Conventional wisdom is a byproduct of groupthink that presents solutions good enough for the average person while simultaneously not being right for any individual. You follow it at your peril. The more different you are from the person that defined a rule the less you should follow the rule. Each Monday I will challenge the investing norms that just may be holding you back from living the life you want.

Unconventional wisdom: Three Buffett lessons to ignore

“The Delphic Oracle said I was the wisest of all the Greeks. It is because that I alone, of all the Greeks, know that I know nothing.”

- Socrates

In ancient Greece the most famous oracle was Pythia the high priestess of the Temple of Apollo at Delphi. The priestess would prophesise after falling into a trance like state that may - or may not - have been caused by the hallucinogenic gas ethylene found in the twin geological fault lines under Delphi.

It is difficult to communicate when you are hallucinating and these visions of the future were delivered in gibberish and had to be interpreted by priests.

Knowing what is going to happen in the future is valuable. Perhaps that is why the Greeks tolerated this chain of communication. Apollo to Pythia, Pythia to the priests, and finally the priests to the people seeking knowledge of future events.

Our modern-day investing oracle takes the stage annually for a marathon question and answer session powered by Coca-Cola and televised around the world. Each of Buffett’s folksy utterances are added to the Buffettisms that have been amassed over a 74-year career.

Buffett’s words have become ubiquitous in the world of investing. They have inspired investors to strive for financial freedom. They have been intentionally manipulated to sell investment products. They have been inadvertently misinterpreted to justify poor behaviour.

There is a great deal written about lessons we can take from Buffett. Here are some things to ignore.

Success and obsession are synonymous

A lot gets made of Buffett’s obsession with building wealth. From 10 years old his singular focus was compounding his money. For a man who seems to have little regard for material possessions it is easy for us to celebrate this fixation with amassing a fortune.

Buffett gets portrayed as the Mother Terressa of billionaires because he lives in the first house he bought and eats at McDonald’s every day. A man of the people. Free to ignore the ‘why’ many people focus on Buffett’s ‘how’.

Many investors tell me their conclusion from looking at Buffett’s life is that it takes intense focus and effort to be a great investor. After drawing that conclusion it is natural that investors try and replicate his approach.

I don’t personally think that much effort is needed to earn the returns you need to achieve your goals. And I think it is important to say that. Some people look at Buffett and avoid investing because they aren’t interested in or capable of putting in that much effort. If you draw that conclusion it is hard to get ahead.

The far more important question to consider is Buffett’s ‘why’. Why was Buffett so focused on building wealth? The answer was supplied by his long-time business partner Charlie Munger who said the following when asked about their desire for wealth:

“Neither of us wanted to be a lowly subordinate in some dominant hierarchy that told us what to do and what to think. That’s why we got the money primarily—because we wanted the independence.”

The irony of Buffett is that he sought financial independence so he could spend his time investing without anyone bothering him. Buffett had a few jobs working for other people. He didn’t like it. He lived in New York. He didn’t like that either.

What Buffett wanted to do with his life was sit in an office in Omaha Nebraska, read annual reports, and think about investing. That may not be what you want out of life. It definitely isn’t what I want. It just happens to be what Buffett wanted to do with his life.

Buffett’s personal interests don’t detract from the lesson that financial freedom can give all of us the opportunity to do more of what we love and less of what we don’t. Whatever that is.

I think about financial freedom every time I contribute to my portfolio. Given my goals I focus on the increases in my passive income. Last week a new contribution to my portfolio increased my income $200.

Is this life changing? Of course not. But the lesson from Buffett is that consistency over time can make a big difference. To channel Buffett I keep trudging on as I try and transform my life one little contribution to my portfolio at a time.

Constantly asking yourself what would Buffett do

Buffett has been used to justify practically every style and manner of investing. If you are a deep value investor you can turn to early Buffett in the 50s and 60s. Interested in quality and growth at a reasonable price? Post-Munger Buffett is your man.

Passive investors can latch onto Buffett’s proclamation that most investors should just put some money into the S&P 500 and do nothing.

