Warren Buffett’s Management Secrets: Book summary

Jan 13, 20131 comment

Warren Buffett’s Management Secrets was one of those first few non fictions that I read years ago. While the book did not turn my life around, it helped me understand what kinda management related books I should pursue and what I should not. 

Here is a quick summary of the book Warren Buffett’s Management Secrets so that you will be able to get the gist of the book, without spending too long on it. Shall we get on with it?

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Note: Updated in June 2020

About the book

Warren Buffett's Management Secrets Cover

Book: Warren Buffett’s Management Secrets: Proven Tools for Personal and Business Success

Author: Mary Buffett, David Clark

The author narrates a five Step approach to Warren Buffet’s Management techniques. 

Let us see those five Steps

Click here to read my other book summaries here.

Step One: Pick the Right Business to work or invest in

There is a huge difference between the business that grows and requires lots of capital to do so and the business that grows and doesn’t require capital.

Warren Buffett

Businesses with superior economics working in their favor need less capital than they earn.

This can happen in two cases
Case 1: The products do not have to change, which means lesser spend on R & D or design change in assets. 
Example: Coco cola, – have very low costs in terms of R&D or process changes.
Case 2: the products/service have competitive margin/ premium price tag.

  1. sell a unique product – they already own a piece of your mind with brand identification
    Example: Coca-Cola, Kraft, Procter & Gamble, Hershey. 
  2. sell a unique service, – you don’t see the person who works in the bank, but the whole bank/service as a brand 
    Example: Mastercard, Visa, Banks
  3. are the low-cost buyer and seller of a product or service that the public is consistently in need of.
    Example: Costco, Walmart, McDonalds

Earnings per share Test

  • Look out for ten years per share earnings trend and if it is upward – they have a competitive advantage.
  • Upward trend also means earnings allow profit even after strategic expenditure like advertisements and expansions.
  • If the trend is erratic, it means they are in competitive market with booms and busts. 

Debt test

  • Check for absence of long term debt. 
  • Long term debt might mean the company is in a highly competitive industry with constant demands.
  • And that the company is highly leveraged.

Gross margin test

Find out the gross profit margin ratio. 

Gross profit margin ratio = (Revenue - Cost of good sold)/ Revenue

Coco Cola consistently shows Gross profit margin of 60% or more, while United Airlines shows 14%. 

Step Two Delegate Authority

Delegate job and authority as much as possible and especially, 

  • If the job needs specialization
  • Delegate the job, not a task. Make them autonomous.
  • Trust in people with high integrity 

Step Three Find the Right manager for the job

  • Change managers only when necessary, promote from within if possible, and if you can’t, look for talent with a proven track record.
  • When you win, it was you who won it, but when you lose, it was you who lost it. There is no other scapegoat
  • Take responsibility for your failures and in the process learn from your mistakes.
  • Find a Manager with the Right Qualities, by which he means someone who
    • takes responsibility – be a Victor than a victim
    • is obsessed his job and a part of winning the sales
    • values honesty
    • manages costs – always 

The really good manager does not wake up in the morning and say, “This is the day I’m going to cut costs,” any more than he wakes up and decides to practice breathing.

Step Four Motivate Your Workforce

  • Give your employees a fine reputation to live up to.
  • To critcize someone – praise them first
  • To win an arguement you have to lose some first
  • If you want someone do something for you, speak in terms of what they want and not what you need. 
  • Encourage the other person to come up with the right idea rather than giving them an idea – qns
  • Admit your mistakes outright
  • Praise by name, Criticize by category

Step Five Managerial pitfalls, challenges and learning

  • Lesser the borrowed money – safer you are
  • You get into way more trouble with good idea than a bad one 

The example given was quite interesting, the idea to to insure the Commercial debts is really good but to have extended the same idea to mortgaged bonds proved to be disastrous. Though the idea is still good, but the outcome was not.

If I have seen further than others, it is by standing On The Shoulders Of Giants

Newton
  • Learn from your mistakes and missed opportunities – admit them.
  • surround yourself with as few people as possible; and look into the mirror to get the TRUE answer, instead of yes men
  • Bank on tried and true

Some old dogs know all the tricks!

  • Hang out with people who are better than you, get drifted in their direction
  • Manage personal borrowings – avoid debt

Bottom-line:

Overall a very short book – in size and content. Read it when you have few hours to pass and there is no other book lying around.

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Let us chat

Have you read Warren Buffett’s Management Secrets before? Do you read self help books? If so, what other books do you want me to summarize? Let’s talk.

1 Comment

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