Warren Buffett and Bill Gates: Making More Money Than God
- By Rupert Hargreaves
At the time of writing, Bill Gates (Trades, Portfolio) and Warren Buffett (Trades, Portfolio) are worth a combined $187.2 billion thanks to their holdings of Microsoft (MSFT) and Berkshire Hathaway (BRK-A)(BRK-B). This is an enormous sum, and only Jeff Bezos is worth more than these two giants of industry.
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The intrinsic value of MSFT
Gates and Buffett are not overnight successes. They have spent decades building up their businesses, intelligently buying out competitors and deploying capital when the right opportunities present themselves.
They are also great friends and have doubtlessly shared many evenings and days discussing the market and investment opportunities.
Richer than God
In 1998, Gates and Buffett gave a talk in front of 350 business school students at the University of Washington. One of the first questions to duo answered was how they had become "richer than God."
Buffett was the first to respond and replied that one of the main reasons he believes he has been so successful is his rational approach to business:
"How I got here is pretty simple in my case. It's not IQ, I'm sure you'll be glad to hear. The big thing is rationality. I always look at IQ and talent as representing the horsepower of the motor, but that the output--the efficiency with which that motor works--depends on rationality. A lot of people start out with 400-horsepower motors but only get a hundred horsepower of output. It's way better to have a 200- horsepower motor and get it all into output."
You could distill this further by saying that it is a waste of time to invest in or try to understand something you don't have experience with.
Buffett as always stated that investors should only seek to invest in something that is in the circle of competence and not be afraid to pass up investment opportunities they don't understand. This seems to be what he means when he says he measures IQ and talent not in horsepower but in output.
He went on to add some more color to the above quote:
"So why do smart people do things that interfere with getting the output they're entitled to? It gets into the habits and character and temperament, and behaving in a rational manner. Not getting in your own way. As I said, everybody here has the ability absolutely to do anything I do and much beyond. Some of you will, and some of you won't. For the ones who won't, it will be because you get in your own way, not because the world doesn't allow you."
Then it was Gates' turn to answer. He agreed broadly agreed with Buffett. In the latter part of his answer, which is not covered above, Buffett told his audience that the best way to grow into being your best person is to find someone you admire, and then follow them, turning their best qualities into habits that you don't have to think about.
Gates went on to say that the habit mentality has also been fundamentally important to his success. He started playing around with computers at an early age, and never tried to do anything else. Gates and his friends focused all of their energy on computers and developing software. His career at Microsoft blossomed from there:
"By pursuing that with a pretty incredible focus and by being there at the very beginning of the industry, we were able to build a company that has played a very central role in what's been a pretty big revolution. Now, fortunately, the revolution is still at the beginning. It was 23 years ago when we started the company. But there's no doubt that if we take the habits we formed and stick with them, the next 23 years should give us a lot more potential and maybe even get us pretty close to our original vision--'a computer on every desk and in every home.'"
Disclosure: The author owns shares in Berkshire Hathaway.
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This article first appeared on GuruFocus.
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The intrinsic value of MSFT