Some people use Buffett to justify buy and hold with his ‘forever’ holding period. Others use him it to justify market timing and ‘buying the dip’ with his exhortation to be greedy when others are fearful.

If you just consider his publicly traded holdings Buffett is a risk taker who runs a concentrated portfolio. Then there is conservative Buffett who holds plenty of cash and has a widely diversified portfolio of public and private businesses.

It is said that Buffett hates dividends because Berkshire doesn’t pay them. Yet Buffett also loves dividends as he focuses on investments that generate cash that he can allocate.

Roman philosopher Seneca said that if you don’t know which port you are sailing to no wind is favourable. Which encapsulates how many people use this malleable version of Buffett to guide them this way and that. To take Buffett quotes out of context and view them superficially means almost every investing action is ‘endorsed’ by Buffett. That is a recipe for un-Buffett like returns.

Buffett’s investment approach has evolved over time. Yet his principles have remained consistent. Those principles include a focus on valuation instead of price. The humility and foresight to insist on a margin of safety. Treating an investment as a business and carefully considering the competitive environment.

Imitation is easy. Applying a set of universal principles to an ever-evolving investing landscape while accounting for your own personal circumstances is hard. By using Buffett to justify any action the real lesson from Buffett is lost.

Come up with a set of investment principles that resonate with you and fit your circumstances. Ignore people trying to sell you investments and investment styles – even if they invoke Buffett. Reject complexity as a sales technique designed to make you feel inadequate and in need of help. Find the best approach for you and invest that way.

I personally agree with many of Buffett’s principles and include them in my investment strategy. But we also differ. For instance, I exclusively buy shares that pay dividends which is not something Buffett would insist upon. I focus on non-cyclical companies while Berkshire is deeply involved in the cyclical insurance and railroad business.

Adjusting Buffett’s principles is not an act of hubris. He is a far better investor than I will ever be. Instead, my adjustments are an acknowledgement that I’m a different person than Buffett.

I need to invest in a way that resonates with me to take advantage of the biggest lesson from Buffett – the power of time. You can’t be a long-term investor unless you believe in the approach you are taking.

Find your own Omaha

In the cold war the CIA employed Kremlinologists who - among other activities - tried to use the rare public appearances of Soviet leaders to draw conclusions about the secretive regime.

Did speculating on why one member of the politburo was standing next to another at some military parade make any difference? Who knows. But it reminds of what happens every time Berkshire makes a filling with the Securities and Exchange Commission on their latest holdings.

There is the Buffett that pontificates on investing and life from the podium in Omaha and there is Buffett the investor. Buffett the investor buys and sells shares but rarely discusses why he has purchased or sold a position.

Not understanding why Buffett is doing something does not stop the frenzied speculation about this position and that position. I’m sure countless people simply mirror his moves.

Buffett is investing under an entirely different set of conditions and constraints than you and I. Berkshire needs to buy whole companies or shares in the largest publicly traded companies to move the needle. You have no such constraints.

Buffett can get a meeting with almost anyone in the world. You likely have a smaller circle of confidants. The larger point is that Buffett has structural advantages and disadvantages that must be considered.

To mindlessly copy someone – even Buffett – flies in the face of common sense. It also is about the most un-Buffett thing you can do. He is a famously independent thinker. He moved back to Omaha to put distance between him and all the noise and nonsense on Wall Street.

Buffett said living in Omaha and away from Wall Street enabled him to gain perspective and keep all the people trying to sell him things at arm’s length. Follow that advice and find some space to figure out what is right for you.

I would love to hear your thoughts. Email me at [email protected]

Get Mark’s insights in your inbox

Read more of Mark’s articles

Read previous editions of Unconventional wisdom

What i’ve been eating

Like Buffett, I too have evolved. I used to get chilli crab every time I was in Singapore. The last two trips I’ve switched to black pepper and there is no going back. Pictured below is a black pepper mud crab from a trip to Jumbos on my last night in Singapore. The dish was apparently invented in 1959 at the Long Beach Seafood restaurant in Singapore but there is some controversy about that. Malaysia also claims credit for inventing the dish. I’m thankful for whoever came up with it.

Crab