In his 1989 Berkshire Hathaway Annual Letter, Warren Buffett discusses the value of focusing on simple, solvable opportunities rather than tackling complex business challenges. He reflects on his and Charlie Munger’s investment philosophy, which prioritizes “one-foot hurdles” — easy-to-understand, lower-risk ventures.
While difficult problems sometimes require attention and can lead to exceptional gains, as with their investments in American Express and GEICO, Buffett argues that avoiding complex issues has been more beneficial overall.
Success, he suggests, often comes from choosing the straightforward and obvious path in both business and investing, where rewards are greater and risks more manageable by steering clear of unnecessary challenges.
Here’s an excerpt from the letter:
A further related lesson: Easy does it. After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems.
What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers.
The finding may seem unfair, but in both business and investments it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult.
On occasion, tough problems must be tackled as was the case when we started our Sunday paper in Buffalo. In other instances, a great investment opportunity occurs when a marvelous business encounters a one-time huge, but solvable, problem as was the case many years back at both American Express and GEICO.
Overall, however, we’ve done better by avoiding dragons than by slaying them.
You can find the entire letter here:
1989 Berkshire Hathaway Annual Letter
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