Warren Buffett: Prioritize Sensible Management Over Great Businesses

During the 2001 Berkshire Hathaway Annual Meeting, Warren Buffett advises that if you’re invested in a good business but the management is making poor decisions, it’s often better to sell and invest elsewhere with a sensible management team.

Persuading management to change their minds is challenging and rarely successful. CEOs typically resist shareholder advice that contradicts their ideas. For investment success and personal well-being, Buffett suggests prioritizing alignment with management over just being part of a great business.

This approach also simplifies the buying and selling of smaller stock quantities. In essence, compatibility with management is crucial for a less stressful and more profitable investment experience.

Here’s an excerpt from the meeting:

Buffett: Yeah. (Laughter) So I would say that if you really think you’re in with people that have got a good business, but they’re going to keep doing dumb things with your money, you’ll probably do better to get out and get in with people who’ve got a good business and you think they’re going to do sensible things with it.

I mean, you’ve got that option. Now, you also have the option of trying to persuade them to change their mind. But it’s just very, very difficult. I mean it is, you know, that’s been something we’ve faced for 50 years.

And initially, we faced it from a position where nobody even knew who the hell we were, or anything of the sort. So we’ve acquired a certain stature over time, perhaps in talking on the subject. And we’ve written on the subject. And we still don’t get very far. I mean, when people want to do something, they want to do something.

And they didn’t rise to become the CEO of a company to have some shareholder tell them that their most recent idea is dumb. I mean, that is just not the type that gets to the top.

So I would say that, as a matter of investment technique, and maybe as a matter of, you know, avoiding stress in your life and all of that sort of thing, that it’s — and dealing with smaller quantities of stock so it’s easier to sell and buy and all that sort of thing — I would say that it’s better to be in with a management you’re simpatico with, than simply to be in a great business with a management that’s bent on doing things that don’t make much sense to you.

You can watch the entire meeting here: