Temperament Matters

I love this excerpt from Quiet: The Power of Introverts in a World That Can’t Stop Talking on Warren Buffett:

Warren Buffett, the legendary investor and one of the wealthiest men in the world, has used exactly the attributes we explored in this chapter – intellectual persistence, prudent thinking, and the ability to see and act on warning signs – to make billions of dollars for himself and the shareholders in his company, Berkshire Hathaway. Buffett is known for thinking carefully when those around him are losing their heads. “Success in investing doesn’t correlate with IQ,” he has said. “Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”

Every summer since 1983, the boutique investment bank Allen & Co. has hosted a weeklong conference in Sun Valley, Idaho. This isn’t just any conference. It’s an extravaganza, with lavish parties, river-rafting trips, ice-skating, mountain biking, fly fishing, horseback riding, and a fleet of babysitters to care for guests’ children. The hosts service the media industry, and past guest lists have included newspaper moguls, Hollywood celebrities, and Silicon Valley stars, with marquee names such as Tom Hanks, Candice Bergen, Barry Diller, Rupert Murdoch, Steve Jobs, Diane Sawyer, and Tom Brokaw.

In July 1999, according to Alice Schroeder’s excellent biography of Buffett, The Snowball, he was one of those guests. He had attended year after year with his entire family in tow, arriving by Gulfstream jet and staying with the other VIP attendees in a select group of condos overlooking the golf course. Buffett loved his annual vacation at Sun Valley, regarding it as a great place for his family to gather and for him to catch up with old friends.

But this year the mood was different. It was the height of the technology boom, and there were new faces at the table—the heads of technology companies that had grown rich and powerful almost overnight, and the venture capitalists who had fed them cash. These people were riding high. When the celebrity photographer Annie Leibovitz showed up to shoot “the Media All-Star Team” for Vanity Fair, some of them lobbied to get in the photo. They were the future, they believed.

Buffett was decidedly not a part of this group. He was an old-school investor who didn’t get caught up in speculative frenzy around companies with unclear earnings prospects. Some dismissed him as a relic of the past. But Buffett was still powerful enough to give the keynote address on the final day of the conference.

He thought long and hard about that speech and spent weeks preparing for it. After warming up the crowd with a charmingly self-deprecating story—Buffett used to dread public speaking until he took a Dale Carnegie course—he told the crowd, in painstaking, brilliantly analyzed detail, why the tech-fueled bull market wouldn’t last. Buffett had studied the data, noted the danger signals, and then paused and reflected on what they meant. It was the first public forecast he had made in thirty years.

The audience wasn’t thrilled, according to Schroeder. Buffett was raining on their parade. They gave him a standing ovation, but in private, many dismissed his ideas. “Good old Warren,” they said. “Smart man, but this time he missed the boat.”

Later that evening, the conference wrapped up with a glorious display of fireworks. As always, it had been a blazing success. But the most important aspect of the gathering—Warren Buffett alerting the crowd to the market’s warning signs—wouldn’t be revealed until the following year, when the dot-com bubble burst, just as he said it would.

Buffett takes pride not only in his track record, but also in following his own “inner scorecard.” He divides the world into people who focus on their own instincts and those who follow the herd. “I feel like I’m on my back,” says Buffett about his life as an investor, “and there’s the Sistine Chapel, and I’m painting away. I like it when people say, ‘Gee, that’s a pretty good-looking painting.’ But it’s my painting, and when somebody says, ‘Why don’t you use more red instead of blue?’ Good-bye. It’s my painting. And I don’t care what they sell it for. The painting itself will never be finished. That’s one of the great things about it.”

Unfinished thought

It’s Buffett’s comment that really sticks with me because, like a lot of his wisdom, it transcends investing and plays out into many aspects of life.

“Success in investing doesn’t correlate with IQ,” he has said. “Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”

Temperament matters.

Consider your workplace. I bet you have bosses. In general, I believe those bosses are probably intelligent people – what causes problems is not their lack of intelligence but rather their temperament. (One way to help neutralize the wrong temperament is to use a process.)

You need a temperament that controls the urges that get other people into trouble. And there is a long list of things that get people into trouble … Buffett offers a great example:

You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.

If they lack the ability to think independently, bosses (like everyone else) can cause great harm to an organization, while claiming to be doing the right thing.

You also need a temperament that allows you to take action where many just sit and watch. Consider the case of a board of directors. In his 1993 Shareholder letter Buffett writes:

a director who sees something he doesn’t like should attempt to persuade the other directors of his views. If he is successful, the board will have the muscle to make the appropriate change. Suppose, though, that the unhappy director can’t get other directors to agree with him. He should then feel free to make his views known to the absentee owners. Directors seldom do that, of course. The temperament of many directors would in fact be incompatible with critical behavior of that sort. But I see nothing improper in such actions, assuming the issues are serious. Naturally, the complaining director can expect a vigorous rebuttal from the unpersuaded directors, a prospect that should discourage the dissenter from pursuing trivial or non-rational causes.

The temperament of many people is incompatible with critical behavior. Most people go with the path of least resistance.

“Take the high road, you’ll find it’s less crowded” — Charlie Munger

In fact, organizations, by the very nature of how they hire and fire, generally promote people who lack the right temperament. There is an almost unspoken chain of reciprocity.

If you were going to give someone some general advice on how to move up in a large organization you’d probably say something along the lines of: (1) be visible; (2) emphasize the aspects you’re good at; (3) make those in power feel good about themselves; (4) if you must point out a mistake by someone in power, blame the situation or others; and (5) shower those above with flattery.

You’d probably tell them to avoid being critical, giving other people too much credit, and being the only person in the room with a different opinion.

Office politics matter and often that’s what we tend to reward.

How does your organization treat people who think differently? How does your organization treat people who think mediocre is not good enough? Does your management take action in situations that require courage? Do you attack problems or gloss over them? Do people admit when they are wrong? Are people curious?

Temperament affects so much and yet we rarely give it thought. What kind of temperament does your culture foster?

Buffett can teach you a lot about management. If you’re interested in learning more, pick up a copy of A Few Lessons for Investors and Managers From Warren Buffett.