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How to Gain an Owner-Oriented Mindset Like Buffett
Posted by: Itzar Juna (IP Logged)
Date: February 18, 2014 09:56AM

In one of my earlier articles I had mentioned that I had started the excercise of reading one Berkshire Hathaway (BRK.A)(BRK.B) shareholder letter each day. So while reading these letters there is one concept that I've been coming across often and that is the concept of "owner-oriented thinking."

I think Buffett puts tremendous importance to this concept.

In this article I'll be sharing my three learnings about owner-oriented thinking:

1. Where all does Buffett apply owner-oriented thinking.
2. How do we gain an owner-oriented mindset.
3. Why we need to have an owner-oriented mindset and what is its use.

1. Where does Buffett apply owner oriented thinking?

Shareholders

Buffett in his letters mentions that they want shareholders with an owner-oriented mentality that is they should think of the investment as a business and not a piece of paper. Even when they own a small portion of the outstanding business they should think and behave as the full owners of the business would.

This idea makes so much sense to me because when I had invested a portion of my portfolio in one of the retail companies, I used to feel very happy whenever they would open a new store. I used to go every weekend to see if the shop was full. When I saw the store crowded I used to feel happy, and whenever there were few people I used to wonder what was happening.

If it was not for Buffett and Peter Lynch I probably would not have thought about investments in this way.

Management

Reading the annual reports I am getting to know that Buffett looks for the managers of his companies to be owner oriented as well. Also one other interesting thing Buffett looks for in management is that they have to be independently very wealthy and the drive for them to come to work is more to do with their passion than make money. That is a great insight, most people who work for money are not happy with their jobs. When you have enough wealth and you are running a company, then indeed you would do it for passion.

In Berkshire's 1999 annual report Buffett talks about Bill Child, the CEO of RC Willey stores.

"Bill Child's RC Willey Stores - He is one great manager who puts his own money to buy land build the store and if it succeeds he sells to berkshire and if it fails he owns the store and berkshire does not pay anything .Berkshire has all upside and bill has all downside - Since he was a mormon and they dont open stores on sunday he wanted to take the downside. Buffett was delighted."

I believe only a manager with an owner-oriented mindset would be willing to do something like that.

Directors

“If you don’t know whose side someone is on, he’s probably not on yours.” Warren Buffett (Trades, Portfolio)

In the 2003 annual report Buffett has this to say about directors.

"We now have eleven directors and each of them, combined with members of their families, owns more than $4 million of Berkshire stock. Moreover, all have held major stakes in Berkshire for many years. In the case of six of the eleven, family ownership amounts to at least hundreds of millions and dates back at least three decades. All eleven directors purchased their holdings in the market just as you did; we’ve never passed out options or restricted shares. Charlie and I love such honest-to-God ownership. After all, who ever washes a rental car?"

My inference from above is that Buffett likes directors with an owner-oriented mindset.

2. How do we gain an owner-oriented mindset?

As investors its not easy to have an owner-oriented mindset, but I think there are two ways one can get an owner-oriented mindset.

  • By owning signifcant percentage of a company.
  • By investing a significant percentage of one's portfolio in a company.

A investor who has 15% of his portfolio in a stock would feel like an owner of that company compared to a stock which occupies 1% of his portfolio.

It's normal for someone to say I own a car or a real estate property versus saying I own a television.

3. Why we need to have an owner-oriented mindset and what is its use.

The owner-oriented thinking enforces a certain amount of discipline in investor behavior.
A investor investing in a home would do a lot of due diligence as it is a big investment compared to someone buying 10 shares of a stock trading at $100. Also, you can't own part of the home for $1,000.

The advantage of the owner-oriented mindset is that you tend to make fewer mistakes as you are more disciplined and you do enough due diligence before putting in a significant amount of money. Also when one invests significant money he would be following that company more closely compared to the one with insignificant investment.




Guru Discussed: Warren Buffett: Current Portfolio, Stock Picks
Stocks Discussed: BRK.A, BRK.B,
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Re How to Gain an Owner-Oriented Mindset Like Buffett
Posted by: StreetInvestor (IP Logged)
Date: February 18, 2014 10:41AM

Since Buffett is such an advocate of "owner-oriented investing", I thought it a bit inconsitent of him a couple years ago when he dipped into politics with the so called Buffett Rule, and failed to take into consideration the double taxation of owner profits (corporate level + dividend level), and thus calculated a lower than actual tax rate paid by saver & investors.  Evidently, he believes the stockholder isn't really the owner afterall.  Not at the time the corporate taxes are paid, anyway.




Guru Discussed: Warren Buffett: Current Portfolio, Stock Picks
Stocks Discussed: BRK.A, BRK.B,
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Re How to Gain an Owner-Oriented Mindset Like Buffett
Posted by: itzarjuna (IP Logged)
Date: February 18, 2014 05:49PM

Streetinvestor, Agree with you that dividends are taxed twice, In countries like India there is no tax on dividend income. Thats why Buffett is against paying dividend and hence berkshire never pays dividend. Plus if you have significant amount invested in a company and would like to stay with it for long time then buybacks would add more value than dividends.




Guru Discussed: Warren Buffett: Current Portfolio, Stock Picks
Stocks Discussed: BRK.A, BRK.B,
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