Blinders Aren't Just For Horses: Business Lessons From Wall Street and Warren Buffett

If you have been following the news, you must know about the trials and tribulations of Wall Street firms. Sub-prime losses continue to wreak havoc and all their Ivy League MBAs aren't saving them.

Some people actually believe that people on Wall Street are smarter than the average person. Hopefully the Lehman Bankruptcy, Bear Stearns crash and bailout and the sale of Merill Lynch break down that barrier.

One of my favourite movies is Wall Street, which stars Charlie Sheen as an up-and-coming stock broker who idolizes a character by the name of Gordon Gekko, played by Michael Douglas. Gordon Gekko turns out to be an amoral corporate raider who only cares about profit and short-term returns, putting on mental blinders to avoid seeing the damage he causes to the lives of other people.

Rent it today!

Gordon Gekko is what I call a "Super-Capitlaist" - a person who is motivated only by greed and will abuse the free-market system for their own personal gain, regardless of the possible consequences in the long-term.

You need to focus on what is good for the medium and long-term if you want to ensure success instead of a quick payday and then a big crash at the end.

Warren Buffett, one of my idols, is profiting right now from sub-prime loans, the same stuff that is bringing down Wall Street firms and banks around America. Read the recent Fortune article that explains how Warren Buffett avoided the sub-prime crisis.

Warren Buffett is famous for saying a few things about Wall Street and investing. Now more people know why:

 

  •  The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities — that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future — will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There's a problem, though: They are dancing in a room in which the clocks have no hands.
  • Be fearful when others are greedy and greedy when others are fearful.
  • You only find out who is swimming naked when the tide goes out
  • What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else.
  • You can't buy what is popular and do well.
  • If you're an investor, you're looking on what the asset is going to do, if you're a speculator, you're commonly focusing on what the price of the object is going to do, and that's not our game.
  • We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.
  • Success in investing doesn't correlate with I.Q. once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.
  • If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes.
  • It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.
  • First, many in Wall Street - a community in which quality control is not prized - will sell investors anything they will buy.
  • I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.
  • The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective. 
  • We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'

 

Warren Buffett has consistently ranked in the top 5 richest people in the World since the 90's and is worth an estimated US$62 Billion.

How different the World would be if more people just paid real attention to even one of his quotes above.

Are you focusing short-term or long-term? 

Add New Comment

1 Comments