From Steve Jobs to Mark Zuckerberg, we have a tendency to revere innovative CEOs. Their entrepreneurial habits, instincts and advice may be great, but when Warren Buffet reminds us that slow and steady wins the race it comes to investing.
Picture: Aaron Friedman/Flickr
In his most recent letter to shareholders, Buffett reminds readers about Jimmy Ling, an innovative CEO who found massive success in the '60s with his company, LTV. Buffett explains:
Ling's strategy, which he labelled "project redeployment," was to buy a large company and then partially spin off its various divisions. In LTV's 1966 annual report, he explained the magic that would follow: "Most importantly, acquisitions must meet the test of the 2 plus 2 equals 5 (or 6) formula." The press, the public and Wall Street loved this sort of talk.
Ling's strategy eventually failed though, as did several of his companies, and he was fired as CEO of LTV. The lesson Buffett says we should all learn from this?
More Jimmy Lings will appear. They will look and sound authoritative. The press will hang on their every word. Bankers will fight for their business. What they are saying will recently have "worked." Their early followers will be feeling very clever. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that maths is — zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices.
Of course, there's a slight irony here in that we kind of revere Warren Buffett in a similar way. But if you separate the man from his message, the message has still proven to ring true. Investing should be simple, steady and about the big picture, not daily valuations or quick profits. Basically, don't put all of your eggs in one basket because you love that basket's CEO. For more details, check out the links below.
Warren Buffett's 50th Letter to Berkshire Hathaway Shareholders [Berkshire Hathaway via Business Insider]