I recently watched a documentary about Warren Buffett. It was a really insightful story that illustrated the key themes that underpin how Mr Buffett came to be the Oracle of Omaha. You don’t need to be a finance or investment professional to appreciate and understand these key principles on making good investment decisions. In fact, what I found incredibly useful was thinking about how three particularly Buffett-esque investment principles could have very clear and powerful application to how one should approach their career. Because put simply, you do need to invest in your career if you want it to grow. These foundations for investing highlighted by Warren Buffett provide a fairly good basic framework for how you should invest in yourself professionally to deliver value to yourself over the long term.
1. Circle of competence
Warren Buffett talks about investing within his circle of competence – ie. his area of knowledge and expertise – and cautions against investing in areas outside this boundary as this is where you can be led to make poorer investment decisions. He openly talks about not being a technology expert and so despite the tech boom, he has not typically invested in tech companies.
Similarly, it is important to understand for your own development, where the boundaries of your skill, experience and knowledge lie. However different to this limiting investments you make, you want to identify where you need further development so you can expand your circle of competence. Understanding your strengths will also help you think about where you want to play in terms of your career: what sectors, industries or organisations do you want to work in? And what skills are you missing that might stop you from getting there? Think about these areas so you can invest time in furthering those skills. I recently had a session with a professional corporate coach who instigated a light bulb moment in me: don’t just look around you at existing things and opportunities you want to pursue. Think instead about the different snippets of things I enjoy and find interesting, and contemplate what new projects I could embark on if I were to combine all those things. In short, what roles and opportunities could I create for myself with my capabilities and skills, rather than what existing things do I try and apply those capabilities and skills to.
Why do some people like to drink Coke over Pepsi? Instead of juice or Fanta? Or in fact over any other non-Coca-Cola branded cola? Because of the particular taste that only Coke has. That is the inherent “moat” that Coca Cola has as a company, that guards its product against any other alternative competitor product.
So what moat do you have as a working professional? As the saying goes, no one is irreplaceable. You are kidding yourself if you think that you are not. Sure there may be some pains felt by the organisation if you left, but ultimately you can and will be replaced with a new hire if deemed necessary. It’s important to ensure you therefore have a moat of your own – what is it about working with you as a brand that makes people and organisations choose you over the next resume lined up? Many industry studies and research indicate that some of the top traits that organisations look for in a leader or senior employees are: strength in driving change, influencing skills, and an ability to develop individuals and teams. These are all skills that you can’t learn from academic studies but are attained through experience.
It is important that in order to develop a moat for yourself, think beyond the work that you do on an every day basis in your organisation and beyond technical qualifications. Look for opportunities to continuously build your moat of experiences outside of your organisation, whether it be through contributing to community causes or honing in on your soft skills. You want to be the Coca Cola, Apple and Chanel of the world where no brand substitute quite cuts it.
Warren Buffett is an advocate and supporter of companies that reinvest profits into “moat-building” endeavours rather than paying out dividends. This is said particularly in the context of organisations that invest funds into further innovations which result in organic growth for the company, and consequently increases its value (and stock price). A perfect example of this is Google. Google is obviously an incredibly profitable organisation, however it does not pay dividends. Instead, it generates shareholder value by reinvesting its profits into further research and innovations that continue to grow it into an even bigger and more valuable company. This growth compounds over time and ultimately delivers much greater value to a shareholder than if it simply paid out cash dividends.
This concept can be meaningfully applied to the choice you make in selecting your job. For example you can pick a job that pays you a very high salary – ie. regular high cash dividends. However, at the cost of working very long hours which inhibit your ability to reinvest in yourself through long-term professional development. Or do you choose a job that provides you with lots of opportunities to pursue and acquire many skills and experiences but at a lower salary – ie. minimal dividends but lots of reinvestment in long-term growth? Of course these two options are not always mutually exclusive, however as a generalisation they are the likely opportunity sets that people choose from. On the Oracle’s reckoning, it would be wise to forego the higher salary in lieu of the investment in future growth. Whilst you may earn the lower salary now, the alternative skills, opportunities and development you gain will over the long run compound, and provide you with not only that higher salary but much deeper value.
And with these investment philosophies in mind, finally it is important to do an additional sense check. This one is an age old reminder that Mr Buffett also emphasises: love what you do. Don’t sleepwalk through life. We spend at least five days a week and eight hours a day at work. Warren Buffett speaks often about what a remarkable waste of human potential and life it would be, to spend all that time doing something one does not enjoy. And so the circle perpetuates – if you love what you do, you’re likely to be good at it. This always takes me back to my high school days when I spent so much time trying to be better at maths and science. But my brain was just never wired that way and so I hated it as much as I was terrible at it all. Words ebb and flow out of me just as for some, numbers just self-compute. And whilst it was important that I tried and did develop enough of a base capability in those areas, my version of career success and happiness is never going to encompass anything requiring that skill set from me. We can’t be good at everything, much as I might try.