked him to bring her a basin, he came back with a colander. She pointed out the holes; he rattled around in the kitchen and returned triumphantly bearing the colander on a cookie sheet. After that, she knew it was hopeless.
Buffett was a far better teacher than domestic partner. From spending months writing his annual shareholder letters to answering questions with his partner Charlie Munger for hours at Berkshire Hathaway's annual meeting, Buffett loved teaching. As he got older, he spent more time talking to college students, hoping to have some influence before the rigidity of age set in. One of his repeated points was to:
Treat your body like the only car you’ll ever own: Baby that car, garage it every night, buff every dent, and change its oil every week.
This advice has an element of “do as I say, not as I do” to it, particularly around diet. From a young age, Buffett eschewed vegetables. His first rule of investing is “never lose money,” but losing money might have been more palatable to him than eating a big plate of asparagus and broccoli. A man of simple tastes, Buffett’s diet has been compared to a six year olds. Staples include Cherry Coke (five cans a day), Dairy Queen Dilly Bars, hamburgers, ice cream, and steaks. Approximately one-quarter of his calories come from soda. Not necessarily high octane fuel.
“Do what you love and work with people you admire” was another theme of Buffett’s talks. On this measure he scores much better in practicing what he preaches. Buffett loves business, making money, and teaching, and has spent decades doing all three. Additionally, he has surrounded himself with a coterie of world-class business leaders who he greatly admires including Microsoft founder (and occasional birthday cake baker) Bill Gates and Katharine Graham, who ran The Washington Post from 1963 to 1991.
The circle of competence is an important construct for understanding Buffett’s investments and his life. In his 1996 shareholder letter, he describes the circle of competence as:
Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
Understand your limitations. Stay in your lane. Focus on what you’re good at. This is one of the reasons why Buffett avoided investing in tech stocks. Technology is a field where competitive dynamics shift rapidly. Since he didn’t know what the technological landscape would look like in a decade, he stayed away. Instead he favored investing in businesses like banks, candy, energy, insurance, and railroads. Industries with long operating records that changed slowly.
Buffett’s circle of competence is thinking about business and making money. His successes and his shortcomings both stem from that.
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