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Do Business With People You Trust Or Admire

by Warren Buffett

I've said many times that when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

I just wish I had not been so energetic in creating examples.

A further related lesson: Easy does it. After 25 years of buying and supervising a great variety of businesses, Charlie (Berkshire vice-chairman) and I have not learnt how to solve difficult business problems. What we have learnt is to avoid them.

To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers.

The finding may seem unfair, but in both business and investments it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult.

On occasion, tough problems must be tackled. In other instances, a great invesment opportunity occurs when a marvellous business encounters a one-time huge, but solvable, problem.

Overall, however, we have done better by avoiding dragons than slaying them.

After some other mistakes, I learnt to go into business only with people whom I like, trust and admire. This policy of itself will not ensure success: A second-class textile or department store company will not prosper simply because its managers are men that you would be pleased to see your daughter marry.

But an owner—or investor—can accomplish wonders if he manages to associate himself with such people in businesses that possess decent economic characteristics.

Conversely, we do not wish to join with managers who lack admirable qualities, no matter how attractive the business is.

We have never succeeded in making a good deal with a bad person.

Excerpted from Warren Buffett's 1989 letter to Berkshire Hathaway shareholders.

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