LIVING OFF DIVIDENDS & PASSIVE INCOME

Here’s some great Buffett philosophy from a recent meeting with college students.

Question: How do you define happiness and what about your life makes you most happy? When you make good on an investment, do you allow yourself to enjoy that success by getting excited – and on the flip-side, when an investment turns down, do you find yourself equally disappointed – or do you try to remove emotion from your work, as much as possible?

Buffett:

I enjoy what I do, I tap dance to work every day. I work with people I love, doing what I love. The only thing I would pay to get rid of is firing people. I spend my time thinking about the future, not the past. The future is exciting. As Bertrand Russell says, “Success is getting what you want, happiness is wanting what you get.” I won the ovarian lottery the day I was born and so did all of you. We’re all successful, intelligent, educated. To focus on what you don’t have is a terrible mistake. With the gifts all of us have, if you are unhappy, it’s your own fault.

I know a woman in her 80’s, a Polish Jew woman forced into a concentration camp with her family but not all of them came out. She says, “I am slow to make friends because when I look at people, I have one question in mind; would they hide me?” If you get to be my age, or younger for that matter, and have a lot of people that would hide you, then you can feel pretty good about how you’ve lived your life. I know people on the Forbes 400 list whose children would not hide them. “He’s in the attic, he’s in the attic.” Some of them keep compensating by joining board seats or getting honorary degrees, but it doesn’t change the fact that no one will give a damn when they are gone. The most powerful force in the world is unconditional love. To horde it is a terrible mistake in life. The more you try to give it away, the more you get it back. At an individual level, it’s important to make sure that for the people that count to you, you count to them.

What if you could buy 10% of one of your classmates and their future earnings? You wouldn’t buy the ones with the highest IQ, the best grades, etc, but the most effective. You like people who are generous, go out of their way, straight shooters. Now imagine that you could short 10% of one of your classmates. This part is usually more fun as you start looking around the room. You wouldn’t choose the ones with the poorest grades. Look for people nobody wants to be around, that are obnoxious or like to take all the credit. If you have a 500 HP engine and only get 50 HP out of it, you’ll be beat by someone else that has a 300 HP engine but gets 250 HP output. The difference between potential and output comes from human qualities. You can make a list of the qualities you admire and those you despise. To turn the tables, think if this is the way I react to the qualities on the list, which is the way the world will react to me. You can learn to turn on those qualities you want and turn off those qualities you wish to avoid. The chains of habit are too light to be felt until they are too heavy to be broken. You can’t change at 60; the time to look at that list is now.

Question: Why do you think that despite making your methods publicly available, that relatively few people have been able to emulate your success?

Buffett:

I asked Graham the same question. Everyone took his class at Columbia Business School. He used current examples, and by the end of the semester you would have a portfolio that would’ve made you money. Graham lived a life of sharing. He may have had more money hoarding, but lived happier because of it. The money’s just a figure in the paper, perhaps he would’ve died with 86 million instead of 42 million, but it doesn’t really matter. 90% of the people that took his class ended up doing something else.

At age 11 I started investing, purchasing three shares of Cities Service Preferred. I had read every book on investing in the Omaha library. I was really into charting and technical analysis. I loved it, but didn’t make any money from it. At 19 I read Graham’s “The Intelligent Investor” and it changed my world. Did Ben lose because I read his book? Maybe we competed and he made less money, but it didn’t matter to Graham.

The philosophy either takes immediately or it doesn’t at all. The reason gets down to temperament. People want to make money fast, but it doesn’t happen that way. Graham’s philosophy doesn’t promise enough for many people. You don’t know when it will happen, but you just wait for the fat pitches within your circle of competence. It’s not as exciting as guessing whether the stock price will go up the next day. Most investors in internet companies didn’t know the market cap. They were buying because they thought the stock would move, but if you asked them to write “I would buy XYZ company for $6 billion because”, they wouldn’t get halfway through the sentence. It’s the classic tortoise versus hare, bound to work over time. Charlie and I have educated competitors. Most don’t compete with us, though. It’s fine, we have more than enough money.

As always, Buffett has some very useful advice. I’m currently reading a book by Buffett’s mentor, Benjamin Graham called “The Intelligent Investor“. It’s a very dry and somewhat boring book, but it really is a masterpiece. I strongly recommend reading it if you’re serious about investing. You can also check out some of my other favorite books here.

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