Emulating the Oracle of Omaha

He’s the investor many wish to replicate, yet few seem to emulate.

The Nebraska resident soaking up his sixth decade in the same home while fellow billionaires gobble up Hawaiian coastline. The driver steering a decade-old Cadillac as his peers deconstruct ancient bridges to transport their luxury yachts. The fast food patron with the self-described "appetite of a five-year-old” who delineates good and bad market days through his choice at the McDonald’s drive-thru.

By now, Warren Buffett’s lifestyle is lore; his results, akin to legend. Despite their best attempts at matching his successes, few have come close. But a close read of his annual letters, stock trades, and lifestyle choices reveals intentionality at every turn.

Forget Lofty Lifestyles

“I learned all of my favorite foods at my fifth birthday party,” says Buffett. Buried in those pithy words are insights on Buffett’s spending philosophy. His choices aren’t performative; they’re preference. Buffett’s thrifty lifestyle is reflected in his car (purchased from a local dealer with hail damage), wardrobe (“I buy expensive suits. They just look cheap on me.”), and diet. A rare indulgence: his NetJets private plane membership (a Berkshire Hathaway company, no less.) Buffett buys utility. Spending to impress others? You’d be hard-pressed to find a single example of that in his weathered checkbook.

Redefine “Bargain”

Among the lessons the “Oracle of Omaha” credits to his longtime business partner Charlie Munger is this: over the long run, it’s better to buy great businesses at good prices than good businesses at great prices. Before Munger’s advice took hold, Buffett prided himself on acquiring businesses at basement prices. Post-Munger, price took a backseat to quality. Some of Buffett’s best investments – from Apple to American Express – featured price tags that initially raised eyebrows. Only in hindsight do they raise toasts.

Be Greedy When Others are Fearful…

In the wake of 9/11, Buffett’s insurance division fielded no shortage of calls for insurance policies on some of the most iconic buildings in the country. Confident in the competence of his insurance department, Buffett refused to give into the hysteria of the moment. Policies were extended in short order, allowing the country to proceed with events (and Berkshire Hathaway to profit when feared attacks failed to materialize.)

In investing, moments of fear can produce opportunities to those who remain calm. The catch? “No one rings a bell at the bottom.” A trade against fear could experience further decline before the winds reverse.

…And Fearful When Others are Greedy

One of the epic tales to come out of the 2008 Financial Crisis features a closed-door meeting of the country’s most prominent bank CEOs (and an inoperable fax machine). Tasked with finding a buyer for troubled Lehman Brothers, the room of CEOs called the only man with enough cash on hand for the rescue. Buffett answered, requested that financials be faxed to his hotel, then ventured peacefully to dinner. The huddle of secretary-free CEOs failed at faxing. They called Buffett and left a voicemail with his requested data. Oblivious to the voicemail, Buffett returned to his hotel, and in seeing no fax, let the decision go. The next day, Lehman Brothers failed. Months later, Buffett’s daughter saw the voicemail and alerted her famous father, who assured her that history wouldn't have changed if he’d heard it.

The lesson behind the drama? Many might have leapt at an opportunity to purchase one of Wall Street’s biggest banks at pennies on the dollar. Not Buffett. He exhibited caution where others may have exercised greed.

Mind Your Moat

As explained in Buffett's 2007 Letter to Shareholders, a good business model is only as strong as its moat. With no barriers to entry, a great idea is merely a roadmap for someone else’s riches. Defense is a profitable play.

Cash ≠ Idle

Many wannabee Buffetts view cash as idle. Not Buffett. He views his cash horde as one of Berkshire Hathaway’s greatest advantages. When opportunities arise, bankers, CEOs, and even countries call Buffett, knowing he has the resources to make a decision in short order. His ability to react to opportunity attracts opportunity. 

Long Term is the Name of the Game

If there’s a common denominator among Buffett’s philosophies, it’s his long-term perspective. A new car? It will depreciate. A bargain stock? Not if the company fails. A compelling business model? Not without proper defenses. Fully invested resources? Unfortunate if opportunities arise. Warren Buffett’s life offers numerous handrails to those willing to grasp them.

As Buffett says, “Time is the friend of the wonderful company, the enemy of the mediocre.” So to, the wonderful life.