The Wisdom of Warren Buffett
A number of psychologists have contended that wisdom hinders creativity - that the balanced judgment and stores of experience that are principal elements of wisdom are inimical to the radical leaps into the unknown that comprise creativity. So for example the psychologist Harvey Lehman observed that "the old usually possess greater wisdom and erudition," which he called "invaluable assets," but "when a situation requires a new way of looking at things, the acquisition of new techniques or even new vocabularies, the old seem stereotyped and rigid. To learn the new they often have to unlearn the old and that is twice as hard as learning without unlearning." Dean Simonton agreed, writing that "Creativity and wisdom are frequently viewed as exhibiting contrary relations with aging: where the former is viewed as a privilege of youth, the latter is seen as a prerogative of old age. Empirical research on longitudinal changes in both assets appears to support this commonplace perception."
But these psychologists are wrong, because of their implicit assumption that all creativity is conceptual. The bold leaps of fearless young conceptual innovators are an important form of creativity. But they are not the only form. For creative thinking can be balanced, measured, and judicious, and important experimental innovators generally benefit from considerable wisdom. The famous investor Warren Buffett provides an interesting example.
Early in his career, Buffett's idol was the investor Benjamin Graham. As Graham's student, and then his employee, Buffett followed Graham's systematic approach to investing, buying the stock of companies that had assets greater than their liabilities. Buffett continued to use this approach after Graham's retirement, when he began to run his own investment firm. But his career would witness an evolution of his investment philosophy away from Graham's mathematical rules.
This evolution was closely connected to Buffett's friendship with Charlie Munger, whom Buffett met when he was 29. Munger disagreed with Graham's narrow concentration on statistical bargains, and instead favored investing in "wonderful businesses" - companies that would be profitable because of such qualitative factors as managerial excellence or brand loyalty. Under Munger's influence, Buffett's philosophy evolved into "a less compulsive approach to superior investment results than when I was younger." Above all, "we look for first-class businesses accompanied by first-class management."
An example of Buffett's mature philosophy was a large investment in Coca-Cola in the 1980s. The true value of the company lay not in its modest physical capital, but in the intangible asset that Buffett described as "the accumulated memory of all those ballgames and good experiences as children that Coke was a part of." A biographer contended that for Buffett, "Valuing companies such as Coca-Cola took wisdom forged by years of experience." In his annual letter to shareholders in 1983, Buffett wrote facetiously that "It must be noted that your Chairman, always a quick study, required only 20 years to recognize how important it was to buy good businesses."
Early in his career, Warren Buffett enthusiastically embraced Ben Graham's systematic approach to investing, based on mathematical calculation. Over time, however, he developed a more flexible approach, that added factors not subject to precise measurement: he observed that "the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side." Buffett's status as the Oracle of Omaha stemmed from his ability to develop the wisdom and judgment that transformed him from a good conceptual investor into an exceptional experimental one.